Lagos/Abuja. A report made available on Thursday has said that stolen Nigerian oil worth billions of dollars is sold every year on international markets, with Indonesia named among the destinations and money-laundering hotspots for the illicit crude.
An estimated 100,000 barrels per day (bpd) of oil was stolen from pipelines in the Niger Delta in the first quarter of this year, the report by the London-based think tank Chatham House said, not including the unknown quantities stolen from export terminals.
The theft amounts to around 5 percent of Nigeria’s current 2 million bpd production but has a wider impact because oil companies are often forced to shut down pipelines due to damage caused by thieves. Nigeria is producing 400,000 bpd below its capacity, mainly due to theft and pipeline closures.
The activity costs Africa’s second biggest economy an estimated $5 billion a year in potential revenue.
While oil majors like Royal Dutch Shell and Italy’s Eni are often the first to complain about theft, it is unclear how much they are losing from it. A measure of acceptable losses may be keeping them from taking determined preventive action, the report said. Oil firms do not pay royalties on stolen oil.
“Nigerian crude oil is being stolen on an industrial scale. Proceeds are laundered through world financial centers and used to buy assets in and outside Nigeria,” said the 70-page report, entitled “Nigeria’s Criminal Crude.”
“Thieves have many ways to disguise funds… including cash smuggling, delayed deposits, use of middlemen, shell companies and tax havens, bribery of bank officials, cycling cash through legitimate businesses and cash purchases of luxury goods.”
The report named the United States, Britain, Dubai, Indonesia, India, Singapore and Switzerland as likely money-laundering hotspots, and the United States, Brazil, China, Thailand, Indonesia and the Balkans as the most likely destination for stolen oil.
The crude partly reaches world markets through “co-loading,” where stolen oil is put on a ship carrying legal oil. Documents are forged and the vessel departs seemingly laden with legitimate cargo.
Nigeria’s Oil Minister Diezani Alison-Madueke has called for stolen oil to be labeled “blood oil”, arguing the security risk is similar to those in past and present mineral conflict zones such as Angola, Sierra Leone or Congo.
But the Chatham House report suggested violence associated with the theft is less than supposed, although the armed gangs involved have destabilized the oil-producing Niger Delta in the last decade.
However, the links between oil thieves, pirates and global criminal networks — including arms and drug traffickers — could feed broader insecurity in West Africa, it suggested.
The world’s biggest cause for worry is the money laundering that poses reputational risks for the financial centers that facilitate it, said the report, the first independent, in-depth investigation into the international dimensions of Nigerian oil theft.
A ‘small phenomenon’?
Nigerian oil theft’s enduring, if misleading, image is of youths in canoes breaking into pipelines. Yet, these gangs are merely one strand in a complex criminal web that includes foreign oil traders, shippers, bankers, refiners, high-level politicians and military officials, the report said.
Multiple criminal groups, some as small as a family unit, operate independently. Foreign oil majors sometimes seem willing to overlook it, evidence from dozens of interviews showed.
Specific individuals or companies were not named.
“IOCs [international oil companies] pay no royalties on crude illegally bunkered… Anything stolen from the field is exempt,” it says, adding that the biggest costs are cleaning up after spills and money spent on security.
“For now, theft may not harm IOCs enough to spur a more determined … approach,” it says.
The report also suggests that since oil theft “seems to be a relatively small phenomenon worldwide” little is likely to be done to thwart the practice in Nigeria. Although it names Russia as the only country with a comparable oil theft situation to Nigeria, the report notes that Indonesia loses about 1,000 bpd due to theft from Pertamina pipelines in South Sumatra.
Pertamina in August suspended operations at its Tempino-Plaju pipeline in Sumatra just one week after it was inaugurated amid reports that rampant oil theft has already cost the company Rp 17.5 billion ($1.58 million) in losses.
Oil theft targeting the old Tempino-Plaju pipeline has been a problem since 2008 and has cost Pertamina hundreds of billions of rupiah in losses. Last year alone, illegal tapping of the pipeline cost the company Rp 500 billion.
From January 1 to July 23, the company lost a total of Rp 280 billion due to illegal tapping.
Can it be stopped?
The web of beneficiaries of oil theft makes it difficult to stop and there are doubts whether anyone capable of curbing it really has the will to do so, the report says.
Oil theft sometimes funds politics in Nigeria, including election campaigns. There are nationwide polls due in 2015.
Although security forces have arrested dozens of oil thieves in recent months there have been no high-level convictions.
Nigeria’s supposedly legitimate oil sales business is murky itself, with almost all its crude oil exports sold through traders, a unique system among oil exporting countries.
“Lines between legal and illegal supplies of Nigerian oil can be blurry. The government’s system for selling its own oil attracts many shadowy middlemen, creating a confusing, high-risk marketplace,” the report said.
It runs through possible options for foreign powers interested in curtailing the practice such as genetic oil fingerprinting, sanctions or regulating Nigeria’s sales — but dismisses most of them as likely to do more harm than good.
It says following the money trail — “convicting oil thieves of laundering money and seizing their assets should be part of almost any cross-border strategy” — is a promising avenue.
Oil theft is likely to persist if Nigerian politicians choose not to clamp down because foreign states’ and companies’ first priority will be not to upset their own oil supplies.
Nigeria is among the world’s top 10 crude oil exporters and a key supplier to Europe, Brazil and India, providing billions of dollars in income for foreign oil and shipping firms.
“A key issue is how much oil companies, traders and shippers would be willing to contribute at the risk of undermining their… capacity to operate in Nigeria,” the report said.