Now that Oil Theft is on the Radar

POSTSCRIPT BY WAZIR ADIO

In the last few days, there has been a flurry of statements and activities on crude oil theft in Nigeria. It seems this important issue has finally become a priority for decision makers. If truly so, this is commendable—better late than never. Without a doubt, the increasingly audacious and humongous theft of crude oil and refined products poses a multiplicity of threats to oil companies and all tiers of governments, to the environment, to the livelihoods of citizens and communities, and, mostly importantly, to national security. That a country will allow such a multi-dimensional risk to linger for so long is beyond belief.

Now that those in a position to act have seemingly been roused either by the country’s increasingly dire fiscal conditions or by the decibel of the voices of some key parties, it is important to go beyond clever soundbites and photo-ops. It will also be necessary not to return to the same measures that have proven grossly ineffective over the time, and not to succumb to schemes designed merely to take advantage of the situation.

And while we are at it, it will equally be vital to shun the beguiling narrative that oil theft alone fully explains the precipitous decline in and the underperformance of Nigeria’s petroleum production and revenue. The haemorrhage from oil theft needs to stop but so should other debilities that are afflicting the still strategic oil and gas sector. Tackling only one malaise, no matter how important, and leaving the others will at best provide only temporary relief. What the sector needs is comprehensive treatment.

A good place to start will be getting accurate picture of things. There have been screaming headlines and viral tweets that between 80% and 95% of Nigeria’s crude oil is lost to oil thieves. This cannot be true. Anyone with little familiarity with the sector, and this should include most Nigerians, should question the figures being touted.

Without doubt, oil theft is worsening at a time the country desperately needs all the revenue it can get. A sizeable portion of resources belonging to companies and the country is ending up in the hands of increasingly emboldened criminals who can in turn put private enterprise and the commonwealth at greater risk. This is bad and sobering enough. It doesn’t need any further sensation. While hyperbole can help to focus minds and can sometimes provide the jolt for needed action, it can also serve other disguised purposes.

Nigeria’s oil production figures can easily be accessed locally and internationally. Our oil production, minus condensates, has hovered between 1.2 million and 1.4 million barrels per day for some time now, due to reduced OPEC quota and other factors. As low as they are, these figures do not represent 20% or 5% of our daily production. Even if we put Nigeria’s daily oil production at one million barrels, saying the country is losing between 80% to 95% of its oil production will suggest that Nigeria is producing between five million and 20 million barrels of crude oil per day. That would be nice but it is simply not true. Our record daily production till date remains 2.7 million barrels, and that record was set in 2005.

Another way of looking at the figures being bandied will be to say we are actually producing between 1.2 million and 1.4 million barrels per day but losing between 80% to 95% of these to oil thieves. This would mean that the thieves leave between 60, 000 barrels and 280, 000 barrels per day for the oil companies and the Federation to share after carting away between 80% and 95% of oil production. This is simply implausible. Given that the Federation gets about 30% of oil produced, are they suggesting that the Federation now gets only between 18, 000 barrels and 84, 000 barrels of crude oil per day?

My sense is that some misreporting or misrepresentation is going on here, and those with the responsibility to provide clarity are looking away for less than noble reasons. Meanwhile, even some data-conscious and ordinarily inquisitive people are ready to pause their questioning spirit on this. Worse, some are not just swallowing but avidly sharing mis-presented or misrepresented data. I need to repeat that oil theft, no matter the scale, is an economic sabotage and a security risk that must be tackled head-on. But we don’t need to sex up the numbers or encourage misrepresentation.

There are onshore oil fields and oil pipelines that are more heavily impacted by oil theft than others, especially pipelines like the Nembe Creek Trunkline (NCTL) and the Trans-Niger Pipeline (TNP). My sense is that those quoted in screaming headlines were most likely referring to certain fields and pipelines and either didn’t make themselves clear enough or were misreported. It is very bad if those fields and pipelines experience 80% to 95% thefts whether regularly or occasionally. It is important to address the peculiar vulnerabilities of these fields and pipelines, as well as those not so heavily impacted. But the danger of allowing sector-wide misrepresentation to stand, which may not be obvious to many, is that it may form the basis for some dubious expense on the public or serve as the premise for some spurious alibi.

Without trying to diminish the magnitude of the current challenges, it is worth noting that oil thieves have been an unfortunate feature of the oil industry for about four decades. The real shock for me is that we are shocked that this has now gone out of hand. From small operations in the dead of the night initially visible via blurry satellite images, the oil thieves got more emboldened and moved to plain sight. In the classic Broken Window Theory pattern, the unattended or ineffectively tackled graduated into an epidemic. Illegal refineries, serviced with stolen crude, now litter the landscape. Unintended consequences from some interventions designed to solve other problems provided fuel for a well-oiled and sophisticated syndicate with local and international linkages to feed the booming market for stolen crude.

As far back as ten years ago, estimates of oil theft ranged between 150, 000 barrels and 300, 000 barrels per day, between 7.5% to 15% of our previous production of 2 million barrels per day. Even at that time, that should be seen as an emergency. Alarms were raised, but beyond moving personnel of the Joint Task Force around, making a show of seizing some vessels or destroying some illegal refineries, little else happened. Briefly interrupted, regular service resumed, then expanded.

The impact is felt more now because oil thieves do not obey OPEC quota. Strangely too, they have the incentives to steal more both when oil prices are low and high. Even if they had stayed within their previous extraction levels, this means Nigeria could be losing up to a quarter of its production to oil theft. The agitation by the operators has coincided with zero remittance by the national oil company from oil sales to FAAC at a time of record high oil prices. Hopefully, this convergence may tip the equilibrium for needed, consequential action this time. But I won’t hold my breath.

When I was the head of NEITI, we undertook a study to look at losses incurred by the Federation from theft of crude oil and products, vandalization, and deferred production between 2009 and 2018. The report established that the losses incurred in ten years that NEITI had data for then amounted to $41.9 billion ($40.10 billion for crude oil and $1.84 billion for refined products). That $41.9 billion is an average of $4.19 billion per year, $349 million per month and $11.47 million per day. The thought of losing about $4.2 billion per annum for ten years gave me chills, not just in terms of the opportunity cost but also in the risk to the country.

Entitled ‘Stemming the Increasing Cost of Oil Theft to Nigeria,’ the 16-page policy brief by NEITI was released in November 2019. Apart from disaggregating the losses, the paper examined the scale of oil theft, the types and limits of containment measures deployed, and the reasons why the problem has lingered. It concluded with recommendations such as the need for more stringent and more strictly enforced laws on crude theft, and the need to overhaul the security architecture for the protection of our expansive oil assets, to increase in community stake-holding and engagement, to leverage technology, and to launch a diplomatic campaign on the danger posed by stolen crude oil to global security.

The policy brief was well circulated to all the people in a position to act. A month later, specifically on 10th December 2019, NEITI organised a policy dialogue on oil theft in Nigeria. The dialogue was attended by high-level officials of the Ministry of Petroleum Resources, NNPC, DPR, JTF, ONSA and the oil companies. Based on presentation of NEITI’s report, we had a very frank discussion about the extent of the problem, the challenges and the options for addressing the increasing menace of oil theft.

After the meeting, I sent a covering note and an executive summary of the deliberation and all the key presentations to major decision makers. Earlier the National Economic Council (NEC) had reconstituted its Ad-hoc Committee on Crude Oil Theft, Prevention and Control and appointed as its chairman Mr. Godwin Obaseki, the governor of Edo State. The Obaseki Committee and even NNPC had alerted the country that the Federation lost 22.8 million barrels of crude, valued at $1.35 billion, in six months in 2019 alone. We invited Obaseki to deliver the keynote address at the NEITI event and he graciously agreed.

The was a lot of alignment between the findings of his committee and that of NEITI and the submission of the key stakeholders who attended the NEITI policy dialogue. I am inclined to believe that his committee submitted a report to NEC. In any case, we sent our reports to NEC too. So, between the report of NEITI, the Obaseki Committee and possibly many others, the fact that oil theft is a problem has long been established and recommendations on what to do abound.

Surely, issues have different gestation periods. Now that oil theft has finally got our attention, it is important we go beyond just putting up appearances, making a grand show of destroying illegal refineries as if that is all there is to oil theft, devising schemes to further milk the state, and presenting oil theft as the sole reason for the decline in oil production and revenue. We have no option but to tackle oil theft. It has become an existential challenge. But we need to address this in a comprehensive and strategic way, not in the usual impulsive and episodic manner. And in the little time left for oil, we need to pay serious attention to the many issues, including suboptimal decisions and choices, that have led to the underperformance of our hydrocarbon sector.