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Nigeria Ups Oil Output Despite Rampant Oil Theft

Crude Theft

Things have been mostly good for Nigeria’s oil industry in recent months. The government negotiated a peace with the militants that wreaked havoc on the oil transport infrastructure in the Niger Delta and output has been growing steadily, hitting 1.733 million bpd last month. However, one problem remains: oil theft.

Bloomberg’s Paul Wallace reports 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 last month.

The oil theft problem is not new and Abuja and oil field operators have tried different approaches to solving it. Operators, such as Shell, are using surveillance helicopters, drones, and wellhead cages, Wallace reports, but according to industry sources, nothing seems to be doing the trick.

The federal Nigerian government, for its part, is swinging between the summary destruction of the illegal refineries in the Delta that process the stolen crude and an initiative to legalize them and organize them into a modular refinery consortium. Just last year, the army destroyed 181 illegal refineries and confiscated oil and diesel worth about US$1.3 billion. Now, Abuja is negotiating with Niger Delta communities on the legalization of the illicit processing facilities. Related: Aggressive U.S. Oil Sanctions Could Bankrupt Venezuela

The Niger Delta has been a sore spot for Nigerian governments for years. The communities living in the oil-rich region only get the scraps from the revenues flowing from the oil wealth they sit on with jobless rates sky-high, especially among the youth. According to the militant groups that crippled the country’s oil industry over the last two years, it’s this poverty that is driving them to violence, so the government’s efforts to appease these groups had focused on proposals that would create jobs and redirect more of the oil revenues to the Delta communities, where about 50 percent of people live on less than US$2 a day.

Also prompted by the militant attacks and oil theft losses has been a recent restart of oil exploration in the North. Muhammadu Buhari’s administration has been eager to diversify away from the troublesome Niger Delta, but the North may hold pretty similar challenges, if not worse. The northeastern state of Borno, AFP notes, is the stronghold of Islamist group Boko Haram, and any oil and gas discovery in the region would likely exacerbate the violence.

Last week, Oil Minister Emmanuel Ibe Kachikwu told media that the federal government had approved a new oil policy that addressed the most pressing issues Nigeria faces with regard to its oil wealth, including the situation in the Delta. Although he did not disclose details, he said that the government focused on “stability and consistency” in the oil business in the Delta.

It is clear that nothing short of a comprehensive—and viable—plan for the economic transformation of the Niger Delta will do the trick. There are thousands of miles of pipelines crisscrossing the region and surveillance is challenging, to put it mildly. Even more challenging is responding to attacks on infrastructure. The only way to put an end to the thefts is find the thieves something else to do.

By Irina Slav for Oilprice.com

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