Crude oil theft, illegal/Artisan Refining in the light of

international oil refinery

Crude oil theft, illegal/Artisan Refining in the light of

international oil refinery

Presented byOfoegbu Donald Ikenna

{Centre for Social Justice}

Presented byOfoegbu Donald Ikenna

{Centre for Social Justice}

Outline• Why bother about oil theft?

– Oil history, importance, where we are now

• Oil theft in Nigeria – The estimated theft – Who is responsible for the oil theft?– Who suffer; opportunity loss

• Artisan Refining– Why artisan refining?– Sin or Not?

• What could be done?• Thank You

Scope of the workThe presentation is not going to dwell on

definitions, neither will it try to make a cross sectional comparison with other countries of the

world. The study will not take us on a whole journey of investigating field operations of the

IOCs, visit the creeks, or presents NNPC laboratory results on oil/fuel qualities or the

extent laws. What the presentation will try to do is instigate our audience on the subject matter

without dwelling on a defined scope or methodology which are boundless if holistic

understanding is to be achieved.

Section 16 of the Nigerian Constitution provides that “all” Nigerian get the gains of equitable distribution of resources;

which should be managed and distributed by the Governments.

• The petroleum Act (1946) grants ownership right of all on-shore, off-shore & continental shelf finds to the Federal government including all revenue from petroleum resources.

• The NNPC Act (1977) created the NNPC to better manage the affairs of the Federal government in the oil sector.

• Land Use Act (1979) through the act, the Federal government owns, controls and manages all natural mineral resources with Nigeria’s geographical area.

• The Mineral & Mining Act (2007) the act operates in accordance with the Land Use Act 1979.

• The PIB (????), the bill seeks to regulate all the activities of the oil and gas industry. If passed to law it is expected to improve transparency & competitiveness, address licences and existing agreements, restructure NNPC, etc

Why bother about oil theft?Oil history, importance, where we are now.

Why bother about oil theft?

GDP80%

Oil Addiction:In 1950s-mid 60s, Oil

sector contributed only 15%, compared to 70%

for Agriculture.

Export value of crude oil was 1% in 1958. Now it accounts for over 80%

Initial oil production quantity was about 5,100barrels pd, over the years it has increased to a height of 2.4million b/d at its peak

Of Budget Revenue comes from oil earning. Implicitly, over 80% success of the Budget & Nigeria’s development depends on the state of Oil Sector

Any form of deduction to oil

revenue (affecting Prices or Supply) is threat to Nigeria

2014 Budget

Close to 60% of the

total Budget is dependent on Oil revenue

(Revenue is a function of quantity* and price)

Overtime the Capital expenditure

seats < 24% of the Total Budget, and has an implementation rate

<45%.

According to the NNPC report for 2013, CRUDE OIL AND GAS PRODUCTION

Total crude oil and condensate production for the year was 800,488,102 barrels giving a daily average of 2.19 mmb/pd. This is lower than the previous year’s by 6%. In the gas sector, a total of 2,325.14 Billion Standard Cubic Feet (BSCF) of Natural Gas production was reported by twenty-five (25) Companies. This shows a decrease of 9.88% when compared with 2012 production. Of the quantity produced, 1,916.53 BSCF (82%) was utilized, while 409.31 BSCF (18%) was flared.

CRUDE OIL LIFTING

A total of 800,337,206 barrels (2.19 million barrels per day) of crude oil and condensate was lifted for domestic and export purposes, showing a decrease of 7.65% against year 2012. Of the total quantity, NNPC lifted 341,504,680 barrels (42.67%), averaging 935,629 barrels per day for both domestic utilization and export.

REFINING

The local refineries received a total of 36,193,237 barrels (4,917,613 mt) of (dry) crude oil, condensate and slops (4.54% of total crude production) and processed 35,233,126 barrels (4,761,496 mt) into various petroleum products. The total production output by the refineries was 5,067,501 metric tons of various petroleum products. The combined average refining capacity utilization for year 2013 was 22% as against 21% in the previous year.... This is still far below average. With 4.54% local refining, it implies that 95.47% are refined abroad or lost in transit.

Why bother about oil theft?Importance & where we are now.

Pipelines and Products Marketing Company (PPMC) evacuated 4,707,539 mt of petroleum products from the refineries and it also imported 6,648,757 mt of PMS, HHK and AGO for distribution at no cost since the discharges were from Offshore Processing Agreement (OPA) and Crude oil for product SWAP arrangements (was subsidy paid for these 2013 at the same pace?) That is a total of 11,356,296 mt of petroleum product for domestic consumption close to 60% are refined abroad, making us susceptible to international oil prices. PPMC sold a total of 12.63 billion litres of various grades of petroleum products through depots and coastal lifting.A total of 21,816.29 million litres of petroleum products was distributed nationally giving an average daily consumption of:

– 43.55 million litres of PMS, – 7.76 million litres of AGO, – 7.30 million litres of HHK and – 1.17 million litres of ATK.

Out of the total volume distributed, NNPC Retail outlets handled 1,645.25 million litres which is about 7.54% of total volume. The distribution by zone shows the South-West with the lion share of 38.83% followed by the South-South with 15.43%, North West with 15.04%, North Central with 9.09%, North East with 8.83%, South East with 6.40% and FCT with 6.39%.

Refineries: Capacity:Port Harcourt Refinery, Rivers State 60,000bpsdPort Harcourt Refinery 2,Rivers State 150,000bpsdWarri Refinery, Delta State 125,000bpsdKaduna Refinery, Kaduna State 110,000bpsdTotal capacity = 445,000bsd (barrels per stream day)

Nigeria lacks the capacity to refine most of its crude oil, hence we exports over 98% to other countries and imports

Oil theft in Nigeria: Oil theft in Nigeria: The estimated theft, Who is responsible for the oil theft & Who suffers?The estimated theft, Who is responsible for the oil theft & Who suffers?

In 2009, the United Nations said that Nigeria was losing about 150,000barrels per day to illegal In 2009, the United Nations said that Nigeria was losing about 150,000barrels per day to illegal bunkering.bunkering.

According to the NNPC 2013 end year report, Pipeline vandalism increased by 58% over the previous year According to the NNPC 2013 end year report, Pipeline vandalism increased by 58% over the previous year (2012). A total of 3,570 line breaks was reported on NNPC pipelines out of which 3,505 (98.1%) was (2012). A total of 3,570 line breaks was reported on NNPC pipelines out of which 3,505 (98.1%) was as a result of vandalism, while 65 cases were due to system deterioration resulting in a loss of 327.48 as a result of vandalism, while 65 cases were due to system deterioration resulting in a loss of 327.48 thousand mt of petroleum products worth about N38.88billion. Also 2.31 million barrels of Crude oil thousand mt of petroleum products worth about N38.88billion. Also 2.31 million barrels of Crude oil worth about N38,992 million was lost in the same period. There were 34 cases of fire incidents during worth about N38,992 million was lost in the same period. There were 34 cases of fire incidents during the year under review. The report stated that 865,482 barrels of Bonny Light, valued at N 14.598 the year under review. The report stated that 865,482 barrels of Bonny Light, valued at N 14.598 billion were stolen in the period under review, while 1.408 million barrels of Escravos Light, valued at billion were stolen in the period under review, while 1.408 million barrels of Escravos Light, valued at N23.75 billion were lost to thieves. Also, 25,706 barrels of Urals crude were stolen leading to a loss of N23.75 billion were lost to thieves. Also, 25,706 barrels of Urals crude were stolen leading to a loss of N433.58 million, while 12,490 barrels of Ughelli blend valued at N210.67 million were stolen in the N433.58 million, while 12,490 barrels of Ughelli blend valued at N210.67 million were stolen in the period under review. Giving a breakdown of products losses by region, the report stated that Mosimi period under review. Giving a breakdown of products losses by region, the report stated that Mosimi recorded the highest incidences of loss with 268,760MT valued at N31.364 billion; followed by recorded the highest incidences of loss with 268,760MT valued at N31.364 billion; followed by Kaduna with 39,620MT valued at N5.488 billion. Warri recorded petroleum products loss of Kaduna with 39,620MT valued at N5.488 billion. Warri recorded petroleum products loss of 16,860MT, valued at N1.785 billion, while 2,230MT valued at N244.46 million were lost from the Port 16,860MT, valued at N1.785 billion, while 2,230MT valued at N244.46 million were lost from the Port Harcourt area.Harcourt area.

About 30,000 workers have lost their jobs to oil theft in the past two years, the Petroleum and Natural About 30,000 workers have lost their jobs to oil theft in the past two years, the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), reported. (Aug 3013)Gas Senior Staff Association of Nigeria (PENGASSAN), reported. (Aug 3013)

In 2014, Nigeria is losing about 400,000 barrels of crude oil are lost on a daily basis due to illegal In 2014, Nigeria is losing about 400,000 barrels of crude oil are lost on a daily basis due to illegal bunkering, vandalism and production shut-in.bunkering, vandalism and production shut-in.

-Despite these efforts, oil theft in Nigeria is at its highest levels in five years since the government gave amnesty to -Despite these efforts, oil theft in Nigeria is at its highest levels in five years since the government gave amnesty to former rebels in the area.former rebels in the area.

-It is not clear how much of Nigeria’s oil is stolen and exported. The best available data suggest that an average of -It is not clear how much of Nigeria’s oil is stolen and exported. The best available data suggest that an average of 300,000 - 400,000 b/d vanishing from onshore, swamp and shallow-water areas .300,000 - 400,000 b/d vanishing from onshore, swamp and shallow-water areas .

• The former Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Andrew Yakubu, before he was removed had said that “in 2013 alone, the country lost 300,000 barrels of crude oil per day (bpd).”

• The Nigerian Navy through the Director, Nigerian Navy Transformation Office, Austen Oyagha, declared in Calabar,

Cross River State, that “the country lost an estimated average of 55,210 barrels per day or monthly average of

1,656,281 barrels in 2013 (that will be 19,875,372 barrels in 2013). Thus, Nigeria oil losses due to crude oil theft translate to almost $20 billion yearly in deficit to Nigeria’s economy. These losses do not only undermine Nigeria’s economy in

terms of foreign exchange deficit, they also pose a threat to national security for Nigerians.”

Other Testimonies & figures

Shell 2013 annual report, - “In 2013, the number of spills from the company’s

operations caused by sabotage and theft increased to 157 from 137 in 2012, whilst production losses due to crude oil theft,

sabotage and related temporary shut- in. On the average, around 32,000 barrels per day

(bpd) were stolen from SPDC pipelines (7,680,000 barrels a year) and other facilities,

whilst joint venture lost production of around 174,000bpd due to shut downs related to theft and other third party

interference.”

The chairman of the federal government taskforce on crude oil theft, Emmanuel

Uduaghan, governor of Delta State, while speaking at an African Business Roundtable

workshop on combating emerging threats held on the sidelines of the recently-concluded

United Nations General Assembly in New York, said “The persistence of crude oil theft in the

Niger Delta region where over 400,000 barrels per day are stolen may threaten world peace

and democracy if concerted action is not taken to curb it.”

The Coordinating Minister for the Economy and Minister of Finance, Ngozi Okonjo-Iweala, appearance at the House of Representatives Joint Committee on Appropriation/Finance in Abuja also had it on record that, “We are losing revenue; 400,000 barrels of crude oil are

lost on a daily basis due to illegal bunkering, vandalism and production shut-in.”

In the 2013 Budget implementation report, Crude oil sales which In the 2013 Budget implementation report, Crude oil sales which accounts for approximately 90% of Nigeria’s revenue, recorded a accounts for approximately 90% of Nigeria’s revenue, recorded a decline of N1.43trillion or 33.7% from N4.24 trillion in 2012, to decline of N1.43trillion or 33.7% from N4.24 trillion in 2012, to N2.81 trillion in 2013. The drop in crude oil revenue, according to N2.81 trillion in 2013. The drop in crude oil revenue, according to the budget implementation report for 2013 was due to massive the budget implementation report for 2013 was due to massive theft, illegal bunkering and pipeline vandalism, which persisted theft, illegal bunkering and pipeline vandalism, which persisted during the period under review.during the period under review.

FGN Share of Oil Revenue as at December 2013Item Actual Amount (N billions) Budgeted Amount (N’ billion)Annual Share of Oil Revenue 1,996.23 2,354.74Quarterly Share of Oil Revenue 499.06 588.69Share in Four quarters

Actual in Quarter 1 469.40Actual in Quarter 2 529.17Actual in Quarter 3 487.58Actual in Quarter 4 510.08Actual in All 4 quarters 1,996.23

The MTEF thinking

Projections of Oil Revenue into Fed A/C

Approved 2014 Budget

Proposed 2015 Budget 2016F 2017F

Crude oil Sales 3,840.73 3,716.82 3,830.49 4,042.85Gas Sales 550.23 515.46 557.81 579.97Petroleum Profit Tax 1,927.54 2,196.73 2,267.81 2,401.31Gas Income @30% CITA 96.34 80.82 87.23 90.69Oil Royalties 703.42 703.3 736.05 753.08Gas Royalties 40.12 67.34 72.88 75.77Concessional Rental 0.88 0.88 0.88 0.88Gas Flared Penalty 2.48 2.48 2.48 2.48Miscellaneous (Pipe Fees) 3.07 3.07 3.07 3.07Total Oil and Gas Revenue

7,164.81 7,286.90 7,558.70 7,950.10

Take it or leave it:International oil prices is likely to fall deeper:

Facts? Size of US shale oil increasing

massively.Crises in Ukraine is affecting

the EU demand for crude. Huge Technological break

though in Renewable Energy use and the World campaign to cut

down the use of fossil fuel is now in practice no longer

New and more accessible oil fields are springing up;

increasing SS against DD.

Dr. Bright (DG BOF) - Nigeria’s oil theft peaks at 300,000bpd” (Public Presentation of the 2014 Budget, Sheraton

Abuja)

Who is/are responsible: Cabal ! Cabal !! Cabal !!!?

Untouchable Cabal.

Where are the sharks?

According to the London-based research group – Chatham House, and Ribadu report, the problem of crude oil theft is more than pipeline vandalism. Crude oil theft involves a convoluted and complex web of relationships, spanning all levels of the society – involving diverse relationships. These relationships are alleged to include highly connected people in and outside government, oil companies including businessmen, retired and serving military officers, and militants among others.

Loosing 400,000bpd at $60 per barrel is a huge loss of $24,000,000 worth of income a day.

At N200/$, this amounts to N4,800,000,000 (N4.8 Billion) in a 1 day.

In 5 working days = N24,000,000,000 (N24Billion).

In 1 month = N96,000,000,000 (N96Billion)

In 1 year; 12 months = N1,152,000,000,000 (N1.15Trillion)

Who suffers ?:

The Capital Expenditure Budgeted for the 2014 Budget to provide Roads,

Electricity, Transportation, Bridges, Educational Facilities, Health Care

Facilities, Military Defence Equipment Against Terrorism, etc

of

N1.12trillion. 2015 Capital budget = N387.11bn

Oil Theft Nigeria’s Capital Budget

N1.15trillion > N1.12trillionFor Cabal For almost 170 million Nigerians

Section what of the Nigerian constitution

16?

Artisanal Refining: Why artisan refining? Sin or Not?

In the creeks of Ukpokiti, Brass, Escravos, Ogoniland, Akassa and other riverine communities of the Niger-Delta, artisanal or illegal local refining of crude oil forms part of the economic ecosystem and is the mainstay of many families. In the past, fishing and cultivation of crops was the main source of livelihood in the creeks, with the continual environmental degradation and pollution occasioned by the activities of the drilling companies as well as oil vandalism, agriculture which was the mainstay of the people was eroded, leaving the indigenes for the extremes.

Practically an Illegal refining of crude oil, artisanal refining is a booming business in the riverines. The extreme part of this activity is its stretched pipeline ruptures and process spill-over that impact on both environmental and human health. Overtime the government through its military has invaded and destroyed a lot of these “small scale” artisanal refineries in the creeks. However, disrupting and destroying these artisanal refineries is rather a scratch on the surface as they soon spring up angrily and resume production as long as no sustainable source of livelihood is provided for them.

There exist a positive correlation between oil pipe vandalization and artisan refinery. At most 20 % of the stolen oil is sold and refined by local artisans whose local process has a massive environments effects; causing series of respiratory diseases.

Artisanal Refining: Why artisan refining? Sin or Not?

• Though artisanal refining may poses as an illegal act, endangering both human and environmental health, it yet stands as an evidence that the upstream industry can be decentralised to allow a variety of refining players with varying sizes and capacity. In my opinion, the total annihilation of artisanal refining does not necessarily have to be the case, instead a clue can be picked; refined, standardized and repackaged to augment local refining capacity which is on the low.

• Considering the poor refining capacity of our national refineries, government’s lack of interest in reviving existing refineries or set up new ones, not to forget the huge sum as well as corruption in the bi-imports of refined products, the governments may as well take up the local ventures by supporting these artisanal refining business providing proper training through the petroleum institutes, imposing environmental and health safety standards and encouraging partnership/ business incentives to allow the purchase of better machines.

• There is need for government to explore the viability of supporting these local refiners with a view to boosting domestic production and also re- distributing wealth. Local refining of crude oil provides employment to a lot of youths in the region (keeping them in their comfort zone). A newspaper piece in daily trust in 2013 reported that in a camp about 400 people earn their living refining what they call "our natural resource".

What could be done?

• Governments should wear their thinking caps and formulate nigerianised polities that regulates the extractive industries as a whole. Policies should be put up to open-up the refining business locally so as to catalyse a shift from dirty-illegal artisanal refining to clean-legal small scale refineries as operated in USA, and other developed countries where households have oil refining machines at home.

• Standardisation is also very vital. There is need for the establishment of clear safety, environmental and process guidelines as well as Standard Operating Procedures which should be monitored by the Department of Petroleum Resources (DPR) and the Nigerian National Petroleum Corporation (NNPC).

• Fast and pray that the PIB be signed, sealed and delivered to the Nigerian people.

• Finally, the government should repent and be brave enough to fight against oil theft cabals.

Thank you

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