With influential individuals possibly complicit in oil bunkering, concerted and coordinated efforts will be needed to end the costly practice.
Nigeria is the world capital of oil theft, at least according to The Economist. However, because the government does not know how many barrels it produces, the exact extent of the theft is unknown.
Figures outlined by Ngozi Okonjo-Iweala, Nigeria's finance minister, suggest that illegal oil bunkering could be as high as 400,000 barrels per day (bpd) and have led to a 17% fall in officials sales in April 2012. Shell Petroleum Development Company (SPDC), however, estimates the loss to be much lower at 150,000 to 180,000 bpd, approximately 7% of production.
Either way, the costs of theft are huge. If we take the official figures for barrels lost to bunkering, Nigeria and its operating partners may be losing around $40 million per day (assuming a flat price of $100 per barrel) which translates to around $15 billion in revenue per year. Add to this the loss of life from the dangerous activity and the damage done to the environment due to spills and the urgency of the problem becomes clear.
Despite much political rhetoric over the importance of combating oil theft, the menace seems to be growing in sophistication. While a large amount of mystery surrounds methods of tapping oil, experts suggest that they range from local artisanal bunkering to highly organised and complex methods suspected to occur at the export terminal.
This level of skill and sophistication suggests the possible involvement of powerful individuals behind the scenes. Many allege that high-level politicians, former and serving military officers, militant leaders and oil company employees may all be complicit in the practice. And given their ineffectiveness, some believe there could also be collusion amongst regulatory oversight agencies. Observers also point the finger at international cartels which operate ships illegally to transport stolen crude and sell it on the global market.
However, until recently, multinational companies operating in the Niger Delta have not been overly concerned about oil theft, largely because the economic loss to them has been manageable. This is partly due to the fact that, in the absence of reliable data regarding the number of barrels of oil produced, oil companies pay taxes and royalties not based on production but on the number of barrels exported.
In order to combat bunkering and enable the flow of oil to be more closely accounted for, the Nigerian Extractive Industries Transparency Initiative (NEITI) in 2011 recommended the installation of a robust metering infrastructure at flow stations and terminals in line with international best practice. With meters installed at flow stations - and with oil taxed at rates of production rather than exportation - oil companies would bear a significant economic burden of lost oil. At current royalty rates (20% in the case of onshore and 18.85% in the case of offshore shallow waters) companies would pay around $8 million each day for the estimated 400,000 barrels currently lost to thieves. Unfortunately, however, the NEITI recommendations have not become law.
Capping the leak
Even if oil companies were pushed to find solutions, the deep-rooted and complex problem would prove difficult to tackle.
To begin with, there are reportedly thousands of illegal refineries scattered around the Niger Delta. In just the first quarter of 2012, the Joint Task Force (JTF) in the Niger Delta claimed it had destroyed nearly 4,000 illegal refineries and seized hundreds of barges, boats, fuel pumps, tanks, and other equipment belonging to oil thieves. Governor Sanusi Lamido Sanusi of the Central Bank of Nigeria has suggested illegal refineries should be bombed, but this would not solve the problem which runs a little deeper.
Many of the young men partaking in the business are ex-militants or even ex-oil industry workers with a shortage of alternative opportunities. What is needed then is not just the short-term removal of illegal refineries but also the creation of sustainable ways to offer young people long-term employment. As well the $1 billion needed to clean-up the environment around the Niger Delta, according to the United Nations, resources must also go into creating alternative livelihood opportunities for the youth.
Another important step toward reducing oil theft is a concerted overhaul of the security system in the Niger Delta to ensure coastal waters and pipelines are policed by accountable agencies and that those charged with theft are prosecuted effectively. On past occasions, the trials of suspects have been impeded, leading some to accuse powerful individuals of intervening.
Finally, bunkering could be reduced through the use of new technologies that can 'fingerprint' crude oil in order that its originating field can be identified.
A long-term necessity
Though efforts to end bunkering will prove difficult, plugging leakages in oil production will put more money on the table in the long-term.
Platform, a UK-based research organisation, reported that Shell spent about $383 million on third parties to secure their facilities in the Niger Delta from 2007-2009. Since the declaration of the Niger Delta Amnesty Programme for thousands of militants in 2009, the security challenges have reduced and those resources could now be used to fund a robust metering infrastructure at flow stations. This would stop confusion over how many barrels of oil the country produces and increase accountability. However, there is no sense in only blaming oil companies for oil theft. Oil companies, security agencies, government and all other stakeholders must work together.
President Goodluck Jonathan, as a son of the Niger Delta, perhaps bears a particular moral and personal responsibility to end these unpatriotic acts of criminality.
Uche Igwe is a former Africa Policy Scholar at Woodrow Wilson International Center for Scholars in Washington DC, USA, and Chevening Fellow on Goverment Relations with NGOs and Civil Society at the University of Glasgow, United Kingdom. He is currently based at Institute of Development Studies, University of Sussex, and also a Visiting Scholar at Africa Program (SAIS) in Washington DC.