These are not the best of times for oil companies and the nation. The increasing rate of oil theft is taking its toll on the economy and the companies. Forced shut down of production and declaration of force majeure have been the lot of some oil firms in recent times due to pipeline vandalism by the thieves. The nation, which depends largely on the oil sector, is losing billions of dollars daily. This has led to some firms to divest from onshore to deepwaters. AKINOLA AJIBADE writes on the threats to the economy and the need to halt the illicit trade.
Crude oil theft, pipeline vandalism, oil shut-ins, divestment from onshore to offshore infrastructure and, sometimes, outright sale of oil production infrastructure. These are some of the now familiar expressions in the oil sector.
For sometime now, oil majors such as Chevron, Mobil, Total and Shell have been battling the scourge of oil theft while the nation has been losing huge revenue.
Stakeholders, including the government, oil sector and human right groups, are not happy with the development. They have protested the unwholesome practices, as well as tried to proffer solutions to the problems. But with each passing day, the problems are gaining momentum as no solution seemed to have stemmed the trend.
Though the Federal Government constituted the Joint Task Force (JTF) to combate the challenge, the success of the military team still leaves much to be desired as oil thieves keep bleeding the economy dry with impunity.
Not too long ago, the Shell Petroleum Development Company (SPDC) shut down its Trans Niger Pipeline (TNP) because of fresh leaks barely 10 days after it was repaired. The closure, which was the second within two weeks, came with devastating effects on the industry. About 150,000 barrels of crude oil and 500 million cubic feet of gas daily were deferred because of the development.
Shell’s spokesman, Precious Okolobo, said the company loses an average of 80,000 barrels daily to oil theft. He said the pipelines have been repeatedly targeted and closed down five times since June 2013, due to multiple leaks from illegal points from where thieves siphon crude oil.
He said the leaks were reported at B-Dere, NowanTai, and Bodo West in Ogoni land, adding that the closure was part of the precautionary measures taken by the company to safeguard its assets.
Prior to this, Shell had on July 16, this year shut the 24-inch trunk line. The line, which is part of a broader pipeline, route that carries 150,000 barrels of oil daily through the Niger Delta to the Bonny Terminal, was another major blow to the company’s operations. Also, the SPDC suspended loadings at Bonny and Forcados in October last year because of theft, flooding and damage to the supply pipelines. Though Shell lifted the suspension a few days after, it could not compensate for the losses suffered by the company and the economy in particular.
Industry observers have blamed crude oil theft and associated crimes on militants and the communities where major companies are exploring oil. They said the initial problems Shell and other companies faced were resentment from host communities and its attendant destruction of oil facilities. They said crude oil theft came because the oil majors were not showing enough commitment to tackling ecological problems in the industry.
Fiscal ‘effects’ of crude oil theft
Rising oil theft and pipeline vandalism, volatile oil prices and massive discoveries of shale gas are beginning to impact on Nigeria’s fiscal revenue, as well as making it difficult to meet some of its domestic obligations. An estimated whopping $10billion have been lost to crude oil theft in the last two years. This has adversely affected the sector’s addition to the gross domestic Product (GDP).
The Minister of Petroleum Resources, Diezani Alison-Madueke said the disruption of exploration in the Niger Delta is posing threat to the growth of the oil industry.
She said the government is concerned with providing conducive environment for the companies, adding that the industry could only grow when the right environment is put in place.
She said crude oil theft has resulted in huge loss of revenue for the companies and he government, adding that efforts have been made to arrest the situation.
A report by Ecobank Group warned that Nigeria’s debts would make the country to remain vulnerable to any unexpected large drop in oil prices. The report also pointed out that Nigeria’s debt would remain susceptible to other macroeconomic shocks, even as it urged the government to properly manage the situation.
The Ecobank report read: “Nigeria’s debt situation will remain vulnerable to any unexpected large drop in oil prices or other macro-economic shocks to the economy; this could lead to a renewed debt distress.
“This factor will continue to weigh on the country’s sovereign credit rating. Amid this and other factors, Nigeria’s sovereign foreign currency long-term credit ratings remain below investment grade, albeit with a stable outlook.”
The report, however, noted that the outlook for Nigeria’s ratings compared more favourably to that of South Africa, which has a negative outlook.
“Amid growing efforts to reduce external financing risk, the Federal Government’s domestic debt has emerged as the bigger share of total debt, reflecting increased efforts by the Federal Government to finance a larger proportion of its deficit from the domestic capital market rather than from international creditors.
“The Federal Government’s domestic debt has risen from $10.4 billion (11.7 per cent of GDP) in 2004 to $43.4 billion (16.6 per cent of GDP) in 2012. The stock of domestic debt is likely to remain much higher than external debt, although the government’s recent effort to exercise fiscal prudence should see domestic borrowing fall, remaining well below the Federal Government’s target of 30 per cent of GDP.
“Already, growth in domestic debt has slowed to 21.7 per cent, down from 40 per cent in 2010. However, despite the downward trajectory in domestic debt, debt-servicing costs remain high (amounting to $4.4 billion; nearly two per cent of GDP in 2012), reducing the fiscal space for investment in otherwise core areas of priority,” it added.
Also, the Chief Executive Officer, Financial Derivatives Limited, Bismark Rewane, said the country’s economy has been made more vulnerable to macroeconomic shocks by a fall in revenue as a result of crude oil theft in the Niger Delta estimated at 400,000 barrels a day. He said the loss to theft translates to 20 per cent of the country’s output, which amounted to about $14 billion a month.
“This implies that 20 per cent of Nigeria’s revenue is being lost to crude oil theft. But it does not just stop at that, because the people who are stealing the crude oil have to sell it at a discounted price in the black market, so as long as they do not get full value and it cannot be invested in the national economy, it also amounts to a drop in our Net National Income (NNI),” Rewane said.
He added that a third danger is that the proceeds from crude oil theft could end up in the hands of Nigeria’s enemies. “It poses a national security risk because the proceeds could be used to buy arms and ammunition by enemies of the state, which could be used to fight and terrorise Nigerians,” he warned.
NEITI’s position
According to the Nigeria Extractive Industry Transparency Initiative (NEITI), oil theft and bunkering constitute a major source of environmental pollution in the Niger Delta region. Its spokesman, Orji said massive public enlightenment and stringent regulations are required to bring national and international attention to the dangers which crude oil theft posed to host communities and the people living along the coastal waters. It said the job of NEITI is more of whistle blowing, adding that it is collaborating with various government agencies on how to tackle oil theft.
He said: “We believe that environmental hazards arising from oil exploration activities can be checked if relevant agencies such as National Oil Spill Detection and Response Agency (NOSDRA), Ministry of Environment, Department of Petroleum Resources, Ministry of Petroleum Resources and its key parastatals can work together with the security agencies and the companies to enforce the law on environmental pollution.”
He said rancour among bidders would reduce, when oil licenses are awarded in an open, transparent manner under international best practices.
NEITI maintains the position that award of oil licenses should be subject to open, transparent and international competitive bid process. This international competitive bid process (ICB) will guarantee that only companies with requisite competencies, professionalism, business integrity and financial capability win OPLs. This would be good for our country in terms of inflow of foreign investments, global competitiveness and good corporate governance which ultimately results in high revenue flows to the federation,’ he added.
The Petroleum and Gas Senior Staff Association of Nigeria (PENGASSAN) said there are immediate and remote causes of crude oil theft. Its spokesman, Seyi Gambo said the IOCs have lost money to crisis in the Niger Delta, adding that kidnapping of expatriates, pipeline vandalism and crude oil theft are dominant activities in the area.
He said Shell and other firms have spent huge amount of money in repairing terminals and pipelines, noting that the development has impacted negatively on their operations. Gambo said the terminals always breakdown no sooner had they been fixed.
He said IOCs are divesting their shares because of high fiscal regime, insecurity of oil and gas installations and unsafe maritime environment.
From our own pint of view, IOCs have suffered crude oil theft from three angles. The economic effects include reduction in income from sale of oil, running the economy below the fiscal estimate, putting Nigeria in a competitive advantage with other countries, especially those on the continent. He added that there will be increased unemployment, creation of powerful cartels and individuals who can undermine the whole polity such as the Colombian drug cartels. Often times , the cartels stockpile large cache of arms ammunition which they use to terrorise the country. The industry effects are reduction in crude production, lack of new investment by the oil companies operating in Nigeria, increase in oil theft from wells that are not readily taken over by new operators, entrance of new operators especially from China and India, he added.
The effects on host communities, he said, are reduction in the royalties or other forms of compensation paid to host communities, and lack of social amenities in those communities.
On labour, Gambo said over 30,000 jobs have been lost to oil theft in the past two years.
“Job losses as a result of redundancy are one of the problems. Shell, Chevron and Agip are on the part of retrenching their staff. Besides this is the issue of increase in contract/casual form of employment,” he added.
