A Review of the Nigerian Energy Industry

Oil theft, piracy threaten nation’s crude revenue

Oil theft…As Nigeria overtakes Somalia in piracy

 …Bunkering blamed on inability to build and maintain refineries

OSCARLINE ONWUEMENYI 18 August 2014, Sweetcrude, Abuja Piracy off the coast of West Africa has now overtaken Somali piracy, a report by the International Maritime Bureau, IMB, and other seafarers’ groups say in a report. According to the report, maritime piracy was now more prevalent off the coast of West Africa than around Somalia.

This, IMB, said is partly because an international naval task force had been patrolling the coast off Somalia. According to the report, 966 sailors were attacked in West Africa in 2012, compared with 851 off the Somali coast.

West African pirates mostly attack fuel cargoes and the crews’ possessions, often resorting to extreme violence. Five of the 206 hostages seized last year off West Africa were killed, the document says.

The piracy problem off the coast of West Africa highlighted by the IMB report is, overwhelmingly, a Nigerian problem. But it is also partly because of the peculiarities of the Nigerian economy and widespread corruption in the country.

The report further notes that maritime piracy off West Africa differ from that off Somalia and may eventually prove harder to deal with.

“In the Somali Basin there is a large concentration of patrolling warships – from the US Navy 5th Fleet, Nato, the EU and others – as well as reconnaissance aircraft, all acting in coordination. But in the Gulf of Guinea, there is not one but several national coastlines to patrol with no single unified policing body.

“Somali pirates generally aim to capture a ship with minimum casualties then hold the vessel, its crew and cargo to ransom for millions of dollars, sometimes for as long as two years. West African pirates tend to be land-based criminals, mostly from Nigeria, who look to steal the cargo and any valuables they can find in a quick grab-and-dash operation, often staying onboard for less than a week. International efforts to tackle piracy off West Africa have been slow to take effect,” the report states.

The report, entitled, ‘The Human Cost of Maritime Piracy 2012’, was released by the International Maritime Bureau, the Oceans Beyond Piracy, OBP, project and the Maritime Piracy Humanitarian Response Programme, MPHRP.

It says that despite the growing number of pirate attacks in West Africa’s Gulf of Guinea region, “the area has not received the attention that was brought to Somalia”. Pirates typically target fuel cargo, selling it on the lucrative black market.

“In Nigeria, money moves quite quickly, unlike in Somalia,” one seafarer is quoted as saying in the document. “In Somalia, it would take months. In Nigeria, the pirates take our (oil) cargo and the money of the (shipping) company. It would take only weeks, it is quite fast.”

The highest risk area for pirate activity in West Africa is off the coast of Nigeria, by far the biggest country, and oil producer, in the region. “Because successive governments there have failed to develop sufficient domestic oil refining capacity, Nigerian waters are full of tankers exporting crude oil and importing refined petroleum that are vulnerable to attack,” says a BBC report on the matter.

Corruption and, until recently, armed rebellion in the oil producing areas, have led to the development of an entire, well-organised industry for stealing – or “bunkering”, as it is known in Nigeria – oil products, he says.

Meanwhile, the Federal Government has expressed its resolve to effectively fight the growing activities of these pirates and oil thieves operating around its coastlines. The country losses millions of dollars every month due to piracy and oil bunkering.

Former Group Managing Director of the Nigerian National Petroleum Corporation, NNPC, Mr. Andrew Yakubu recently disclosed that President Goodluck Jonathan has granted approval to the Corporation to engage in legal oil bunkering as a way to effectively checkmate activities of crude thieves on the nation’s international waters.

Yakubu said the nation was in dire need of reputable and legitimate bunkerers if the incidence of illegal bunkering and oil theft is to be reduced to its barest minimum.

“There is a legal type of fuel bunkering, permitted by law and done within the ambits of industry-sanctioned processes. Unfortunately, this legal bunkering has been overshadowed by the many illegal bunkering activities that are carried out across our waters, causing untold harm to our economy and environment,” he stated.

The process of crude oil theft includes bursting of oil pipelines, tapping into flow lines, tapping from abandoned well heads and theft at export terminals. The aim of the oil thieves is to exert maximum destruction of pipelines well heads and other installations from which crude is extracted illegally and transported through tankers, vessels of jerry cans to locations where it is either refined into diesel or Premium Motor Spirit (PMS) or exported.

The nature and scope of these activities makes it difficult to secure crude oil from the production centres to the terminals because Nigeria has a total pipeline grid of 5,001 kilometres, consisting of 4,315 kilometres of multi-product pipelines and 666 kilometres of crude oil pipelines. The pipelines, which transverse the country, form a network that inter-connects the 22 petroleum storage depots, the four refineries at Port Harcourt (I and II), Kaduna and Warri, the off-shore terminals at Bonny and, Escravos and the jetties at Atlas Cove, Calabar, Okirika and Warri.

The most difficult axis to secure is the major 98 kilometre oil trunk pipeline between Trans Forcados and Nembe Creek. Last year, this trunk pipelines was vandalised at over 100 illegal bunkering points. Between Calabar and Lagos, there were eight identified choke points. Over the years, vandals and criminal cartels had subjected the pipeline infrastructure to incessant attacks.

What is very worrisome is that there are actually no agreement on the total number of loses in these criminal acts. This is because, as the Attorney General and Minister of Justice, Mr. Mohammed Adoke said recently, even in the petroleum industry, “reliable statistics are painfully scarce. Actual loss may be more, as these figures make no distinction between stolen or spilled oil. Also, sometimes when an operator talks of loss, one is not often certain that this is in terms of potential production loss in consequence of a shut down.

“These losses are primarily attributable to theft, vandalism, bunkering and piracy. The volume and intensity of these activities coupled with the sophistication of their equipment and arsenal lead to the inescapable conclusion that the perpetrators are not only well organized but aided by insiders in the oil industry. The recent political history of the Niger Delta region, opaque reporting standards, insincerity on the part of some operators and an obviously out-dated regulatory framework has no doubt worsened the vicious cycle of criminality.”

In 2013, crude oil losses caused by theft were estimated at about 55, 210 barrels per day or monthly average of 1,656,281 barrels. The losses imply inability to meet planned oil production forecasts. For example, last year, the budgeted projected oil production target was 2.53 million barrels per day (mbpd). But actual output was less than 2.3 mbpd. This has ensured deficit budgeting which has been prevalent in Nigeria as the country has depended mainly on oil revenues to finance its expenditure. For example, in 1970, oil contributed only 26.28 per cent to total revenue while non-oil proceeds was 73.72 per cent. By 2013, the share of oil in total revenue was 75.33 per cent while non-oil was 24.67 per cent.

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