Exclusive: Oil Theft Threatens Nigeria’s Economy as Losses Reach $42bn in 10 Years

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 …$1.35Bn lost to crude theft in Q1 2019

SWITZERLAND, NOVEMBER 08 – The large-scale theft of crude oil going on in the Niger Delta has once again, posed a serious threat the Nigerian economy, undermining the Federal government’s revenue generation drive and jeopardising the wellbeing of the region.

In its latest report, the Nigeria Extractive Industries Transparency Initiative (NEITI) puts the value of volumes of crude oil and refined products stolen from Nigeria in the last 10 years at $41.9 billion.

According to NEITI, the theft occurred between 2009 and 2018 with the value of stolen crude put at $38.5 billion while that of refined petroleum products amounted to $1.8 billion. Another $1.56 billion worth of domestic crude oil allocation usually to the Nigerian National Petroleum Corporation (NNPC) was also stolen from the country in the period under consideration.

Huge Losses to the Economy

A breakdown of NEITI’s report indicates that Nigeria loses an average of $11 million daily which translated to $349 million in a month and about $4.2 billion annually to crude and product losses arising from stealing, process lapses and pipeline vandalism.

Prior to the NEITI report, Chairman of the National Economic Council (NEC) committee on Oil Theft, and governor of Edo State, Godwin Obaseki, recently revealed that Nigeria lost 22 million barrels of crude oil in the first quarter of 2019, estimated at $1.35 billion.

The governor, while playing host to a delegation of National Executive Committee (NEC) of the Pan Niger-Delta Forum (PANDEF), in Benin City wondered how in spite of militarisation in the Niger Delta region, such huge volume of crude oil could be stolen to the detriment of the development of the area and country.

“What is really worrisome for me, having chaired the NEC committee on stolen crude oil is the extent of militarisation in our region. About 22 million barrels of crude oil cannot be accounted for in the first half of this year with an estimated cost of almost $1.35 billion, which is going to non-state actors that are operating in the region,” he stated.

He said: “There is need to use the region’s assets for economic growth to prevent people of the Niger- Delta from being short-changed and its resources used as slush funds.”

Obaseki called on leaders in the region to be accountable, noting, “accountability should be the guiding principle. The region has the quality of leaders to achieve development for its people.”

These recent developments have revealed that the age long menace of oil theft and vandalism has not abated but has even escalated in recent times and now threatens the very fabric of the Nigerian economy.

According to the NEITI report, while figures from government put the loss at between 150,000 to 250,000bpd (barrels per day), data from private studies estimate the figure to be between 200,000 to 400,000bpd.

This implies that Nigeria may be losing up to a fifth of its daily crude oil production to oil thieves and pipeline vandals.

With the total revenue expected in the 2020 budget put at $22.6 billion and decade long losses put at $42 billion, what this means is that we are losing about the size of our annual budget to oil theft every 5 years.

Declaration of force majeures is almost becoming a pattern for oil companies in the Niger Delta, and this is taking a depleting toll on them especially the indigenous operators who despite extensive losses, still suffer under the hammers of stakeholders. In April, two International Oil Companies (IOCs) declared force majeures. Precisely, Royal Dutch Shell and Total. They were unable to export from Bonny Light Crude and Amenam respectively having experienced grave levels of vandalism.

However, the real number of shutdowns may far exceed the ones reported in the media. A lot of shutdowns, especially where smaller companies are concerned, end up not reported. Oil experts told Today’s Echo this is because government wants to downplay the situation in the Niger Delta to avoid spooking the international community.

Then, there is the question of insecurity. The incessant vandalization of oil and gas pipelines shows that the security of critical national assets is in trouble. Pipeline vandalism has also exposed workers to grave dangers such that some staff deployed to the Niger Delta region often reportedly relocate to safer locations thus hindering effective performance.

Bunkering activities also take a huge toll on the nation and more painful is the fact that the rising incidents of disruption of crude exports may open the window for another season of recession.

Damage to the Environment

Overtime, oil installations in the region have become the target of Crude oil thieves, requiring additional security for which the Joint Task Force (Operation Delta Safe) was established to ensure adequate security and surveillance of the oil facilities.

Oil is stolen when holes or openings are made by unauthorised persons utilising crude, inappropriate means at various points of the pipeline creating openings from which the oil is siphoned into vehicles and lately vessels.  As it is done unlawfully, there are no health and safety precautions.  Given the high pressure that the oil is pumped from the point of injection, usually high levels of spillage occurs which is mainly impossible to control. 

The result is not only that huge volumes of oil is diverted but the immediate area of leakage is often so damaging that large swathes of land are rendered uninhabitable.  These incidents have been occurring for several years hence the state of alarm about this activity.  But recently, the frequency and number has become so high that the entire operations have become a source of high risk to the commercial fortunes of Nigeria, oil companies and oil producing communities.  Worse still, the environmental damage is putting the lives of thousands of Nigerians for whom those communities are home in grave personal danger. 

Heavy Losses for Oil Companies

For no fault of theirs, oil companies continue to pay heavy prices for the security challenges to their facilities like resulting in capital flight with its attendant problems in macroeconomic activities. In addition to increased sustainability challenges in deploying response and restorative actions in areas of oil spillage, there is an increase in operational expenses arising from remediation and resuscitation of vandalized pipeline. Albeit reports and studies have shown that when host communities are not given what they want, they channel grievances to company’s facilities but knowing humans as insatiable beings, it is obviously impossible to please every member of a community.  

According to an expert in the Nigerian upstream sector, who asked not to be named, most of the indigenous companies are currently under considerable strain because they have been unable to produce for a while now.

 “Because of the issue of vandalism and oil theft, many Nigerian oil companies are not currently producing. But they cannot declare a force majeure because the government tells them it will make Nigeria look bad. Many of them will dance to the government’s tune because they don’t want to lose their licences,” the source said.

The oil expert added that banks have been putting enormous pressure on the NOCs to pay back their debt, without considering the fact that they are not making money at the moment.

“Many of these companies raised money from the banks to acquire oil assets which they have maximised. The banks need to be patient with them as they are dealing with a lot of issues presently,” he told Today’s Echo.

Apart from the hundreds of lives that have been lost in fatal accidents from illegal bunkering activities in recent years in Africa’s largest oil-producing country, companies have and are still counting huge losses and so is the country.

Call to Action

As oil prices struggle to stabilize globally, this loss of revenue for the country has become extremely mind boggling and unfathomable. Indeed, experts suggest that it is indisputable that the economic benefits that accrue from the menace of oil theft has seen the Gross Domestic Product(GDP) from this illegal activity far outstripping the real GDP from the Nigerian economy.  This makes the absolute necessity of a more committed, transparent and dedicated approach to solving the problem more acute.  We have to break the silence and call for the help of government in addressing these artery-deep cuts. No economy in the world can survive with this level of haemorrhage, and for a country that is emerging from the grip of an agonising recession, this self-perpetuating criminal activity is inevitable economic homicide.

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