Concerned about the colossal loss of revenue by the country through oil theft and pipeline vandalism, the organised private sector (OPS) are working round the clock to address this hydra-headed monster by adopting Alternative Crude Evacuation, which will enable the country save over N995.2 billion annually, reports Charles Okonji
To say crude oil theft remains one hard nut to crack is certainly stating the obvious. Truth is, majority of Nigeria’s oil companies have been battling the persistent oil theft and pipeline vandalisation for over 45years, a development which experts say is the consequence of the continued use of the 200km-long Trans Forcados Pipeline in transporting crude oil to the Forcados Oil Terminal (FOT).
Cost of crude oil theft
According to Mohammed Ibn Chambas, the Secretary-General, United Nations Office for West Africa and the Sahel (UNOWAS), oil-related crimes cost Nigeria a whopping $2.8 billion, an equivalent of N995.2 billion revenue loss in 2018 alone.
In a recent report by the UNOWAS, it was revealed that the sector suffered from attacks on oil installations, maritime crime, and piracy, thereby constitute serious threat to the peace, security, and development in the region. Oil companies in the country are also confronted with the challenge of controlling the value chain of their products, monitoring what comes into the 200km-long Trans Forcados Pipeline in transporting crude oil to the Forcados Oil Terminal where they are exported, amongst others.
The report equally showed that the oil companies in the country cannot accurately determine the quantity of oil that comes out for export due to regular vandalisation of the pipelines by Niger-Delta militants, which result in technical delays by the pipeline operators, as Shell is the worst hit and to a lesser degree Agip.
While most oil companies overlook and go on with business as usual, bearing the losses grudgingly, some others believe that things cannot continue with the same trajectory and seeks to find a proprietary solution. The challenge is huge enough that it drains the nation’s oil revenue which could have spurred higher infrastructural development, they insisted.
Oil theft involves a number of participants working in a complex web of illicit transactions. The value chain is made up of on the ground and overseas operations, sales, financiers, logistics, and security.
Other causes of oil revenue loss
Underestimation can take place at each stage of the value chain from drilling, transportation, loading, and shipping; potentially creating a wide gap between records and reality.
It was also established that operators engage in over lifting of crude to avoid Petroleum Profits Tax as they declare less than the actual quantity produced. In view of the above challenges, the OPS operators are in desperate search for a more effective approach.
More startling report
A recent report by the Nigeria Natural Resource Charter (NNRC) on crude oil theft in the country has revealed a loss of N2.6 trillion between 2016 and 2017. NNRC is a United Kingdom-based Non-Governmental Organisation (NGO) which provides policy options to guide governments and societies manage their natural resources for development.
According to the report entitled: ‘Oil theft in Nigeria,’ oil theft has assumed a spiraling and disturbing dimension, costing the economy huge losses, bigger than federal allocations for education and health sectors combined. For the two years (2016-2017) covered by the report, the combined allocations for health and education in the 2018 budget amount to 8.4 per cent or N189 billion of the estimated value of losses from crude oil theft.
The NNRC report identified poverty, unemployment, poor governance, pervasive corruption, sabotage, pipeline vandalism and the neglect of the Niger Delta region as major causes for the emergence and sustenance of crude oil theft. The report also said it found a connection between politics and crude oil theft and noted that local politicians engage in oil theft to get money to fund elections.
More disturbing in the report is the allegation that oil thieves bribe security officials deployed to curb oil theft in the Niger Delta region. Currently, Nigeria is the country most plagued by oil theft in the world. It is followed by Mexico, Russia and Iran. The amount lost to crude oil theft in 2016 was reported to be more than the revenue target attained by the Federal Inland Revenue Service (FIRS) in 2017.
Also, the Chatham House, a policy Think Tank group based in the UK, said massive oil theft by pirates costs Nigeria $1.5 billion every month. The figure which was confirmed by the Vice President, Yemi Osinbajo, is equal to the total daily export capacity of the Forcados terminal.
At a time government is in dire need of revenue to fund the N9.12 trillion 2018 budget and the N242 billion for the 2019 general election, the economic outlook is still fragile with fluctuations in global oil prices and rising national debt, checking the menace of oil theft should, therefore, be a national priority. Although oil theft has remained a recurring problem over the years, reports that the incident has continued in spite of security deployment to curb it, means the economy is at risk, and therefore new strategies are required to contain it.
Also, a report by the Shell Petroleum Development Company (SPDC) showed that crude oil theft rose to 50 per cent in 2017. The NNPC monthly financial operational report for November 2016 disclosed that out of its total earnings from domestic crude oil and gas sales, N11.78 billion was spent on pipeline repairs and management compared to N12.34 billion in October 2017. The corporation said it lost N127 billion to crude oil theft and infractions in 2016.
In the face of increasing revenue losses due to oil theft in the Niger Delta, we call for a proactive approach that will involve relevant stakeholders, including security agents and Regional Development Committees (RDCs). We support the Community Pipeline and Facilities Surveillance Programme (CPFSP) with strong governance currently being used by some oil companies to combat oil theft and vandalism. This device has become a model for enhancing the fight against oil theft and illegal refining. However, oil companies should improve on their relations with their host communities.
According to the NNRC report, NNPC usually report the figures they are given by companies and does not independently verify the numbers to ensure compliance.
The report showed that government took a legal action in 2016 against Shell Petroleum Development Company of Nigeria Limited (SPDC) and its subsidiaries, Shell Western Supply and Trading Limited for about $407 million as part of its measure towards recovering some of revenues gotten through undeclared and under-declared lifting for oil between 2013 and 2014.
Statistics from Nigerian export records were reconciled with shipments of oil into the US including its bills of lading, oil vessels name used for the transaction, date of arrival at the destination ports and ports of origin.
“The comparison showed that the crude oil shipments declared to have been exported from Nigeria was less than what was declared to have been imported into the US, using the same shipment by the same vessel on the same bill of lading. Also, some other shipments were not declared by the defendants to the necessary authorities, mostly the pre-shipment inspection agents. In some cases, the crude oil shipments were completely undeclared,” the report reads.
“Assessments on the volume of oil theft vary vastly and most available figures are estimates. Several reports estimate that one barrel out of every ten produced is stolen, while anecdotal evidence suggests that up to 50 per cent of product flowing through pipelines could be lost,” the report further states.
Loss by number of barrels
Losses owing to oil theft and pipeline breakings is estimated at 300,000 barrels per day for the first quarter of 2018, with up to 200,000 of this potentially stolen while the remainder is lost to shut-ins as a result of pipeline damage, down time and deferred production.
Consequence of oil loss
The effect of such colossal loss is enormous and translates to severe revenue shortages for the federal government of our estimate of N995.2 billion per annum. The security costs, environmental damage and loss of investments in the region as a consequence of oil theft are estimated at $55 billion over the last decade.
Alternative Evacuation System (AES) to the rescue
These challenges led Nestoil Limited to developing a system called Alternative Evacuation System (AES) to permanently solve the problem of oil theft in the country and to grow the nation’s revenue base.
The AES is a process where the regular downtimes caused by technical issues to the pipelines carrying crude oil, and vandalism done on the pipelines across specific routes recorded through the use of flow lines or the TFP which make oil producers unable to meet export targets, will be negated through another method of evacuating the oil by barges.
With the modified system and facilities designed and built by Nestoil Group of Companies and its affiliates, the liquid that comes out from the wellhead has four constituents – oil, water, gas, and sediments known as wet crude, and the wet crude needs to be processed to get export grade crude oil but in the first step, the processing wet crude oil is fed into a three-phase separator where sediment, oil, water, and gas are separated with the crude further fed into an electrostatic heater treater where it is further treated to remove gas and water to meet export requirements (dry crude).
The ready-for-export dry crude is then pumped to the loading platform where it is stored in a dump barge/Vessel. Shuttle vessels come to load the crude and transport to the FSO Ugo Ocha offshore, where buyer’s vessels load the crude. This process bypasses crude handling charges and potential theft through the TFP.
Benefits of AES
The Chief Technical Officer, Neconde Energy limited, a subsidiary of Nestoil, Ifeanyi Ezuka, said the innovation is the latest testament to Nestoil’s growing reputation as an innovative company that constantly seeks proprietary ways of working in difficult terrains and also borne out of necessity due to the downtime recorded on Forcados terminal when moving their products there.
Explaining the importance of the innovation to the country’s oil industry, he said the usual losses or leakages associated with pipeline issues are eliminated, meaning that they now have control of the complete value chain to deliver specific volumes from the well-head to the terminal. Also, bankers now take them seriously than before because they know and appreciate the certainty of their operations, while there is also a significant drop in redundancy.
The challenge of developing the system, he posited, was a combination of technology, logistics, and resilience as they looked at the fundamentals of what is required to be able to carry it out rather than putting it on a pipe, then they put it on a barge and send it out. So from the technical side, what are the types of barges needed? What is the draft of the river? How deep is the river from there to where they want to go? What are the terminals around those that are the closest? So how far is where they are to the closest terminal? So all of those technical assessments and analysis they got right.
The other challenge, Ezuka said, was the regulatory approvals that will be needed. “So who do you need to talk to get approval? What kind of approvals do you need? Particularly when it comes with a very new space even the regulators will want to be very careful not to over regulate. So it then requires a lot of collaboration from you explaining to the regulators what you want to do to the point that they understand and then they’re able to also work with you on the regulations that are required to put the responsibility to that activity that you want to do.
“We engaged the communities too and you have to do all of these to be a responsible corporate citizen to deliver this but with all of the people in that space explaining to them what you want to do. Also on the list, the Navy and the military as well because you carrying crude, they need to be able to understand that you are not one of the bunkers, that you’re carrying a legitimate crude, and you’re going to get the required approval.”
He said other oil firms have started to take notice and have reached out to them on how to leverage on the service and they are ready to deliver the AES, which includes the crew dehydration, the loading platforms, the vessels, and all the controls that are required within 14 to 18 months for those that want to build theirs which is very expensive and might have effect on the cost of operation.
“We are also ready to collaborate, synergise and provide the same service to those that needed us to help move their products using the system, which will be a plus for all as it saves overhead cost they could have expended on building theirs,” he added.Aside Nestoil’s pioneering efforts to see to the end of crude oil theft, the company in its quest to be the local partner of choice through the provision of innovative services is about to complete the construction of OB3 river crossing, the East-West gas pipeline, which is the longest and deepest underwater pipeline in sub-Saharan Africa.
