By Kingsley Jeremiah, Abuja
Explain how to tame $26.4b oil theft
OPEC report says Nigeria lost N703b worth of crude oil in Q2,2022
Crude stolen by vandals more than 65% of 2022 budget
Experts insist FG unserious over ending oil theft
Stakeholders have expressed cautious optimism as the Nigerian National Petroleum Company Limited (NNPC) transits today, insisting that most of the entities under the companies are still loss making sub-subsidiaries.
Going by the provisions of the Petroleum Industry Act (PIA), NNPC had on July 1, 2022, legally transformed into a company that will be regulated under the Companies and Allied Matters Act (CAMA).
While President Muhammadu Buhari is expected to today officially unveil the NNPC, stakeholders are insistent that the move should bring an end to arbitrariness, heavy-handed government control and wasteful practices.
An energy expert, Henry Adigun, is worried that the company is currently keeping thousands of redundant staff, especially those in the refineries. He stated that though the company is transiting, months of transition mode did not address the loss making entities in the company.
An economist, Prof. Segun Ajibola, said it is now important for the NNPC to take courage to imbibe the culture and ethos of a private sector-led business, focusing on the primary objective of profit.
He equally advised the company to allow good corporate governance principles to influence its decisions and actions, adding that suboptimal decisions, which is often influenced by primordial considerations must give way.
“By so doing, we are likely to see NNPC transformed to a more efficiently run company, playing its critical roles of regulating an oil and gas sector that goes to the very heart of the Nigeria’s economy,” Ajibola said.
Executive Director of Order Paper Nigeria, Oke Epia, said: “I’d like to see how the new company deals with the moribund refineries on which taxpayers monies are expended in billions of naira. I’d like to also see how it commits and abides by Environmental, Social and Corporate Governance (ESG) principles and global best practices relating to energy transition.”
Epia is, however, worried over how the company would deal with a board that is perceived to be politically heavy in composition and inclination.
The Chairman/CEO of the International Energy Services Limited (IESL), Dr. Diran Fawibe, noted that the new development remained a positive step. According to him, himself and those who saw the creation of the national oil company would be delighted to see the company perform at its best.
ON how to deal with crude oil theft and low production, which have caused Nigeria to lose first place on the continent to Angola, most stakeholders, who spoke with The Guardian, yesterday, insisted that the development might persist, as current approaches being taken by government agencies are only cosmetic.
While stakeholders are calling for national emergency, being a development that has stopped most operators from pumping crude and deterred prospective investors, they insisted that worsening foreign exchange challenges, budget deficits, borrowing, poverty, inflation and unemployment rate are imminent due to the development.
Organised criminals may have succeeded in stealing crude oil worth $26.4 billion from the country, as the nation’s security architecture, NNPC and the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) foot drags on a development that now holds the economy to ransom.
This is coming as Nigeria lost its position as the largest oil producer in Africa to Angola in June after failing to boost crude oil output, currently hitting record low in terms of production.
Nigeria, in June, produced 1.158 million barrels per day (bpd) and 1.024 million bpd in May, while Angola produced 1.175 million bpd last month and 1.162 million bpd in May.
Group Managing Director of NNPC, Mele Kyari, had stated that Nigeria is daily losing nothing less than 200,000 barrels of crude to oil thieves. In the last four years, the daily losses have totaled 292 million barrels. With oil price averaging about $90 per barrel within the period, it has brought possible losses to $26.4 billion.
In the first four months of this year, data from NNPC showed that Nigeria lost about 250,000 barrels per day of crude oil to theft.
Even the Managing Director of Chevron Nigeria/Mid-Africa Business Unit, Richard Kennedy, at a panel session held in Abuja during the recent NOG Conference, described crude oil theft in Nigeria as organised crime that should be differentiated completely from host community issues.
“From my experience, the issue with crude oil theft should not be confused with host community issues. It is much bigger than that. Quite frankly, it is organised crime.”
He also revealed that the level of theft is costing Nigeria millions of dollars daily in revenue that could have helped solve the nation’s fiscal challenges.
“The volume of crude that is being stolen is well beyond comprehension. You can see some of the figures in the press, maybe it’s about 100,000 barrels per day at $100 per barrel and that’s $10 million per day that is being stolen. NNPC owns 60 per cent while taxes of 85 per cent are paid, so, it’s a huge loss for the country.”
AN organisation of Petroleum Exporting Countries (OPEC) report has shown that Nigeria’s oil production crashed by about 14.94 million barrels in Q2 of 2022. The report was for June 2022. The figures said the average cost of crude in the second quarter of 2022 shows that Nigeria’s earnings fell by about N703.76 billion which is the price of 14.94 barrels of crude oil in the period under review.
OPEC’s crude oil analysis was based on direct communication from its 13 member countries, stating that in the first quarter of 2022, Nigeria produced N1.299 million barrels of oil per day. Nigeria’s OPEC daily quota is 1.799 million bpd. However, the country’s oil production dropped to 1.133 million bpd in the second quarter, showing a decline of 166,000 barrels per day. This shows that for the estimated three-month period of the second quarter of this year, Nigeria lost more than 14 million barrels of crude oil.
Crude oil sold for $104.58, $113.34 and 122.71 per barrel respectively in April, May and June. This shows that in the period under review, crude oil sold mostly for $113.54 per barrel, meaning that the loss of 14.94 million barrels in the second quarter amounted to about N703.96 billion.
For a country heavily indebted, with the current administration surviving mainly on loans to finance budgetary provisions, the worth of stolen crude by vandals in four years is about 30 per cent of the Nigeria’s total public debt public debt stock, which now stands at N41.60 trillion or $100.07 billion as at March 31, 2022, according to data from Nigeria Debt Management Office (DMO).
Some operators had told The Guardian that oil is no longer stolen at the wellheads, as vandals have become innovative, bypassing the anti-ballistic pipelines to disrupt production.
Indeed, they have raised concerns about the culpability of the nation’s security agencies, noting that barges of oil could not have been stolen and moved on the coastal waters without collaboration of some powerful Nigerians.
Earlier, the Chairman of Independent Petroleum Producers Group (IPPG), Abdurazaq Isa, said over 90 per cent of crude being produced by the operators are stolen.
“In 2021 alone, producers in certain parts of the Niger Delta suffered losses between 15 per cent to as high as 90 per cent. Such monumental losses attributable to theft are a major threat to our business, revenues to government as well as to national security.
“The huge cost incurred on security is also adversely affecting Unit Operating Cost (UOC) targets of $10 per barrel. The escalating security and repair costs, due to vandalisation of key oil and gas assets is a major concern,” Isa said.
NNPC GMD, Kyari once said a few Nigerians were stealing the nation’s crude. This few Nigerians he described as elite.
“Who steals crude oil? It is not the ordinary man in the village. It’s the elite of society, and it needs all of us to fight them. When we fight them, it is for survival of all of us,” the NNPC boss said.
Kyari had said the country was experiencing the lowest oil output ever due to activities of vandals but insisted series of approaches adopted by the national oil company would douse the challenges.
With other community engagement, the NNPC currently runs multi-billion naira contracts for pipeline surveillance and protection and combined security architecture involving the army, navy, police and other agencies responsible for ensuring safety of crude oil and gas. Sadly, the initiative may not be working.
Energy expert, Henry Adigun, however, said current approach is only cosmetic, stressing that being an ‘organised crime’, it remained impossible for the theft to thrive without insiders.
He noted that while recent approaches have slightly increased production and rig count to 11, the theft remained the biggest issue for the nation’s petroleum industry.
Adigun said there was need to properly implement the Petroleum Industry Act (PIA), noting it could be the only leeway from the mess the country is in.
“The people who are fighting theft are the people doing it. Oil theft is an organised crime. There’s a systemic way of doing it. Many producers are not producing anymore because it does not make any sense. If I produce 10 million barrels and see only four million at the terminal, that’s a lot of loss because what has not been counted cannot be compensated. All the stakeholders need to be consulted.
“We need international collaboration. We have spoken about the fingerprint of Nigerian crude, once that is done we can know who is stealing it,” he stated.
Energy lawyer, Madaki Ameh, noted that the steady decline in Nigeria’s crude oil production has resulted from a combination of crude oil theft, vandalism of pipelines and a drastic decline in rig operations.
According to him, the multinational oil firms are also adding to the pressure as they are fast losing interest in Nigeria’s onshore and shallow offshore fields, which have been bedeviled with a whole lot of challenges for a long time.
“Increasing production is a function of how well these teething issues are addressed in an effective manner, but no effective steps appear to be on the table at the moment. No amount of wishful thinking can increase Nigeria’s crude oil production profile unless concrete action is taken to address these issues,” he said.
Managing Partner, The Chancery Associates, Emeka Okwuosa, noted that the prevailing situation is more of man-made challenges, adding that the Federal Government knows what to do if they are serious about ending oil theft.
According to him, the government could address the issues aggressively and proactively, noting that the country is not only seeing a decline in production, “but most importantly, oil majors are leaving the country in droves and selling off their operations/assets while the few operators left are operating at a loss.”
He also raised concerns over failure by the government to meet Joint Ventures (IV) obligations.
“The chain reaction is having a negative impact on the economy. We really need to address security and oil theft and source for proactive digital ways to checkmate oil theft, including blockchain technology.
“At the moment, the decline in production doesn’t go well for the government, our economy and the masses,” Okwuosa said.
In seeking leeway, Managing Director of WalterSmith, Chikezie Nwosu, said thumb printing of crude could be a great option as pipelines could also be buried far beyond the surface level to make it very difficult for vandals to find their ways even as communities must urgently be separated from the theft to deescalate the situation.
He emphasised the need for metering accuracy, engaging the communities and application of pipeline technology, as well as technology for the crude.
Nwosu noted that advance cargo declaration could also be a feasible option as well as fingerprinting of the crude so that the country could combine the solutions together and determine who is stealing the crude.
“With advance cargo declaration, it means that anybody internationally that takes on crude that is not signed off as legally produced but exporting crude in Nigeria is a criminal, and the company can be held liable. There are myriads of solutions that can be done. People talk about burying pipelines and rerouting the pipelines, let’s see what actually works. We need to take action,” Nwosu said.
Another energy expert, Michael Faniran, disclosed that one of the greatest challenges facing oil production and distribution and indeed, the oil and gas industry in the country has been the nefarious activities of oil thieves and vandals.
“This issue poses a huge threat to the economy of the country. Nigeria’s growth and development are linked to petroleum resources. Currently, crude oil exports account for 90 per cent of foreign exchange earnings and make up about 85 per cent of government revenue.
“Beyond the socio-economic impact of the theft, this also leads to a threat to regional peace and security and also a proliferation of arms, among other issues,” Faniran said.
Chairman and Chief Executive Officer of NUPRC, Gbenga Komolafe, had noted the need for implementation of the host community fragment of the PIA, saying it could be a critical point to douse tension in the oil region.
He also believes that installation of Lease Automatic Custody Transfer (LACT) units, installation of check meters with flow rate and pressure measuring capabilities, engagement of professional and competent entities for pipeline surveillance, pipeline integrity assessment, deployment of available technologies, improved pipeline security and surveillance and effective collaboration with government security agencies are some key steps that are being taken.