Nigeria’s Oil Woes To Get Worse Before They Get Better

As Nigeria moves into election season, oil production is struggling – and it seems it will get worse before it gets better.

Nigerian output slipped below 1 million barrels per day in August, knocking the country from its long-held position as Africa’s top producer. The government had initially aimed for 1.88mn bpd this year, but cut this forecast back in the summer to 1.6mn bpd – which still looks overly optimistic.

Senator Ahmad Lawan, who leads the chamber, said on October 7 that losses had reached 1mn bpd and expressed concern about the impact on Nigeria’s finances.
Nigerian National Petroleum Corp. (NNPC) has cut transfers to the federal government as it struggles to balance its books.

“I consider the oil thieves the worst enemies of our country. The thieves have declared war on our country and our people,” Lawan said.

“I strongly feel that if we do not take the necessary measures to stop the thieves immediately, our economy will be devastated, as efforts to provide infrastructure and diversification of the economy would both be thwarted. It is time to take drastic and desperate measures against the thieves.”

Nigeria’s oil theft problem is not new, but it has spiked recently, SBM Intelligence senior energy analyst Ese Osawmonyi said.

Also Read: NNPC, Major Partners Lose Over $1bn Revenue in One Month

Many players
There are two sides to the problem, she explained. “Community members are working to help themselves, the government has been unwilling to use proceeds from the oil to improve the lives of people in the area,” Osawmonyi said. “Poverty is sky rocketing.”
“It’s not just community members, though,” she said. “We’re going into the political cycle and there’s a lot of requirement for monetary spending.”

Political campaigns require funds – and the oil industry is a major source of hard cash in Nigeria. As such, an entire ecosystem has grown up to allow oil theft.
“There’s an entire value chain of people involved – from NNPC, to security forces, even workers in oil companies, in addition to community members,” the SBM analyst said.
PENGASSAN president Festus Osifo told the Nigerian Senate much the same thing in testimony last month. Men in the Army and Navy “pay their superiors to be posted to the Niger Delta”, Osifo said, so lucrative is a posting in the area.

Also Read: NNPC Recommends Stiffer Sanctions, Legal Framework to Combat Oil Theft

Professionalism
NNPC head Mele Kyari grabbed industry attention last week when he revealed the existence of a 4 km pipeline. The illegal link had been stealing oil for nine years, he said. Initially, Kyari said the link was connected to the Forcados terminal, before saying it was connected to the Trans Escravos system. Both are located in Delta State.

The illegal link runs to the Afremo platform, Kyari said, providing a potential exit point for the stolen crude. The NNPC head has made a number of statements about tackling oil theft.
Judging from the professionalism with which some of the illegal points have been attached to the pipelines, work has been done by trained insiders – or perhaps by militants trained in such efforts under previous government initiatives.

The energy analyst was sceptical that NNPC’s relaunch had made a difference to how the company operated. “It has the same bureaucracy – and the same challenge around transparency. It’s meant to be an active player, but it’s still paying subsidies on behalf of the government. It’s still operating as the old government franchise.”

Also Read: New NNPC Grows Profit After Tax By 134.84%

Delta’s part
The Ministry of Petroleum Resources and NNPC signed a contract with a former militant, Government Ekpemupolo, known as Tompolo.
The Delta State native is a former leader of the Movement for the Emancipation of the Niger Delta (MEND). The government agreed to pay Tompolo to prevent theft.

Reports last week said Tompolo’s Tantita Security Services had seized a crude oil tanker, the MT Deinmo, last week, off the Escravos River, in Warri South West. Tantita also caught eight crew members onboard the ship, saying this had an unspecified amount of stolen crude.

Briefing the press on October 9, Tompolo said his forces had discovered more than 50 illegal oil theft points in the Delta and Bayelsa states. The former militant went on to say he had a list of all those involved in the illegal oil trade.

Signing the contract with Tompolo was controversial, though. “In my opinion, the contract was not well thought out,” Osawmonyi said. “He’s not able to secure the peace the way the government wants.” Tompolo’s area of operation is relatively limited, largely to a part of Delta.

The Tompolo contract has rubbed some people the wrong way, not least other militants in the area. Tompolo, they say, cannot provide security for the entire Niger Deltan oil industry.
The SBM analyst said there were two options. The government could sign contracts with more militants or it could cancel the Tompolo contract. Both options have their challenges.
“It was wrong to sign just one contract. The government should have called all stakeholders in the region,” she said.

Also Read: NNPC Pushes For Capital Punishment For Oil Thieves

Under pressure
It is a “certainty” that theft will continue. “The impact, or significance, depends on the government’s approach. It’s one thing to make statement but another to make the effort – and there is a lack of political will at present.”

In the short term, in the run up to the presidential elections due February 28, “theft is likely to increase”, Osawmonyi said. National Assembly elections will take place on the same day, while governor elections will come on March 11.

More clarity is needed from the presidential aspirants on their plans for the oil industry, the SBM analyst said. “There is one critical problem: the petrol subsidy,” she continued. Subsidies may cost the government 6 trillion naira ($13.8 billion) this year, putting the country under considerable strain.

“Those revenues could have gone to development. Whoever comes in will be unable to handle servicing Nigeria’s debt and the subsidy – and at the same time develop the Niger Delta,” Osawmonyi said. “The government has taken the resources and channelled them to the wrong sources.”

Energy Voice