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Nigeria’s oil industry in disarray as illicit trade booms
The Nigerian president’s sudden, unexpected and seemingly unilateral decision to ban nearly 100 oil tankers from the country’s waters has sown confusion in the operations of Africa’s largest crude exporter.
The edict directly from President Muhammadu Buhari’s office appeared to be part of a campaign pledge to crack down on oil industry corruption and theft.
But the disarray it has caused, even three weeks on, underscores the problems Buhari faces in trying, as an oil industry outsider, to tackle problems in the sector head on.
“It’s a mess,” one trader said of the ban. “Nobody knows anything concrete.”
Buhari has kept the oil portfolio for himself for now, and said that he would not appoint ministers until September. Last month, he announced plans to cleave state oil firm NNPC in two, though details are vague, and sacked the chiefs of the Navy and the Nigerian Maritime Administration and Safety Agency (NIMASA) – agencies that would help enforce the ban.
Some warn the ban could hurt the country’s near-term oil revenue more than the thieves it aims to stop.
“In the end, it’s going to make a much bigger problem for Nigeria than tanker owners,” said Ehsan Ul-Haq, senior market consultant with KBC Energy.
Traders are still struggling to get to grips with the list of tankers, which sources said is haphazard and confusing; while the headline number is 113 vessels, at least nine are listed twice, and shipping sources said one was scrapped in 2012.
Of the others, many have not called at Nigerian ports in years, if at all.
“The whole list stinks if a lot haven’t been to Nigeria for a long time,” one Nigeria-based oil industry executive said.
An NNPC spokesman and the head of crude marketing did not respond to several requests for comment. The presidency confirmed it had sent the list to NNPC but declined to elaborate on the rationale for vessels included.
Inside and outside Nigeria the origin of the list seemed to be in a locked box inside the president’s inner circle, and NNPC itself appeared only to have limited information. Oil traders who asked NNPC officials directly for answers said their attempts had borne little fruit.
Clawing back stolen oil
Oil theft is rampant in Nigeria; the country has estimated losses at as much as $35 million per day – roughly a quarter of its gross domestic product.
Buhari has vowed to recover the “mind-boggling” amounts of stolen oil money, enlisting help from the United States.
The theft comes at various points – siphoned from pipelines, diverted from loaded vessels and via paper accounting fraud.
Much of the stolen physical oil, country observers say, ends up on very large crude carriers (VLCCs) like those now banned.
Some said the ban could be a shot across the bow at those engaged in illegal activities or who look the other way when it happens involving their ships.
“What NNPC appears to be doing is attempting to get vessel owners to be more proactive in ensuring their vessels are used only for legal business,” one trader said, noting this is an important goal for the country.
The source added, however: “It’s a fairly blunt instrument.”
The confusion has sparked concerns that more tankers could be added to the list. As a result, some could avoid Nigerian ports altogether, while others could demand higher rates to call there.
Some traders are also pressing for lower official selling prices from NNPC to compensate for any difficulty the ban creates; if successful, this would hit Nigeria’s already battered revenue even harder.
Oil theft
Nigeria’s oil-rich Niger Delta region is losing its battle against organised oil theft. According to the former MD of the Shell Petroleum Development Company, Mutiu Sunmonu, oil theft by local groups currently results in a total of $6bn per year in lost revenue to the corporate giant. Other major oil companies have also said they were losing a huge amount of money due to oil theft, and are paying huge amounts for security.
The “blood oil” industry, a term coined by Nigerian President Goodluck Jonathan, is reportedly run by armed groups as well as activists calling for a fairer distribution of the country’s enormous oil profits. The majority of Nigeria’s 160 million citizens live in poverty – despite being residents of Africa’s biggest oil producer.
Zoin Ibegi is a resident of the region. “Many of us live [on] less than one cent a day despite being blessed with crude oil,” he said. “This forces many of us into the illegal refinery business because we can’t continue in poverty.”
The Nigerian government has deployed soldiers to the restive region to eradicate these “firewood distilleries”, as they are commonly known. When an illegal oil refinery is located, those involved are arrested and the refinery is burnt down. According to Onyema Nwachukwu, a spokesman for Nigeria’s Joint Task Force, such methods are used in order to make it difficult for perpetrators to return to the illicit oil extraction trade.
In 2009 an amnesty was declared, paying off people who had been engaged in “oil bunkering”: stealing and selling oil, then sharing the profits with the community.
However, the siphoning of oil and makeshift oil refineries are only part of the problem. Oil-producing areas also suffer from high levels of pollution, and Ibegi says the liquid often spills into rivers used for fishing.
Many observers believe that the 2009 amnesty is not working, claiming it is just a way to buy off “troublemakers”. They argue that ultimately, the core problems affecting people in the Niger Delta – poverty and inequality – have not been addressed.
“Nigerian grades have already been suffering … this will increase their pain,” Ul Haq said, noting the global excess of crude. “They will soon realise this is not the right way of dealing with oil theft.”
