FG fights against oil theft and New Year’s subsidy

Since the beginning of this year, the Federal Government has been battling fuel shortages and the relentless looting of Nigerian crude oil by vandals, Okechukwu Nnodim writes

Crude theft, pipeline vandalism and the persistent shortage of Premium Motor Spirit, popularly called gasoline, are the main challenges that characterized the Nigerian oil and gas sector in 2022.

Although there have been some positive results in terms of Nigerian crude oil production in the past two months, the country’s oil production suffered a severe drop between January and September this year due to massive oil theft in the Niger Delta region. .

In fact, oil production plunged to a low of 937,766 barrels per day in September, the lowest production in several years. The country consistently missed the monthly oil production quota of 1.8 million barrels per day approved by the Organization of the Petroleum Exporting Countries.

Nigeria is a longtime OPEC member and the country’s low oil production continued to deny it millions of dollars a month. This was despite rising world crude prices following Russia’s military invasion of Ukraine in February.

Data obtained from the Nigerian Upstream Petroleum Regulatory Commission showed the repeated monthly decline in crude oil production between January and September.

Nigeria pumped 1.39 million barrels per day in January 2022, but that was down to 1.26 mbpd in February and further down to 1.24 mbpd in March.

The country’s oil production continued its southward slide in April, falling to 1.22 mbpd. It plunged further to 1.02 mbpd in May, before rising marginally to 1.16 mbpd in June.

But June’s marginal increase did not hold, as oil production fell to 1.08 mbpd in July, plunged further to 0.97 mbpd in August, and eventually plummeted to its all-time low of about of 0.94 mbpd in September.

However, the country’s oil production rebounded marginally to 1.01 mbpd in October. The increase continued into November, as crude production rose to 1.18 mbpd last month.

The two consecutive increases in oil production were caused by enhanced interventions by law enforcement agencies and the deployment of a private pipeline surveillance company by the Nigerian National Petroleum Company Limited.

“Our security agencies must pay close attention to the country’s oil production,” declared the president of the Nigerian Oil Retail Outlet Owners Association, Billy Gillis-Harry, in his reaction to the development.

He told our correspondent that the pipelines were national assets, adding that “our economy depends on crude oil production, regardless of what they say about profits from solid minerals, agriculture and other sectors.”

Gillis-Harry noted that “the size of the dependency of our daily economic activities is almost equal to the petrodollars that are produced in the Niger Delta.”

$1.9 billion monthly oil losses

In a television interview earlier this month, Bala Wunti, director of upstream investments at NNPC Upstream Management Services, said Nigeria was losing about 700,000 barrels of crude oil a day, before the recent recovery began about two months ago.

He said: “According to our records, before we recovered, we were losing 700,000 bpd which translates to 21 million barrels per month, and if you consider an average (crude oil) price this year at $90/barrel, that will translate in about $1.8 billion or $1.9 billion losses that we suffered.”

He explained that oil theft due to vandalism paralyzed the production and delivery of crude oil from many terminals in the Niger Delta region.

“I think the key question is where were Forcados, Brass Terminal and where was Bonny in the Force Majeure? The reason is simply that we were unable to deliver crude to those terminals,” Wunti said.

He added: “And why couldn’t we deliver crude to those terminals? It is simply due to security vulnerability. As I speak to you, Brass is in force majeure, Bonny is in force majeure. That’s around 300,000 barrels deferred already.

“We have been working hard with the private security contractor to bring the Trans-Niger pipeline back, we have been successful to some extent, but not where we want to be. We hope to open Bonny very soon.

“The security situation is now restored along with certain activities that have been carried out to renew what we see in Forcados. Forcados is producing again, Bonny will be back soon.

“Yes, we have indeed returned, but as of today, one of our main trunk lines we cannot use due to security. Trans Forcados is back, Trans Escrarvos is back, Trans Remos is back. Even as I speak to you today, we still have some of those volumes.”

double loss of income

Commenting on the performance of the sector in 2022, an industry expert and National Public Relations Officer of the Nigerian Independent Oil Marketers Association, Chief Ukadike Chinedu, said Nigeria was bleeding from double losses from the oil industry. .

He said the first industry loss was caused by the massive oil theft in the Niger Delta, while the second had to do with the huge spending on PMS subsidy by the Federal Government through NNPC.

He told our correspondent that these challenges had marred the progress that should have been made in the sector this year, stressing that it had been very difficult for NNPC to deliver efficiently due to these concerns.

“You can’t lose millions of dollars to oil theft and at the same time spend billions of naira as a gasoline subsidy and not feel the pain. The country is bleeding from double losses when it comes to the oil sector,” Ukadike said.

He added: “This is why it is important that NNPC increase the security of crude oil pipelines and work with security agencies to protect these assets. However, I am aware that they have also hired a private company to support surveillance of the pipeline.”

Surveillance of private pipelines

Around the first quarter of this year, NNPC engaged the services of a private pipeline surveillance firm to further protect the country’s oil assets.

The firm, Tantita Security Services Nigeria Limited, is run by Government Ekpemupolo, popularly known as Tompolo.

In his speech at the Legislative Transparency and Accountability summit in Abuja last month, NNPC Group Chief Executive Mele Kyari confirmed and justified the oil company’s decision to hire the pipeline monitoring team.

Kyari explained that the move was aimed at reducing the massive theft of oil in Nigeria.

“The scale of oil theft that we have seen was not anticipated, not expected, not thought of. The scale is huge. We have seen pipelines taken from our main trunk lines to abandoned platforms where people come to steal oil,” Kyari said.

He added: “We have seen the thousands of illegal refineries that we have taken down in the last four or five months. We have seen up to 295 illegal connections to our pipelines and many of them have been there for years. The companies would stop injecting oil if they found out that it could not reach the terminals”.

Traders and industry experts said the pipeline monitoring contract is paying off, given the consecutive monthly increase in oil production over the past two months.

fuel shortage problem

Aside from oil theft, Nigeria’s oil sector has also seen repeated fuel shortages since the beginning of this year.

At present, many states in Nigeria are still facing a shortage of PMS, although efforts are being made by oil traders and NNPC to address this issue.

The Federal Government, through NNPC, has been the sole importer of gasoline for several years, as other oil traders stopped importing the product due to difficulty accessing the US dollar.

NNPC, being the sole importer of PMS, has also been subsidizing the product. It spends billions of naira daily as a gasoline subsidy.

the punch had reported exclusively in October that the regime of the president, Major General Muhammadu Buhari (ret.), could spend no less than N10,976tn as gasoline subsidy, from when he came to power in 2015 until May 2023.

The report stated that already (as of October), the government had spent around N6.88tn subsidizing the product, according to data obtained from NNPC and the Nigerian Extractive Industries Transparency Initiative.

The president and his party, the Congress of All Progressives, during the 2015 campaign, rebelled against the fuel subsidy plan implemented by the previous administration of the Peoples’ Democratic Party.

Oil traders stated that the fuel subsidy burden on NNPC, along with other challenges in the downstream oil sector, had contributed to making PMS less available, causing repeated shortages since earlier this year.

At the recent legislative summit in Abuja, the NNPC chief also explained how PMS smuggling was being fueled by Nigeria’s huge gasoline subsidy.

Kyari had said, “Today when the PMS comes to this country, it is transferred to the marketers on N113 so that we do N165 on the pump. This is the reality. That means whatever the cost, anything outside of that value is a subsidy.

“So someone has to pay for it. There is nowhere today where you can send a liter to the pumps, even at the N419 exchange rate, for around N400/litre. It’s not possible. So every difference between N113 and that value is a subsidy.

“That means that in some cases we have been subsidizing up to N290/litre. And in this regime it is impossible to avoid all the bad things that are happening: round trips, cross-border smuggling and document forgery.

“Anywhere you have arbitration, you have this problem. So as long as arbitration exists, you will continue to have these challenges.”

Furthermore, Group General Manager, Group Public Affairs Division, NNPC, Garba-Deen Muhammad, told our correspondent that the oil company was bearing a heavy burden to ensure the supply of PMS, despite the shortages witnessed this year.

“Imagine what will happen if NNPC stops imports of PMS. By law, NNPC is meant to ensure energy security in Nigeria and this has come at a very high cost to the company,” he stated.

Refineries, deregulation as solutions

Officials from IPMAN, PETROAN, as well as the Nigerian Association of Major Oil Marketers, stated that the key solution to Nigeria’s fuel crisis was for the country to stop subsidies and completely deregulate the downstream oil sector.

They also noted that it had become vital to get Nigeria’s refineries running, in order to reduce the country’s reliance on imports.