Nigeria’s crude oil theft: Issues and resolutions

On September 2022, the surprise of a nine-year oil theft controversy shocked Nigerians. Major oil and gas corporations had lost a tonne of petroleum to oil thieves who diverted crude by making illegal pipe attachments to pipelines aimed for the export terminals.

According to Mele Kyari, the CEO of the Nigerian National Petroleum Corporation, about 95% of the petroleum explored and intended for sale through export pipelines at Bonny in Rivers state was either misplaced or stolen. This disclosure was made in August 2022. Without a doubt, the numbers are horrifying and have impacted the economy’s growth foundation.

The economic impact of oil theft in Nigeria is enormous, from decreased revenues to environmental issues like spills and, more significantly, to international oil companies leaving the nation after suffering significant income losses. In the last five years, about 40% of foreign oil companies doing business in the nation have either sold off assets or reduced their ownership of assets to limited areas.

Once more, the demand for alternatives to the common method of transporting explored oil through pipelines to the export terminal has increased. Despite the expense, foreign oil companies opted to use these alternatives, which has affected how simple it is to conduct business in the nation. This article examines Nigeria’s oil and gas sector and the problems that contribute to oil theft while also offering proposed solutions to the menace.

The Issues aiding Oil and Gas theft in Nigeria

Implementation of policies

The petroleum industry is filled with excellent policies and ideas that aim to boost the sector. Over the years, the industry has been led by the brightest minds and has had a long-lasting reputation for brilliant solutions.

The question is, however, “What happens after policies are made?” The response has always been “absolutely nothing.” Oil theft may still be prevalent today because of the culture of poor policy implementation. The industry’s stakeholders assert that oil and gas theft in the nation dates back as far as 30 years.

The well-known federal government’s Gas Flare Commercialization Program (GFCP) of 2020, which sought to eliminate gas flaring or at the very least has it reduced by the end of 2020, is an example of a policy that wasn’t put into effective implementation. Nigeria was the seventh-largest gas-flaring nation in the world at the end of 2020, having lost over a billion dollars to gas flares. What is most surprising is that the 2020 GFCP isn’t Nigeria’s first attempt at banning gas flares, the first of which was through the Associated Gas Re-Injection Act of 1979. Subsequent attempts included policies issued in 1984, 2004, 2008, and 2016 before the most recent GFCP policy was created in 2020.

The Oil and Gas Host Communities

Onshore explorations depend heavily on host communities. The Petroleum Industry Act defines the host communities as those where oil and gas exploration activities take place.

Host communities in Nigeria were a full-fledged war zone from the early 1970s to the late 1990s, with fighting, murder, kidnapping, arson, and other vices as the order of the day. The area was highly agitated over the federal government’s exploitation of petroleum revenue while their communities were left in ruins.

This unrest and other vices have subsided over the past few years, and peace appears to have abruptly returned to the area. According to experts, oil theft and illegal oil refining are new sources of wealth for host communities. Petroleum taken from exploration pipelines that were en route to export terminals are locally refined and sold domestically, providing these host communities with a source of income.

Transparency and clarity

One of the main reasons for oil and gas theft in Nigeria is a lack of transparency and clarity. The most unethical methods for conducting bidding rounds allow investors to incur losses. For instance, the bid round for the 2020 marginal field was in complete disarray. The motives for major international oil corporations leaving the fields were not disclosed to the bidders, and many activities for the bid were unclear. The fact that the list of successful bidders was withheld from the public, allowing corruption and uncertainty to proliferate, was what was most concerning. This invariably caused investors to lose faith in the sector.

It is asserted that the ambiguous techniques used are meant to conceal from investors the knowledge of the significant increase in oil and gas theft in the area. Investors’ confidence in the industry is only damaged by the persistent concealment of these problems, which encourages them to invest in other markets.

Corruption

Perhaps the root of all other issues is corruption. One of the major highlights of the oil and gas theft conspiracy was the seizure of a Ghana-bound vessel holding oil measuring about 650 cubic metre.

The involvement of the government in the oil and gas theft deals cannot be easily dismissed. A Nigerian news television channel revealed evidence showing security agencies’ camps erected close to illegal oil pipe attachments during the height of the oil and gas theft discovery. None of the various security personnel who worked at those established camps has been arrested to this day.

Resolutions to Oil and Gas Theft Issues

To address the problems causing oil theft in Nigeria, technology is essential. International oil companies investing in pipeline transportation systems that cannot be tampered with, or at least have technology that alerts the authorities and the oil company when tampered with, would be a significant resolution. The use of cameras on tree-tops, drones, and continued surveillance by oil companies can also be relevant solutions to the problem of oil theft.

To secure crude within the pipelines, international oil and gas companies should collaborate with local vigilantes or the community at large. The fact that the community knows the thieves responsible for illegal oil bunkering and that they are best suited in putting an end to the problem is a significant truth. The neighbourhood or vigilante group receives a share of the proceeds from the crude that gets to the export terminals in return for guarding the pipelines.

Additionally, the federal government ought to add value by cooperating with these illegal oil refineries. Nigeria could stop illegal oil refining and produce a large portion of its crude by providing loans and investments for research into local production of crude.

The federal government should implement an open system and a strict enforcement approach. To boost investor confidence in the industry, perpetrators—regardless of how powerful—must face consequences.

Conclusion

The economies of countries depend heavily on energy. Due to the conflict in Ukraine, European nations are attempting to shift their market demand to Africa. Nigeria must take proactive measures to address the problems with oil theft if it is to gain from the industry.

Frequently Asked Questions (FAQs)

Does the Petroleum Industry Act (PIA) provide a means to deal with oil theft issues?

The PIA contains some provisions that address the threat of oil theft, such as the host community development fund. However, the PIA didn’t take decisive action to resolve these problems for them not to advance.

Are other oil- and gas-producing countries facing oil theft issues like Nigeria?

According to the Financial Times, Nigeria is the nation with the highest rate of oil theft, with more than 400 000 barrels being stolen every day. Second, third, fourth, and fifth place, respectively, go to Mexico, Iraq, Russia, and Indonesia.

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Richard Okoroafor

Richard Okoroafor

Richard is a brilliant legal content writer who doubles as a finance lawyer. He brings his wealth of legal knowledge in corporate commercial transactions to bear, offering the best value that exceeds expectations.

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