The Growing Problem of Oil Theft in China

China may be leaking more oil and gas from its pipeline network than any country in the world, much of it because of criminal activity. Currently, China has a trunk pipeline network for oil and gas of over 70,000 kilometers, transporting 70 percent of the crude oil and 90 percent of the natural gas. By 2020, the network will reach 200,000 km. Pipeline pressure is usually 100 to 120 atmospheres (1470 to 1764 psi).
The safety and security of the network is now getting critical and three factors are affecting that network.

First is the age of the pipelines. About 60 percent of the trunk lines are more than 20 years old and the pipelines in the east part of the country are over 30 years old.

Accidents happen often due to corrosion, inadequate maintenance and bad quality original materials.

Chinese villagers clean an area near corn fields blackened by crude oil in Jining, eastern China's Shandong province, July 31, 2007. Thieves broke open a crude oil pipe line causing 30 tons of spillage that contaminated nearby farm land.

The second reason for accidents is the lack of regulations and, especially, not following rules even when they are in place. Because of fast urbanization, sometimes land is used without following regulations or applying for permits. For example, a few years ago, a building was constructed on top of a gas pipeline in Liaoning Province.

The result was easily predictable: a big explosion. On May 2, 2010 an oil pipeline between Dongying and Huangdao was damaged by a bulldozer which was operating without following regulations. Just 5 months ago, the Lanzhou-Zhenzhou-Changsha oil product pipeline was damaged by a construction crew.

But the biggest and least-known problem is oil pilferage by thieves who drill into oil pipelines. This is the cause of at least 40 percent of China's oil pipeline leaks. This criminal activity started in the early 1990s and it has never stopped since.

Although alarm systems are installed along the pipelines, men have to be used to prevent oil theft. In Changqing oilfield alone, thousands of security guards are hired to patrol the pipelines in the oilfield area. However, a lot of pipelines are located in remote areas where no communication exists. To totally prevent oil theft is sometimes mission impossible and the stealing is done by drilling into the pipelines, an almost daily occurrence.

Between 2002 and 2009, Sinopec encountered numerous oil stealing cases with some 19,804 cases involving drilling into oil pipelines and 12,167 cases of direct theft from production wells.

Oil theft from pipelines has become so widespread that even undersea pipelines are being attacked. In 2006, both oil and gas pipelines at the bottom of the sea in the Shengli oilfield were drilled and 70 barrels of crude oil were stolen. But much more oil was spilled and that leak caused serious pollution in the area. The government came down hard on the perpetrators and two were executed. The Shengli oilfield had to pay hundreds of millions of dollars to fix the damaged pipelines, clean the seawater pollution and compensate local farmers.

Like many others things in China, strangely, some local people even form so-called "oil collection" teams and get a license to operate. In theory, their mission is to collect oil leaked on the ground and clean up the pollution. This gives them the legal right to steal oil. Drilling into pipelines to steal oil has become an organized crime, including detecting the proper spot, drilling holes into oil pipelines, collecting oil, transportation, refinery, and distribution.

Criminals drill into oil and gas pipelines for two reasons. One is to steal oil to sell to small refineries which rely on stolen oil to maintain crude supply. Another is to deliberately cause an oil leak and then ask for pollution compensation, which usually happens in poor rural areas. "Unless the small refineries disappear, the oil theft won't stop," said a pipeline security person.

However, closing down small refineries will adversely affect local economies and lead to clashes between oil companies and local governments. The national oil refineries can get enough crude oil but the local small refineries can't, and that allows the stolen oil to find a ready market. Sometimes local police and security personnel side with the oil stealing criminals or even become their accomplices. Oil experts think that the only way to eliminate small refineries is to open the crude supply market but it is held tightly by the three major oil companies.

In October 2009, a new law, "the Draft of Oil and Gas Pipeline Protection Law" was enacted by the National People's Congress. The hope is that the new law will have some effect on pipeline protection but the rewards are too great for criminals to quit, even at the risk of the death penalty.

By. By Xina Xie and Michael J. Economides

Source: Energy Tribune