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Nigeria lost roughly US$1bn in export revenue to crude theft in the first quarter of the year, officials say, as criminal networks work to capitalise on soaring energy prices in the wake of the Ukraine crisis.

Out of the 141 million barrels of oil produced in the first three months of 2022, only about 132 million were received at export terminals, the head of the Nigerian regulator told Reuters this month.

Gbenga Komolafe, CEO of the Nigerian Upstream Petroleum Regulatory Commission, said crude oil theft has increased to a daily average of 108,000 barrels in the first quarter of 2022, from 103,000 barrels in 2021.

“This trend poses an existential threat to the oil and gas sector and by extension, the Nigerian economy, if not curbed,” he added.

International oil companies (IOCs) have long called for the Nigerian government to crack down on criminals siphoning crude from pipelines, particularly those located in Nigeria’s oil-rich South-South region.

But the problem remains, and according to Robert Besseling, founder of specialist intelligence company Pangea-Risk, it should come as “little surprise” that the illegal appropriation of oil has spiked in recent months.

“As a general rule of thumb in the Niger Delta, when oil prices are low globally, you have a high risk of insurgency and attacks – pipelines are blown up, oil executives kidnapped and oil facilities raided. When prices are high, the risk of theft increases,” he tells GTR.

He says pipelines are being increasingly targeted by an “overlapping and sophisticated” network of militants and organised crime groups, sometimes with the help of corrupt security forces or political figures who are “in on the act”.

Much of the stolen crude has to be transported or shipped abroad due to a lack of refining capacity within Nigeria, prompting further concern over the role of international shippers, traders and refineries in propping up the illegal trade.

India is likely one main shipment destination for crude oil illegally lifted in Nigeria, Besseling adds.

 

Investment plummets

As well as the immediate hit to Nigeria’s public finances, crude theft is also stifling international investment in new projects –  a problem for country where oil output has been suffering a long-term decline.

Speaking at an event held by the Lagos Chamber of Commerce and Industry in June, the industry body’s president, Michael Olawale-Cole, said crude theft has seen production costs soar to US$32 a barrel.

“Losses from pipeline vandalisation and theft are overwhelming IOCs. Several indigenous oil firms are having to contend with rising operational expenses driven mostly by personnel, maintenance, and security costs,” he said.

The Nigerian government has said it is working to tackle the issue, with president Muhammadu Buhari reportedly vowing to set up dedicated courts aimed at tackling the problem.

Nigeria has also passed a Petroleum Industry Bill (PIB) to address regulatory uncertainty, as well as longstanding concerns over corrupt practices and a lack of transparency in Nigeria’s state oil company.

But analysts have questioned whether the PIB is ambitious enough to entice oil companies back to the country, particularly with European and US-based companies set to focus investments in cleaner energy sources. Other African countries have increasingly offered better value for money.

Some IOCs say they plan to exit the Nigerian market imminently, and have cited the impact of crude theft as one factor driving them away.

“Shell, Exxon Mobil both announced they plan to sell their onshore assets. The CEO of Shell has blamed it on an irreparable breakdown in community relations and high operational risks,” Besseling tells GTR.

“This means that Nigeria’s oil production is falling every month, and the country has been overtaken by Angola as Africa’s largest oil producer. That’s of course, because the smuggled or the stolen crude is not being counted as official oil production – Nigeria could even fall behind Libya.”