The Nigerian government will make illicit refineries operating in the Niger Delta legal, and will even supply them with crude oil, the presidency announced yesterday. The legalization process will take until the end of the year, and the crude they will process will be sold at a reasonable price.
The move, in stark contrast with years of forceful shutdowns of illegal refineries in the poverty-ridden Delta, follows negotiations between the federal government and local community leaders that were aimed at resolving problems, including oil theft that causes spills and losses for pipeline operators as well as lack of jobs in the area.
Oil theft is how most of these mini-refineries get the crude to process, and it has been a major headache for Nigeria’s oil industry. Last month, Bloomberg’s Paul Wallace reported that according to Wood Mackenzie estimates, almost a third of the crude that flows along pipelines in the Delta ends up in the hands of thieves—thieves who often cause pipeline leaks like the one that led to the closure of the 60,000-bpd Agbada flow station in June.
The oil theft problem is not new and Abuja and oil field operators have tried different approaches to solving it. Operators, including Shell, are using surveillance helicopters, drones, and wellhead cages, Wallace reports, but according to industry sources, nothing seems to be doing the trick. Related: Qatar Dispute Back To Square One
The idea of legalizing the refineries was conceived relatively recently as an alternative to all these failed approaches. The legalization will in fact involve replacing the illicit facilities with modular refineries, two per Delta state to begin with, in the next quarter. That’s what Acting President Yemi Osinbajo told media after a meeting with community leaders.
Settling the matter with the refineries is essential for achieving some form of lasting peace with militant groups active in the Delta, who claim that their action are motivated by the unfair distribution of Nigeria’s oil wealth at the expense of Delta communities.
By Irina Slav for Oilprice.com
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