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Nigeria’s Oil Industry Can Flourish Despite Oil Theft

Nigeria has posted strong oil profits, with high hopes to continue expanding its fossil fuel industry as oil majors look to Africa to boost their low-carbon operations. But oil theft continues to be a significant challenge to the country’s oil output with the government taking major steps to tackle the crime.  Between 1999 and 2020 the Nigerian government earned $741.48 billion from oil and gas, according to a recent Nigeria Extractive Industries Transparency Initiative (NEITI) report. NEITI Executive Secretary, Ogbonnaya Orji, stated at a stakeholder meeting this month that the 2021 oil and gas sector report is ongoing and will be released soon. 

Nigeria recently established its five-year strategic plan for 2022 to 2026, which will allow NEITI to support the government in recouping revenue from the oil and gas sector. So far, NEITI reports are said to have led to the recovery of billions of dollars from oil and gas firms. In addition, recommendations from the reports supported the development of major energy reforms. The group hopes to provide data and expertise to help the Presidential Steering Committee effectively roll out the Petroleum Industry Act (PIA). Orji also vowed to improve the transparency and accountability of Nigeria’s oil and gas sector to deliver on pledges to international actors. This is expected to boost foreign investments in the country and support the ongoing growth of its energy sector. 

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In addition to improving reporting in the energy industry, Nigeria’s oil and gas industry is demonstrating significant advances that give high hopes for the longevity of the industry. This month, state-owned oil firm NNPC Ltd began drilling for oil and gas in a field in the north of the country that is thought to have reserves of around 1 billion barrels of crude and 500 billion cubic feet of gas. This supports the government’s aim of producing crude in non-traditional regions of the country, expanding the sector beyond the Niger Delta. The project is expected to achieve billions of dollars in earnings. Nigeria’s president Muhammadu Buhari stated, “The project promises many benefits and these include energy security, financial security, food security as well as (the) overall socio-economic development of our country.”

In the first phase of the Kolmani project, NNPC has plans for an oil refinery, a gas processing unit, a 300-megawatt power plant, and a fertilizer plant producing 2,500 tonnes a day. This builds upon its 2019 discovery of commercial quantities of crude oil, gas, and condensate between the Bauchi and Gombe states in north-eastern Nigeria. A conglomerate owned by 19 northern states, is operating the project with Sterling Global Oil and New Nigeria Development Commission, with no participation from international oil and gas firms. 

There are, however, challenges to developing the region’s oil industry as there is an Islamist insurgency taking place, adding pressure to developing the industry in this area. Nigeria has long battled with oil theft in the Niger Delta region, and this crime will likely also be seen in new oil regions of the country. The Nigerian government has been encouraging energy firms to explore other potential oil areas, such as the Lake Chad Basin, to expand the country’s oil-producing area and attract further investment in exploration for the past several years. 

President Buhari is encouraging the NNPC to work with communities in the region and take lessons learned from the Niger Delta to avoid conflict or sabotage of oil pipelines, as well as oil theft. The country’s oil and gas firms have already shifted their focus to offshore oil to avoid common instances of oil theft from onshore operations. Oil robberies in Nigeria were thought to equate to  $3.5 billion in revenue lost in 2021, with 200 million barrels of crude lost in the first 11 months of the year alone. 

Despite the losses, crude oil provided around 41 percent of the total federal government revenue in 2021, supporting the development of a large amount of Nigerian infrastructure.

Nigerian authorities have been successful in their crackdown on oil theft in the Niger Delta in recent months, with recent raids and collaboration with local security agencies deterring the thieves. A recent operation, led by former oil region militant, Government Ekpemupolo, led to the shutdown of 58 illegal taps on oil facilities.

Despite the ongoing challenge of oil theft across the Nigerian oil-producing region, there are high hopes for the country’s oil and gas industry. With new discoveries and the reinvigoration of exploration in new Nigerian oil regions, the sector is expected to attract greater levels of foreign investment in the coming years, as well as continue to produce oil for decades to come. 

By Felicity Bradstock for Oilprice.com

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Felicity Bradstock

Felicity Bradstock is a freelance writer specialising in Energy and Finance. She has a Master’s in International Development from the University of Birmingham, UK. More