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Felicity Bradstock

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.

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The Criminals Undercutting Nigeria’s Oil Industry

  • Earlier this month 100 people died because of an explosion at an illegal refinery in Nigeria, a tragic event that highlighted a major problem facing the country’s government.
  • Illegal oil bunkering has long been a problem in Nigeria, with estimates suggesting roughly 10 percent of the country’s daily oil output is lost due to vandalism and theft.
  • While the government has moved to shut down as many illegal refineries as they can, critics claim that they need to focus on providing alternatives for those people who have been pushed to steal oil. 

Illegal refineries have been plaguing Nigeria for years. The government has repeatedly tried to curb clandestine refining activities and has reduced the number of operations substantially in recent years. But several clandestine refineries still exist, presenting a clear danger to those working informally in the oil industry. 

Nigeria drew global attention this month as 100 people died because of an explosion at an illegal refinery in the Abaezi forest in the southeast of the country. In addition, many of the vehicles waiting to purchase the fuel were burnt. This is just the most recent of incidents. In October, around 25 people were killed at a different illegal refinery in the region.

Due to high unemployment and poverty rates across the Niger Delta, illegal refining activities have become commonplace. Locals tap the crude oil from pipelines of oil majors running through the region to refine and sell. This has had the twofold impact of causing many deaths, due to the dangerous nature of the activities, and polluting the environment across the region. The crude is highly flammable, meaning the slightest spark can cause a huge explosion and widespread devastation.

The scale of the issue is clear, with Nigeria losing approximately 200,000 bpd, or 10 percent of its daily output, due to vandalism and the tapping of oil pipelines. In 2019, it is estimated that Nigeria lost around 40 million barrels of crude, equivalent to around $2.77 billion.

In addition to the structural problems in the country, many locals are simply fed up with international companies coming in and taking national resources, while they see little of the profits being reinvested in the region. Many believe that if Big Oil comes in and pollutes the land, then they should be able to do the same, earning revenue from Nigeria’s natural resources.

Illegal ‘oil bunkering’, as it is known, is viewed as Nigeria’s most profitable private business. The crude being siphoned from pipelines can earn locals $15 to $20 per barrel. In addition, there are few costs involved as the government and oil majors have already invested in largescale oil infrastructure across the Niger Delta. 

Nigeria’s oil industry has existed for over 60 years, with international energy firms investing heavily in developing the sector over that time. It currently has 18 operational pipelines and is the world’s 11th biggest producer. The petroleum industry contributes around 9 percent of Nigeria’s GDP. With an industry this big, it’s no wonder that communities living in poverty are dissatisfied with the reinvestment seen in the country over the last decades, leading them to take the situation into their own hands.  The Nigerian government has been working hard to curb this major criminal industry. Earlier this year, the government attempted to curb the trend of illegal refining, particularly as the impact of the activities on air pollution is worsening across the Rivers state region. The government succeeded in halting operations at 128 of 142 illegal refining locations identified by destroying the sites. The next month, reports suggested that the military had deactivated 30 more sites across the Rivers, Bayelsa, Delta and Abia States.

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It's clear the government is cracking down on illegal operations, but it doesn’t seem to be enough to put a stop to these types of activities. With such widespread poverty, many simply move from one illegal refinery to the next, well aware that they can make a decent living from tapping oil pipelines despite the high risk involved. 

Some environmental groups are now pressuring the government to open small-scale refineries to create jobs and encourage locals to find formal work in the oil industry. They believe that simply destroying illegal refineries will not put an end to illegal operations without replacing them with better working opportunities. 

At the beginning of the year, Governor Nyesom Wike provided around $1.1 million in funding to support 23 local governments in fighting ‘oil bunkering’. He suggested that destroying the sites was the only way to stop operations. But little effort has been made to create new opportunities across the oil regions. 

While Nigeria presents perhaps the worst case of oil bunkering, similar issues are faced by several governments around the world. In Mexico, for example, oil theft has been on the rise as oil prices have increased. Oil theft or huachicoleo supports violent crime in Mexico as it is often driven by criminal gangs due to the lucrative nature of the activities. The situation led President Andrés Manuel López Obrador to make curbing huachicoleo a core pledge of his 2018 election campaign. Meanwhile, oil theft in Colombia increased last year as supplies of Venezuelan gasoline were halted. 

Nigeria has the most widespread activities of illegal oil refining worldwide, causing the government to lose billions of dollars every year as well as wreaking havoc on the environment. While the government attempts to tackle the crime, the failure to reinvest oil revenues into the Niger Delta region or offer formal job opportunities continues to encourage locals to seek informal work in illegal refining, no matter the cost.

By Felicity Bradstock for Oilprice.com

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