OPEC member Nigeria is losing billions of U.S. dollars every year to oil theft and sabotage, which continue to plague the oil sector in Africa's top crude producer and exporter. Every day, Nigeria's oil production could have been up to 200,000 barrels higher if it weren't for the still endemic and widespread oil theft, according to government and industry estimates.
Every year, Nigeria is missing out on billions of U.S. dollars of oil revenues because of crude oil losses, oil thieves rupturing pipelines and causing spills, and international oil majors declaring force majeure on loadings because they have to repair pipeline leaks resulting from theft or sabotage.
Big Oil acknowledges that oil theft and sabotage continue to pose significant challenges to their operations in Nigeria, mostly in the oil-rich Niger Delta. At a time when upstream assets are competing to stay in the majors' core-operations portfolios amid divestments to free up cash for low-carbon energy, the biggest producer in Africa is not in a good position compared to other oil regions.
Oil theft and sabotage pose challenges to operations, while the oil spills play right into the hands of the Environmental, Social, and Governance (ESG) issues investors have with the world's largest oil companies. Add to this the long-awaited new petroleum bill - 20 years in the making - that Nigeria is getting ready to unveil and the attractiveness of Nigerian assets in Big Oil's portfolios could be fading in the not-so-distant future.
42 Million Barrels Of Oil Lost To Theft and Sabotage In One Year
Crude oil losses due to theft and sabotage totaled 42.248 million barrels in 2019, valued at US$2.772 billion at an average price of US$65.61 per barrel for that year, the latest available figures from the Nigeria Extractive Industries Transparency Initiative (NEITI) showed. This was 21 percent lower than the losses in 2018 and half the losses from the peak oil theft and sabotage losses in 2016. Yet, it is still a sizeable chunk of Nigeria's oil production, depriving the country of much-needed oil revenues, which are the backbone of its export revenues.
According to OPEC, the oil and gas sector accounts for about 10 percent of gross domestic product (GDP) in Nigeria, while petroleum exports revenue represents around 86 percent of total exports revenue.
Related: Oil Rally Grinds To A Halt NEITI's report found that Nigeria lost 138,400 barrels per day (bpd), or around 7 percent of its total production to theft and sabotage, local publication This Day reports. Between 2009 and 2018, Nigeria was losing an estimated US$11.47 million every day because its crude oil production was lower than what it would have been without pipeline vandalism.
NEITI highlights in its 2019 audit report that losses from crude oil theft and sabotage continue to be a major issue for Nigeria, with "incessant crude losses in the industry."
The Nigerian National Petroleum Corporation (NNPC) says it is working to ensure the safety of pipelines in collaboration with the federal government, but the problem is far from over.
Just this week, Nigeria's Information Minister Lai Mohammed said that Nigeria was losing an average of 200,000 bpd, or over 10 percent of its crude production of around 1.5 million bpd, to pipeline vandalism. The costs to repair vandalized pipelines amount to millions of U.S. dollars, the minister added.
Shell Unit Worst Hit by Theft and Sabotage
The 2019 losses of crude oil production were the highest at Shell Petroleum Development Company of Nigeria (SPDC), a unit of Royal Dutch Shell, which accounted for 56.10 percent of all volumes lost to theft and sabotage, NEITI's report showed.
In its annual report for 2020, Shell said that the sabotage and security issues continue to pose significant challenges to its Nigerian operations.
"Our share of production, onshore and offshore, in Nigeria was 223 thousand boe/d in 2020, compared with 266 thousand boe/d in 2019. Security issues, sabotage and crude oil theft in the Niger Delta remained significant challenges in 2020," Shell said.
Most of the spills were caused by sabotage, Shell's Nigerian unit says in a graph on its website. In June 2021 alone, there were eight oil spills at assets the company operates, all caused by sabotage, Shell's data showed.
"In our Nigerian operations, we face various risks and adverse conditions which could have a significant adverse effect on our operational performance, earnings, cash flows and financial condition," Shell said in its annual report for 2020.
Those risks are not limited to oil theft and sabotage.
ESG and Oil Spill Lawsuits
In January this year, The Hague Court of Appeal ordered Shell to compensate Nigerian farmers for two oil spills in the country 13 years ago, in the first lawsuit in which a company had been held liable in the Netherlands for its actions abroad. The ruling of the Dutch court is setting a precedent for future lawsuits brought against oil firms in the countries where they are based, instead of the countries where oil spills or oil pollution have allegedly taken place.
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Climate litigation now adds another challenge to Big Oil's 'license to operate' in the era of the net-zero emission pledges.
Shell, in particular, does not see its upstream oil operations in Nigeria as compatible with its strategy to become a net-zero energy business, chief executive Ben van Beurden said at the supermajor's annual general meeting in May.
"[T]he balance of risk and reward associated with our onshore oil portfolio in Nigeria is no longer compatible with our strategic ambitions. Because of this, we have started discussions with the Nigerian government to align on a way to move forward," van Beurden said.
In the fierce competition to remain core oil and gas assets for the majors, Nigeria may be fighting a losing battle with new petroleum regulations 20 years in the making, continued oil theft and sabotage, and lawsuits against Big Oil over oil spills.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More