The mystery of crude oil theft

Autolycus in Ancient Greek mythology achieved fame and notoriety for being a successful robber and trickster whom no one could catch. He was a source of trouble for the king and the kingdom in Ancient Greece. Autolycus, were it be in today’s Nigeria, would have been a trainee in Nigeria’s crude oil-thieving empire which is somewhat of a mystery. The quantity of crude stolen daily and yearly varies from one stakeholder to another; meaning we do not even know the exact quantity stolen. In a recent interview, the chief of naval staff, Vice Admiral Awwal Gambo, raised fundamental issues about the estimated quantity of crude oil stolen daily, which he considered unrealistic and outrageous, literarily describing the given figures as the latest wonder of the world.

The thieves’ methods are not fully understood and have different dimensions. Those involved in the stealing are only a matter of conjecture. However, many believe that the highest level of government officials, powerful business people, security personnel, oil industry operators and the host community stakeholders are involved. The crude oil thieving cartels are generally thought to be highly organised, sophisticated and at the same time complicated. The impact of the stolen crude on the national economy and other aspects of national life is now biting all Nigerians in one form or the other.

Recent statistics regarding crude oil theft and its implication on our national politics and economy are dire. The past three months have seen a more catastrophic and massive decline in the volume of crude exported. In June, Nigeria produced 1.238million bpd , July dropped to 1.083million bpd and it dropped to an all-time low of 972,394 bpd in August. The August production is the lowest in the last 20 years, and if it stays the same, could amount to a loss of about $20 billion in the year under review at an average price of $100 per barrel.

As has been argued elsewhere, it is not only a loss of revenue but also of jobs, opportunities, and possibilities. $20 billion can cushion our debt burden, increase our distributable income, and shore up our foreign reserves. Another impact of the drop in oil revenue attributable to crude oil theft is that NNPC Ltd did not contribute to the federation account for more than four months.

This crude oil theft has been on for years and seems to defy every solution. It has become a national embarrassment, especially now that the oil price is at its peak, and other nations and corporations are smiling to the bank, rebuilding their economy from the proceeds of the oil windfall, while Nigeria’s revenue is at risk and is bleeding with complicated economic challenges. Today, this column will focus on three aspects of this endless cycle that has literarily threatened our national life; its impact on gas revenue generation, overall investment in Nigeria, and national revenue.

Revenue from gas export and feedstock sales to the Nigeria Liquefied Natural Gas Limited (NLNG) hit $243.57 million in the first quarter of 2022, surpassing receipts from crude oil export by 259.4% under the same period. This revenue, which has a potential of reaching $300 million per quarter plus future investment in gas growth ventures, is threatened by massive insecurity and pipeline vandalism. The reason is that NLNG feedgas mix comprises associated and non-associated natural gas sources, most of which are sourced from onshore/swamp area oil and gas production assets of its upstream gas suppliers.

The incidences of pipeline vandalism are primarily concentrated in these shallow offshore/swamp areas, resulting in significant feedgas supply disruptions to the NLNG plant whenever these assets are impacted. Year to date, the NLNG plant has operated at about 65% utilisation capacity (compared to 95-98% availability and reliability) because of feedgas shortages occasioned by frequent disruptions of upstream oil and gas operations following these vandalism incidences. The difference between plant availability and current utilization translates to over $2 billion in revenue. So far, in 2022, NLNG has recorded significant production opportunity losses, impacting revenues.

Nigeria’s gas reserve is estimated at 208 trillion cubic feet by 2022. Gas resources are a vital pillar of Nigeria’s energy transition plan, and this could be under serious threat if crude oil theft and pipeline vandalism continue unabated.

On its impact on investment, crude oil theft and related pipeline sabotage have forced some companies to shut down production and/or sell off their assets. Shell, Chevron, Mobil, and other international oil companies (IOCs) are divesting their land and shallow offshore assets mainly because they no longer see growth potential in them. It is also the same for marginal field operators. They all cite the significant difference between what they produce at wellhead and output at terminals as an operational challenge that makes a mess of their investment. This difference in crude production at terminals, plus the cost of cleaning up the environment and other security challenges, is a disincentive for new investment to come into the sector and the country. Persistent crude oil theft and pipeline vandalism has contributed significantly to the loss of investor interest and confidence in the oil and gas space. This partially explains why Nigeria is no longer mainly an attractive destination for foreign direct investment.

The micro and macro-economic impact of crude oil theft are apparent. With oil theft and illegal bunkering taking as much as 200,000 to 400,000 barrels per day of the country’s oil production, the country’s fiscal stability is threatened. While the economic impact of the new wave of oil theft ravages the nation, losses to oil thieves and official leakages could overtake official receipts of oil revenues into the Nigerian treasury. Already, Nigeria, today, has the 25th highest inflation rate in the world with price cost rises mainly driven by higher energy and food prices. The naira had lost almost 95% of its value in five years, crossing N705/$ in the parallel market. This depreciation of value is among other factors linked to our dip in revenue.

There is a need for urgent national emergency response. Some influential individuals have hijacked the Nigerian state and are bent on strangulating it financially. The crude oil thieves are committing treason and destroying Nigerians’ present and future hopes and economic potential. The inability of the government to deal with this situation demonstrates the abysmal state of governance in Nigeria or that the non-state actors in connivance with some elements within the government and security sector are more powerful than the state and are holding the Nigerian state to ransom.

An inexplicable dimension is the embarrassing failure of our security and defence forces in protecting oil pipelines and installations. After over 20 years of insurgent disruptions of oil and gas installations in the Niger Delta, it is curious that the Nigerian armed forces have not yet developed a specialised capacity to protect this vital sector. Instead, military officers deployed in the region, working with other actors, have become part of an endless racket of oil thieves and vandals. Crude oil theft is not surreptitious and requires a highly planned and organised operation. How can big ocean liners used to lift stolen crude oil move freely within our territorial waters and succeed without detection from all the security agencies and government officials working daily in these areas? If this continues unabated, it will bring Nigeria to its knees financially, economically, and politically.

The state of things in Nigeria is not only embarrassing but stifling and suffocating the hopes and aspirations of its citizens, and it calls to question Nigeria’s very essence and existence. These actions are gradually becoming the norm instead of the exception, and those responsible for acting on our behalf abdicate responsibility and shift blame while the Nigerian economy gradually caves in.

A recent report by Proshare Research, titled ‘The anatomy of crude oil theft in Nigeria: Understanding the graft, impact, and implications’ proposed that stopping oil vandals would require a combination of public policy, market action and military operations. I agree but most importantly, the leadership’s political will, backed by a firm commitment to stop the bleeding will make the difference. Realising that crude oil theft and pipeline vandalisation can imperil national survival, the government can elicit some intense action to curb it. Negligence is not an option, and the buck stops at the table of the government. If the government fails to tackle this problem and eliminate crude oil theft, it should be directly, vicariously, and precariously liable for the impact and consequences of such inactions.

It is evident that some influential individuals at different strata of public, private and security sector leadership, taking advantage of their privileged position and vast network, have converted state assets to personal assets under the guise of oil theft. This has made curbing crude oil theft almost impossible and should not be the case. This is a crime against the state and must be treated as such. The government must go after perpetrators of this dastardly act and severely punish them as a deterrent to others. Economic sabotage is a severe crime against the state and is very reprehensible. It is even more dangerous when people doing it directly or in cahoots with others are in high government and security positions. The greed and corruption among officials are the banes of Nigeria.