Illegal oil bunkering: Undermining the economy of the nationMonday, May 28th, 2012
28 May 2012, Sweetcrude, Abuja - Many industry watchers were shocked by recent reports from the Federal government and operators that the nation loses over one billion dollars monthly to activities of oil thieves in the Niger Delta region. The financial and environmental impacts of illegal oil bunkering in the country have reached an alarming level, and demands crucial intervention by the government if the life-blood of the nation is not to be drained.
Oil theft siphons off the main source of the Nigerian economy for private gain before taxation or crediting to the national account. Various experts have estimated the volume of oil theft at between 100,000 and 250,000 barrels per day or as much as 91 million barrels per year. This amounts to billions of dollars in lost revenue for the Nigerian treasury every year, regardless of the price of oil on any given day.
Individuals benefitting from the sale of stolen oil do not re-invest in oil exploration or production. While some of the revenues may filter down to inhabitants by way of pay-offs, the bulk of earnings are diverted outside the country into the international bank accounts of the beneficiaries.
Causing environmental damage
Meanwhile, tampering with or sabotage to pipelines and flow-stations and careless handling during the bunkering process cause the greatest environmental damage to the region, according to environmental activists. Vast areas of the Niger Delta have become saturated with oil as a result of the many oil spills associated with illegal bunkering and pipeline sabotage. Traditional livelihoods, such as fishing and farming, have become increasingly difficult if not impossible to pursue. Alternative jobs, however, have not been created for the largely unskilled and poorly educated residents of the impacted areas.
The Nigerian National Petroleum Corporation, NNPC, has recently warned that the acts of illegal oil bunkering in the Niger Delta could expose the region to the worst environmental disasters ever faced in the history of the country. The Corporation also disclosed that the country presently loses over 180,000 barrels of crude oil per day to oil thieves, warning that if unchecked, such criminal activities could cripple the nation’s oil and gas production.
The Group Managing Director of the NNPC, Engr. Austen Oniwon stated this when he hosted the House of Representatives Committee on Petroleum Resources (Upstream), led by its Chairman, Hon. Ajibola Muraina, who was visiting the Corporation’s headquarters in Abuja as part of the Committee’s oversight function.
Oniwon described insecurity of oil and gas facilities due to acts of illegal bunkering as “the major problem we have in the industry.” He stated that, “We did have challenges with the issue of militancy several years ago, but we thank the government for the amnesty programme which yielded very effective results and was very successful in curtailing incidents of militancy in the Niger Delta.
“Unfortunately, the militants in the Niger Delta have been replaced by criminals. As of today, our activities and operations have been severely handicapped by the activities of these criminals. We lose, as of today, almost 180,000 barrels of crude oil per day to criminals. When you consider that the total amount of crude oil produce by Ghana that sustains that country is about 120,000 barrels per day, you begin to see the enormity of the situation we have in our hands.”
Oniwon added that, “The implication of this is many folds. Because these people carry out their activities in the most unprofessional manner, they have caused huge environmental pollution in the areas they operate. We had a major incidence in Ogoni land, which we are still coping with; but what we are seeing today due to the activities of these oil thieves, the situation may be twice the destruction of environment in Ogoniland.
“These people drill into the pipeline, take what they want and leave the destroyed pipelines to ooze into the environment. For those that engage in illegal refining, because of the crude method that they use, they just take crude oil put it in a drum and boil; whatever boils off it is what they take, which often times is less than 25 percent of the entire product. The remaining 75 percent they don’t need they dispose into the environment, causing huge environmental problems for us.”
According to the NNPC boss, giving results of research that showed that hydrocarbon waste can stay on the ground for decades, the waste from activities can last for generations before the land could be recovered for productive activities. “A United Nations study in parts of the Niger Delta has indicated that spills from oil has penetrated upto about 30 metres below the soil; even if you want to remediate the soil, you cannot scrape 30 metres of top soil and replace it. Therefore, we are looking at what might be permanent damage to the environment due to activities of these oil thieves.
“These people are looking for quick money, but they are causing damage that may last for generations. So, we need the support of the National Assembly in tackling this menace of illegal oil bunkering in the Niger Delta region,” he noted.
Meanwhile, the Executive Secretary of the Nigeria Extractive Industries Transparency Initiative, NEITI, Mrs. Zainab Ahmed, has raised the alarm over the increasing rate of oil theft going on in parts of the Niger Delta, stating that government should declare a national emergency to tackle the menace illegal bunkering in the sector.
Ahmed noted that a recent facility tour of Shell oil exploration activities in the Niger Delta conducted by the NEITI management, had revealed “mind-boggling theft of petroleum products. The increasing rate of stealing of crude through illegal oil bunkering activities in the creeks, the activities of oil thieves, proliferation of illegal refineries, pipeline vandalisation, and environmental pollution in the Niger Delta have risen to alarming proportions and has become a major threat to the nation’s economy.”
According to her, the disclosure by Shell Producing Development Company, SPDC, which manages the Bonny Oil and Gas Terminal that the nation’s economy has lost a whopping $4.3 million to oil thieves in the last two years at an average rate of $2.3 million annually “clearly underlines the fact that the problem has assumed the status of a national emergency.”
Ahmed noted that the lack of reliable information on the actual production capacity in the oil and gas industry sector further compounds the production, adding that operators in the industry are yet to adopt real-time technology that would determine the level of production, and thus the amount of products lost to oil thieves. “I therefore wish to call for an urgent intervention by the National Assembly by way of passing a stringent law with clearly defined sanctions and penalties to curb this dangerous economic crime,” she stated.
Multinational oil companies operating in the country have taken a direct hit due to the activities of oil thieves. Shell, which is probably the worst victim due to its vast oil and gas production resources in the Niger Delta, has come out with a statement lamenting the impact of illegal oil bunkering on its many pipelines. “There have been 10 additional oil bunkering incidents in the Eastern Niger Delta since Shell shut down production from Imo River on the August 28, this year, following an upsurge of sabotage activities, which have severely impacted the environment,” the company said in a statement recently.
“Some of the latest incidents are on the Okordia–Rumuekpe trunk line, Imo River–Ogale trunk line and Buguma–Alakiri trunk line. Four separate incidents were reported on sections of the Obigbo North delivery line at Komkom and Ogale,” it added. It noted that an overfly showed unknown persons had drilled holes and installed valves to transfer crude to waiting barges and trucks and, in the process, polluting farm lands and water bodies.
“We are very disappointed that oil thieves are still at work,” said Tony Attah, vice president, HSE and Corporate Affairs, Shell Sub-Saharan Africa. “This is why we call for concerted efforts to help stop this criminal activity which not only puts the lives of the perpetrators and the public at risk but causes severe environmental impact and impacts the communities in the area. It also wastes badly needed revenue to finance development even in the same areas in which the activities are taking place.”
Some 16 oil theft points were discovered in Imo River field in September alone. The unprecedented scale of crude theft in the area forced SPDC to shut the field, resulting in deferment of about 25,000 barrels of oil per day. Production will remain suspended until the crude theft and refining activities have stopped.
More than 75 per cent of all oil spill incidents and more than 70 per cent of all oil spilled from SPDC facilities in the delta between 2006 and 2010 were caused by sabotage, theft and illegal refining. Shell also announced lifting the force majeure which had been declared on Forcados loadings, following completion of repairs on the Trans Forcados Pipeline.
The justification often given for the unfortunate acts is that residents who have no legitimate opportunities to earn a living have more incentive than ever to engage in pipeline sabotage and oil theft or to try to profit from the oil bunkering of others. One popular pastime involves demanding monetary compensation for environmental damage. Villagers are keen to direct oil spills, whether accidental or intentional, to their communities for the short-term economic benefit of selling the oil on the local market or claiming damages from the International Oil Companies (IOCs).
According to environmentalists, communities have vandalized pipelines to claim compensation. A more sophisticated economic model entails communities forming “service companies” which offer either “protection” or “environmental clean-up” services. Local inhabitants on the payrolls of these companies either provide armed guards for installations or conduct environmental “clean-up” after spills – which community residents may or may not have caused.
These local environmental clean-up companies, which usually lack training and equipment, often expose their workers to serious health risks. Some village leaders charge IOCs for operating in their areas with the threat that if they do not get “settled” there will be illegal bunkering or militant attacks would occur.
Many of the arms in circulation in the Niger Delta, including a variety of sophisticated weapons, have been purchased with money derived directly or indirectly from illegal bunkering. Insecurity in some parts of the country results, in part, from accessibility of oil-purchased arms with illegal bunkering serving as a major contributor to Nigeria’s violent crime, armed robbery, piracy and kidnapping.
The immense wealth derived from illegal bunkering ensures that those profiting from it have no interest in a well-policed, stable Niger Delta. Many interlocutors have stressed that peace in the Niger Delta will reduce the opportunities for profit from illegal bunkering activities. They suggest that everyone along the chain, from the president’s inner circle to those “service” companies that profit from “protection money,” will resist finding a permanent solution. These interests will persist beyond amnesty, according to these contacts.
It has also been reported that some Joint Task Force (JTF) members, in particular, remain reluctant to see an end to the “crisis” in the Niger Delta, according to many contacts. Officers and enlisted personnel allegedly pay large premiums for the opportunity to serve in the JTF because the profits derived from protecting or participating in illegal bunkering far outweigh such premiums and the risks of deployment. Nigerian Navy officers allegedly pay up to 30,000 dollars for the opportunity to serve in the Delta. Some military officers are so successful that they have bought multi-million dollar homes in high-end neighborhoods in Lagos.
Profits from illegal bunkering became high enough in the last several years to enable both JTF members and “militants” to profit and co-exist without seriously interfering with each other’s activities. Some observers compared the relationship between the JTF and major militant groups to arrangements between rival gangs in U.S. urban areas; generally each JTF unit and militant band had its own territory in which they operated and from which they derived their illicit incomes. Fighting only erupted when disputes arose about boundaries or when one group “poached” in the territory of another or did not “settle” the other properly.
Some observers assert that the JTF offensive in May 2010 largely resulted from a misunderstanding between militant leader Tom Polo and a new JTF commander that escalated out of control. Many contacts speculate that the impact of the amnesty will be a return to the “status quo ante” before the May offensive in Delta; i.e., relative peace will enable both sides to pursue their business interests without large displays of force on either side and despite GON “lip service” about “cracking down” on illegal bunkerers.
Indeed, widespread illegal bunkering has led to control by armed bands over large areas in the oil-producing states. Some armed groups claimed political objectives, but others remained openly criminal; all armed groups intimidated and dominated the communities in the territory they controlled, undermining traditional leadership and social structures. Militant presence in a community also made these communities more likely to become targets for military action. Tens of thousands of inhabitants fled their homes and hid in the jungle for weeks during the May offensive against militants in Delta State. The presence of armed bands also inhibited the delivery of regular government services and infrastructure, rendering the areas dominated by militants ungovernable and isolated from democratic institutions and processes.
Nigerian officials have repeatedly request U.S. assistance to prevent activities of illegal oil bunkering. The reality, however, is that most oil bunkering is not a global phenomenon readily susceptible to international deterrence, but a largely Nigerian development that requires domestic resolution. No other, major oil-producing country, to our knowledge, loses as much revenue from illicit oil bunkering as Nigeria, largely because the political elite, militants, and communities profit from such operations. Tackling this problem will require resolute political will from many sectors of Nigerian society.