THE PERSPECTIVE OF THE  SHELL PETROLEUM DEVELOPMENT COMPANY OF NIGERIA LIMITED ON OIL THEFT AND RELATED CRIMES, PRESENTED BY THE MANAGER, OGONI RESTORATION PROJECT AUGUSTINE IGBUKU ON BEHALF OF THE MANAGING DIRECTOR SPDC AT THE DELTA STATE OIL AND GAS STAKEHOLDERS’ CONFERENCE ON TUESDAY, APRIL 15, 2014

Your Excellency, Executive Governor of Delta State, Dr. Emmanuel Eweta Uduaghan,

Deputy Governor of Delta State, Prof. Amos Utuama,

The Right Honourable Speaker of the Delta State House of Assembly

Members of the Delta State Cabinet

The Honourable Commissioner for Oil and Gas, Mr. Mofe Pirah

Community Leaders and Opinion leaders,

Gentlemen of the Press,

Ladies and Gentlemen

 

I am honoured to be here on behalf of the Managing Director of The Shell Petroleum Development Company of Nigeria Limited (SPDC) and Country Chair Shell Companies of Nigeria, Mr. Mutiu Sunmonu, who is unavoidably absent., I thank the Executive Governor of Delta State Dr. Emmanuel Uduaghan for providing this unique opportunity for SPDC, Operator of the NNPC/Total E & P/NAOC JV to contribute to finding solutions to an issue that threatens the economic viability of this country and a challenge that is critical to the wellbeing of the industry that drives the Nigerian  economy.

Permit me to say that Shell Companies in Nigeria (of which the SPDC is one) have played a leading role in the development of the Nigerian oil and gas industry for over 60 years. Shell Companies pioneered a number of technological firsts and have grown the capacity and skills of Nigerian staff and contractor companies. They also generate billions of dollars from taxes and revenues for the Federal Government of Nigeria. The oil and gas industry contributes 75 per cent of all government revenues and 90 per cent of export earnings.

Despite its huge resources, Nigeria faces many challenges as a developing nation. And in recent years, the combination of crude oil theft, illegal refining and pipeline vandalism have become a major threat to the Nigerian economy, which relies heavily on revenues from the industry. Massive oil spills also result from these activities, forcing the operators to frequently shut in production to repair the sources of leaks, take out theft points, clean up spills and restore the environment.

By far the biggest economic loss is to the government, which receives around 95 per cent of the revenues from oil after deduction of production costs. In 2009, the UN Office for Drugs and Crime estimated that as much as 150,000 barrels of oil is stolen each day from Nigeria. Most of this oil is illegally shipped and sold in international markets, while some quantities of crude are refined along the creeks.

To give a clearer perspective to these losses, the Coordinating Minister of the Economy and Minister of Finance, Mrs. Ngozi Okonjo-Iweala has said in 2013 that crude oil theft and associated deferred production is estimated at over 300,000bpd. This costs the Nigerian government some $12 billion annually in terms of deferred production revenues and the cost of pipeline repairs. She compared the phenomenon to the illegal drug and diamond trades requiring cross-border intervention. This escalation is unprecedented.

Factors that Fuel Crude Oil Crimes

It is accurate to say that the menace of crude oil theft, illegal refining, pipeline vandalism and their attendant environmental degradation are more prevalent in the Niger Delta region, Nigeria’s oil and gas hub. Some of the identified underlying causes of this scourge include poverty, community-industry expectation mismatch, corruption, unemployment, ineffective law enforcement and poor governance.

High unemployment, for instance has created a huge population of idle young people who are easily lured to oil related crimes. These crimes in turn are reinforced in the absence of clear deterrent measures, arising from the non-prosecution of alleged perpetrators.

 

Operational Mode of Oil Thieves and Vandals

There is order in the seemingly chaotic operations of crude oil theft and refining. Some reports have identified two operational levels of these crimes. The first involves those engaged in the theft of crude oil, which is inefficiently refined for supply to local markets desperate for fuel used for various purposes. At the other level is the larger scale, more organised operation for international export, which we know reaches far across the globe. The latter has fast become a parallel industry with a developed supply chain and growing sophistication. The operations at both levels involve trained engineers who weld valves to high pressure pipelines, allowing the criminals to return at night to siphon crude oil. Boat yards help to construct and supply barges to the thieves to transport crude oil around the creeks.

It is estimated that up to a fifth of the oil is delivered to small scale refineries in the creeks and mangroves, where it is boiled to produce low grade diesel fuel or petrol. The efficiency of these so-called ‘bush’ refineries is estimated at barely 20 per cent because the heavy end of crude that cannot be refined is just dumped into the environment. The products of this refining process enter the local fuel supply chain with some dire consequences for the economy (damaged machinery and loss of revenue).

A higher volume of stolen crude oil is taken to large ocean-going tankers waiting offshore, which export oil to refineries outside the country. Some of these tankers reportedly meet mid-ocean to transfer and blend their stolen cargo, aiming to obliterate the origin of the crude oil.

Only recently, we discovered that a line was welded to our Forcados Terminal export line where export quality crude oil was being stolen. Such an underwater operation does not come easy to us in the industry, but some criminals were able to install a theft point without detection. Investigations are ongoing to understand how this was done.

So, who is behind these activities? Unfortunately, SPDC as a corporate organisation is unable to say categorically those behind these crimes. But we have noticed a high number of young people among those arrested by Government Security Forces. They appear to be those eager to make a living. At great risks to their lives, they are attracted by the immediate gains. A number of fatalities have been recorded during such operations, especially at illegal refineries and during transfer to boats.

Consequences of Oil theft and Illegal refining

Crude oil theft in the Niger Delta remains a serious cause for concern with dire consequences for people, the environment and the economy. This highly sophisticated criminal activity involving local and international crime syndicates, pollutes rivers, blights farmlands, destroys livelihoods and promotes general insecurity and poverty in an already fragile environment.

The social implications of all these include the destruction of the economy of communities, arms proliferation, increased attraction to crimes, higher incidence of school drop-outs, increased inflow of migrant workers to service the illegal business and the consequences of militarisation of communities. All these negative impacts have long-term implications that may take generations to reverse if at all possible.

 

SPDC Response to the Problem

Concerted action is urgently needed at the local, national, regional and international levels to address the menace of crude oil theft.  Requirements include improved intelligence gathering, stronger policing and the prosecution of suspected criminals.

There is now an understanding within the industry and government that the scale and complexity of the problem is beyond the control of any one company, governor, committee or even country. The next step is to galvanise coordinated action. Conferences like this are an important part of that.

The SPDC-JV is continually looking for new ways to make it more difficult for oil thieves and has taken action in the following areas:

• We are burying new pipelines deeper beneath the surface and sometimes covering them with concrete slabs, securing well heads to make them more tamper proof.
• Our entire area of operations is covered by pipeline and asset surveillance contracts, primarily employing members of the communities the pipelines traverse. The information gathered is communicated to the authorities and the Joint Task Force (JTF) for prompt intervention.
• There are daily overflights of the pipeline network to detect new theft points
• We have replaced around 780km of pipelines and other infrastructure in the last three years
• Since 2012 SPDC has conducted an international campaign to raise awareness among government officials, the media and other stakeholders about the urgent need to address crude oil theft and illegal refining. Government responded by amending the operational mandate of the JTF to include preventing oil theft (Operation Pulo Shield).
• In 2013, we increased our efforts with local and international media, NGOs, and special and general publics. The aim being to mobilise them to contribute to ending this devastating menace. It is evident that only a coordinated multi-stakeholder approach can curb this menace and possibly provide lasting solutions.

SPDC and our joint venture partners continue to be vocal about crude oil theft and are working with communities and Nigerian and foreign governments to internationalise the issue. We are calling for coordinated multi-level action against these criminal practices because we recognise that all parties must contribute to these efforts if we are to stand a chance in ending crude oil theft and illegal refining. Our responsibility to the people and the environment of the Niger Delta compels us to act, and to encourage others to do the same.

The Way Forward/Recommendations:

We are confident that with His Excellency, Governor Emmanuel Uduaghan as Chairman of the National Economic Council on Oil Theft (NECCOT), a fresh perspective will be brought to tackling the challenge of crude oil theft.

Increased campaigns and engagements through fora such as this, motivation of the security agencies involved in tackling crude oil theft and effective prosecution of thieves would lead the way forward. Tapping into regional and global security structures, with the support of other governments will pave the way for tracking and intercepting the illicit cargoes of stolen oil to and from the Gulf of Guinea. In aid of this, satellite technology is available and indeed Shell is exploring partnerships to help fund acquisition of satellite imagery for onshore detection.

Next, the international financial flows and networks which profit from these activities need to be traced, understood and targeted. Legislation targeting organised crime and terrorism appear to provide ample legal framework for action.

And while these direct measures are essential, it is equally important to adopt soft tools of economic development to address some of the environment for this criminal trade to flourish in the Delta. That means efforts must be made to attract development funds to boost economic growth in the Delta and create alternative sustainable economies to tackle poverty and unemployment. SPDC and its partners spend tens of millions of dollars each year on a range of social investment and development projects. These are going a long way in improving lives, but far more is needed.

Substantial investment in the power and refining sectors is needed to ensure enough electricity and fuel to discourage patronage of illegally refined fuel for power generation. Legislative platforms to create attractive investment conditions and sufficient returns to encourage private sector investments must be established.

We hope that a broader approach such as this forum that brings together stakeholders to agree a common strategy to manage the menace will produce a concrete roadmap to effectively tackle this phenomenon. SPDC and our partners will remain at the forefront of discussions with all interested stakeholders to find effective solutions to the crimes that threaten the mainstay of the economy and in ultimately, our development.

In order to embrace this approach, we need to create incentives such as employment opportunities for youths and greater community participation in their development. The redirection of revenue to growth sectors, improved community-industry relationships and more sustainable community development as also required in addition to human capital growth, just to name a few.

I am confident the brain storming and idea sharing throughout this conference will begin to create a platform for the kind of dialogue and collaboration needed to solve this problem.

Thank you.