ANALYSIS: How broke Nigeria lost $10 billion to crude oil theft in seven months

Last week, the Group Managing Director of NNPCL, Mele Kyari, headlined the State House media briefing, expressing concern about the menace of oil theft undermining Nigeria’s production and consequently fiscal capacity.

Mr Kyari blamed various sections of the Nigerian society for being complicit in the theft of millions of barrels of crude oil, mentioning even that make-shift pipelines and stolen fuel have been found in churches and mosques.

Between January and July, Africa’s biggest oil producer lost an average of 437,000 barrels of oil a day to criminal entities and individuals who illicitly tap pipelines onshore and offshore in the Niger Delta region, a PREMIUM TIMES data analysis has shown.

At current prices, the stolen oil is worth more than $10 billion, which is equivalent to N4.3 trillion (at N430 to a dollar). This financial loss is more than 50 per cent of Nigeria’s external reserves. It is also more than double Nigeria’s total revenue between January and April, a period when Nigeria’s total revenue was unable to service its debt and the country had to borrow for everything else including payment of workers.

Nigerian production fell in the first seven months of the year to about 1.1 million barrels a day of crude equivalent in July from over 1.4 million barrels in January, according to data obtained from the Organisation of the Petroleum Exporting Countries (OPEC).

The average quota set by OPEC for Nigeria is 1.73 million barrels per day during the period.

The Nigerian government has attributed its low output to large-scale theft of crude and related pipeline sabotage. This damage has reduced exports, forced some companies to shut down production and crippled the country’s fiscal stability.

For the first time since 2015, the world is in the midst of a sustained oil boom, yet Africa’s leading producer is not tapping from the proceeds. The escalating geopolitical tensions in Eastern Europe have seen crude oil prices rise to an average of $112 per barrel in the first half of 2022.

The Nigerian treasury, which should be raking in high revenues, has been squeezed at both ends of the oil trade – upstream, by one of the biggest frauds in Nigerian history related to a fuel subsidy bill worth upwards of $9 billion in 2022, and downstream, by the theft of oil on an industrial scale at the source.

Data analysis

At the start of the year, Nigeria produced 1.41 million barrels per day compared to the average OPEC quota of 1.68 million barrels per day for January. This amounts to a shortfall of about 270,000 barrels per day. With the price of crude at $85.24 in January, this shortfall translates to Nigeria losing a staggering $23 million daily.

Total production in February stood at 1.37 million barrels per day against the OPEC quota of 1.7 million barrels per day. The shortfall for that period was 328,000 barrels per day, which resulted in a loss of $30.81 million daily (at $93.95 OPEC basket price).

By March, the price of crude had jumped to $113 per barrel and OPEC had increased Nigeria’s quota to 1.71 million barrels per day. However, Nigeria’s production dropped to 1.34 million barrels, a daily shortfall of 378,000. This means the country was also losing $42.8 million worth of revenue daily.

Although oil prices dropped to $105 in April, OPEC still increased Nigeria’s required production to 1.73 million barrels per day. But Africa’s largest producer was only able to turn a daily output of 1.32 million barrels.

With some companies shutting production in May, Nigeria’s output further dropped to 1.23 million barrels per day compared to the average OPEC quota of 1.75 million. This amounts to a shortfall of 520,000 barrels per day. It also translates to a loss of $59 million in daily revenue since the oil price increased to $113 per barrel in May.

By June, OPEC basket price had climbed again to $118 per barrel. Still, Nigeria’s woes continued with total production dropping to 1.23 million barrels per day compared to OPEC’s required production of 1.77 million. This shortfall amounted to 534,000 barrels per day, resulting in a loss of $62.86 million daily.

For the seventh consecutive month, Nigeria’s output witnessed a sharp drop in July. Total production was 1.18 million barrels per day against OPEC’s 1.79 million barrels quota.

The OPEC Reference Basket also fell $9.17 or 7.8 per cent month-on-month in July, from $117.72 to an average of $108.55 per barrel.

Nigeria’s production shortfall in July thus amounted to 616,000 barrels per day, resulting in a $66.86 million daily loss.

A spotlight on oil theft

In the absence of effective action, the criminal business of oil theft has been growing steadily in Nigeria. To access the oil, criminal syndicates tap pipelines and other infrastructure in the Nigeria Delta.

“The pipeline taps are so sophisticated that they ran for 3-4 kilometres and would have involved cranes, industrial equipment and at least 40 workers,” Mr Kyari, the NNPCL chief said. “I can tell you that in one line just less than 200 kilometres we had 295 illegal connections.”

As it stands Nigeria is losing 95 per cent of oil output to criminals at oil hub Bonny, the town after which its premium oil grade Bonny Light is named and a key export point for the country.

The country can only secure 3,000 barrels out of 239,000 barrels injected into the pipeline from Bonny Terminal, the NNPCL Boss said.

This rate of theft has forced the NNPCL and their Joint Venture (JV) partners to shut down two production fields.

“No one produces oil so that the next person can take it,” Mr Kyari added. “The wise thing to do is to stop production.”

A trend

Usually, crude losses are suffered by companies who transport their products through pipelines with vulnerability to sabotage, but not all companies suffer crude losses.

Last year, Nigeria lost $4 billion to theft at the rate of 200,000 barrels per day.

In 2020, crude losses from theft and sabotage amounted to $1.63 billion at the average price of crude $41.65 per barrel. This was 6.10 per cent of total fiscalised production for the year.

Nigeria’s oil auditing agency, NEITI, indicated that in 2019, the West African country lost 42.25 million barrels of crude oil to oil theft, valued at $2.77 billion.

A year earlier, in 2018, about 53.28 million barrels of crude vanished from Nigeria’s resources.

Fiscal challenges

According to the federal government, the economic sabotage is pushing Nigeria to the financial brink. It is also the reason for NNPC’s inability to remit oil sales receipts to the central bank in the last six months.

The NNPC’s transformation into a public limited liability company further compounds the problem.

President Muhammadu Buhari said he is “worried” about how the large-scale crude oil theft is affecting the country’s revenue “enormously.”

The gross oil and gas federation revenue for the full year of 2022 was projected at N9.37 trillion. Still, as of 30th April 2022, only N1.23 trillion was realised out of the projection of N3.12 trillion, representing a mere 39 per cent performance.

Nigeria’s fiscal performance report for January to April noted that this underperformance of oil revenue was due to significant oil production shortfalls such as shut-ins resulting from pipeline vandalism and crude oil theft as well as high petrol subsidy cost due to higher landing costs of imported products.

Financial analysts said $10 billion in revenue would have saved the country, especially in recent times when the economy faces a double whammy: an empty treasury and rapid decline. Less than 10 per cent of that money would have been able to address the demands of university lecturers who have been on strike since February.

Is the government helpless?

As the oil theft menace reached an all-time high, President Buhari ordered the Chief of Defence Staff (CDS), Lucky Irabor, to coordinate a process that will ensure both kinetic and non-kinetic interventions including engagements of communities, private contractors, and technology.

Through this effort, security officials have destroyed 959 metal tanks for storage purposes, 737 ovens, 452 dug-out pits, 355 cooking pots, and 179 wooden boats between April and August, this year.

They also recovered 35.8 million litres of crude, 22 million litres of diesel, 0.15 million litres of premium motor spirit, 0.76 million litres of kerosene, 207 pumping machines, 12 welding machines, two power generators, and two filling machines.

Also, 11 vessels, 30-speed boats, 37 trucks and cars were impounded, while 122 suspects were arrested in connection with various cases of theft of petroleum products.

Last month, the government launched ‘Crude Theft Monitoring Applications,’ a platform created for members of host communities and other Nigerians to report incidents of oil theft.

Similarly, NNPCL awarded a multi-billion naira pipeline surveillance procurement to a former leader of the Movement for the Emancipation of Niger Delta, Tompolo.

Mr Kyari said the government’s security agencies are doing an excellent job of containing this, but as you do this, “sustenance is everything and therefore we decided that we need private contractors to man the right of way and also operate outside the right of way so that they can also join us to manage members of the community.”

“It is difficult to manage the issue of crude oil theft but we are not helpless and our efforts are paying off,” he said.