As if corruption, a sinking currency, Boko Haram rebels, and perennially-simmering Christian-Muslim conflict were not enough for Africa’s most populous country to contend with, organized theft of oil from wells and pipelines has now reached endemic, catastrophic levels.
Take, for example, the latest figures offered by Nigerian officials as to the extent of the problem. According to the Nigerian government, with no end in sight, the country has lost $1.21 billion in the first quarter of 2013 alone. Royal Dutch Shell – the major multinational oil company operating in the country – has admitted that something on the order of 60,000 barrels a day are stolen from its extensive network of pipelines, well heads and storage tanks throughout the oil-rich Niger Delta, which is the center of Nigerian oil production and the current locus of well-armed, politically connected oil-theft rings. Add in theft reported by smaller firms and the estimate of the total out lost to oil theft goes up even further, to 150,000 barrels per day.
All of this adds up. Nigeria loses, at a minimum, an estimated $6 billion from oil theft every year, or nearly ten percent of the country’s annual oil revenues — not an insignificant amount. While the loss itself is dearly felt, what’s worse is the accompanying damage to Nigeria’s oil-production infrastructure and cost environment.
Thieves, for instance, commonly tap into existing pipelines and storage facilities to siphon off oil, often causing explosions, fires, and other forms of extensive damage in the process. This naturally reduces productivity as oil facilities necessarily have to be secured and repaired once the thieves have gotten away with their ill-gotten crude. This slows up production and significantly puts a crimp on the amount of oil Nigeria can produce and export. The Financial Times reported recently that “industrial scale” theft has lowered Nigeria’s monthly output to below 1.9 million barrels per day, threatening the country’s position as Africa’s largest oil producer.
Such widespread theft and vandalism puts a premium on security. Last year, for instance, the Guardian newspaper reported that Shell internal documents indicate that the oil giant spent just over a third of a billion dollars, $383 million, protecting its facilities, personnel, and infrastructure over the past three years via payments to Nigerian government security forces, its own internal police force and a network of informers the company uses to keep track of oil-theft rings. Despite its best efforts, however, Shell and other companies continue to regularly suffer from theft, production shut-ins, and damage to its facilities.
What’s more, this has been going on for years, and in 2008 and 2009, attacks by militants and organized oil-theft rings reduced the country’s output to 1.5 million barrels per day. Such was the impact that Nigeria’s loss off output was a significant contributing factor in pushing oil prices up to the dizzying height of $147 per barrel just prior to the outbreak of the global financial crisis in 2008.
Chronic insecurity and lawlessness in the Niger Delta – the heart of Nigeria’s oil-production patch – stem from years of mismanagement and misrule by both Nigeria’s central government and oil companies producing in the region. For decades oil revenues have been directed away from the Niger Delta and towards the coffers of the central government for redistribution to the rest of the country – and the pockets of the ruling elite –leaving very little for the residents of the delta itself. In turn, weak oversight and outright corruption allowed companies like Shell to flout environmental and safety regulations – leading to an oil-befouled local environment that added to the privation and misery suffered by locals.
This tension boiled over in the early part of the last decade when the peaceful efforts of activists such as the late Ken Saro-Wiwa, who was executed by Nigeria’s then military government in 1995, finally collapsed in the face of central-government intransigence. An armed rebellion by various militant groups in the delta region subsequently broke out, which by 2008 had greatly impacted oil production in the region. Unable to bring the rebellion to heel, the government then brokered a peace-deal with the delta militants that entailed amnesty for all combatants as well as significant financial and development aid for demobilized fighters and impacted delta communities.
