In June 2009, when Nigeria’s late President Umaru Yar’Adua offered an amnesty to the gun-toting militants of the country’s main oil producing region, the Niger Delta, many pundits were sceptical. Happily, they have been proved wrong, at least so far.
PAST DISTURBANCES: The Niger Delta insurgency had raged since 2006 under the leadership of the Movement for the Emancipation of the Niger Delta. This group reflected an array of grievances – poverty, underemployment, official corruption and a sense of regional neglect by federal politicians – as well as a dash of opportunistic criminality. Oil companies were easy targets in a region where swamps and creeks favoured the men with guns, and where the sense that locals had gained little economically and lost a great deal environmentally was widespread. Targets were hit, pipelines sabotaged and personnel kidnapped. And output suffered. Indeed, at the insurgency’s height, the country was on some days producing as little as 800,000 barrels per day (bpd) of oil, compared to earlier levels of 2.3m bpd.
Output levels are back up following the start of the amnesty programme in 2009. Militants surrender their weapons, sign a pledge of non-violence and attend a demobilisation centre. In return, they receive N65,000 ($416) a month and education or training. Within 16 months over 26,300 people had applied, and 11,500 have received training so far. Indeed, some former militants have found work in the oil industry, according to Taofik Adegbite, managing director of Marine Platforms. “The industry needs more vocational training, but the amnesty programme is offering a much needed helping hand,” he told OBG. The programme can also benefit other economic sectors: “Over 26,000 students will come out of the programme in the next few years. Although the energy sector won’t have the capacity to absorb them all, there is a need for skilled labour in industries such as mining, agriculture and hospitality,” Ken Etete, chief executive of Century Group, told OBG.
BUNKER MENTALITY: However, problems persist. Some former militants have returned to the Delta, not for political reasons, but because they are dissatisfied with the amount of compensation that they have received. According to the statistics from the Nigerian National Petroleum Corporation (NNPC), vandalism of pipelines nationwide is on the rise.
Having peaked at 3674 in 2006 and fallen to 2285 in 2008, 1453 in 2009 and 836 in 2010, incidences of vandalisation rose again to 2768 in 2011. It is not specifically a Delta phenomenon: the number of vandalism incidents in the Port Harcourt and Warri systems are also up, although they remain at levels below those experienced during the insurgency. “Pipeline security is still a major issue,” Obiamarije Stanley, managing director and CEO of Port Harcourt-based Shorelink Oil and Gas Services, said.
Vandalisation is rarely gratuitous. Rather, it is mostly the outcome of what is locally known as “bunkering” – theft of oil or oil products. Pipelines are attacked with hacksaws and the contents siphoned off – or, in especially enterprising cases, diverted to private pipelines several kilometres long. Oil can be delivered to illegal – and dangerous – small refineries, with products sold locally for half the normal price. In July 2011 a BBC correspondent reported the existence of one plant employing 400 people and producing 11,000 litres of diesel fuel each day.
Alternatively, the crude can be transferred to barges and thence to ocean-going tankers, which then sell oil at attractive prices: an NNPC scam alert was issued in summer 2012 when Nigerian oil turned up on international spot markets at a 10% discount.
MEASURING THE COST: It is big business, although obtaining a precise measurement can be difficult. With overall national output – offshore as well as onshore – at around 2.5m bpd as of mid-2012, Shell officials have recently estimated total daily losses in the Delta region at 150,000 bpd. In May 2012 the finance minister, Ngozi Okonjo-Iweala, stated that national losses of crude oil could be as high as 400,000 bpd. Regardless of the exact magnitude of theft, it is clear that this illegal behaviour is costly. In July 2012, the petroleum minister, Diezani Alison Madueke, estimated financial losses from pipeline vandalism and oil theft at around $12bn annually – $7bn representing stolen crude and $5bn pipeline repairs. An official from Italian firm Eni has recently complained that his company is losing a quarter of its production to bunkering and having to shut down pipelines once every three days on average.
GOVERNMENT RESPONSE: This has prompted outrage in high places: President Goodluck Jonathan publicly asked why such oil theft takes place “only in Nigeria” and said that the thieves should “hide their heads under the pillow” in shame. The governor of Abia State, Theodore Orji, called for pipeline vandalism and oil theft to be made capital offences. This may be just rhetorical bluster, but countermeasures are under way. Shell reportedly has drone surveillance, infra-red detection devices, pipelines buried four metres deep under concrete slabs and false outer pipelines. The state has created a special task force to address the problem and, as of late July 2012, security forces had reportedly destroyed nearly 1000 illegal refineries in the Delta region.
However, sceptics say there are plenty left and that there are too many interests involved in the business for a crackdown to have real success. The interest, they say, not only of poor people with few other opportunities, but also of wealthy businesspeople and perhaps even of some men in uniform.
GREEN CONCERNS: Punctured pipelines also lead to oil leaks – of which, according to Shell, vandalism and bunkering are the main causes, at least onshore. In the heavily polluted Niger Delta, this becomes a blame game in which Shell is not always the winner. Shell’s general environmental image was hurt by a 40,000-barrel offshore spill, the worst in Nigeria in 10 years, in December 2011 at its Bonga platform. The national agency dealing with oil spills controversially suggested a $5bn fine, but Shell has argued forcefully that it took prompt countermeasures and that no oil washed ashore following the incident.
Shell also appears to be leading the way in respect of another issue that has been environmentally controversial in the Delta, that of flaring. This refers to the practice of burning off associated gas, that is, natural gas found alongside oil. Flaring occurs in part because it takes considerable investments to collect the gas and build the pipelines to places where it can be used or the installations (like power plants) that can use in on the spot. Flaring is not only wasteful, it pollutes the environment. Nigeria has been particularly prone to it – its hydrocarbons industry being second only to its larger Russian counterpart when it comes to the amount of flaring. “Health, safety and environmental (HSE) standards in Nigeria remain behind the international standard. It’s important for local firms to develop adequate HSE practices to compete at the international level,” Sika Rhoda, Managing Director, Pabroe Synergy, told OBG.
The problem has, in a limited sense, been reduced lately. In 2002, no less than 45.1% of the gas extracted in Nigeria was flared, a proportion that had fallen to 25.8% in 2011, although higher production meant that this was less than a 17% decline in absolute terms. Further progress appears to have been made, since in July 2012 Osten Olorunshola of the Department of Petroleum Reserves said that 1.4m cu sq feet, or 17.5% of gas extracted, was flared.
Further decline may be expected. It might be accelerated by a ban on flaring envisaged by the Petroleum Investment Bill (PIB), legislation that may be passed in 2012. However, scepticism is understandable, since this is the latest in a series of so far ineffective deadlines. Flaring might also be affected by another PIB provision that could remove one constraint on investments to curtail flaring, namely the inability of NNPC as a shareholder in onshore joint ventures (JVs) to contribute its share to investment.
For now, Shell appears to be leading in the fight on flaring. At 9.9% of production, the Shell Petroleum Development Company of Nigeria has by far the lowest flaring rate of any onshore JV, reduced since 2002 (40.2%) and even 2006 (22.2%). In July 2012 Shell committed $4bn for two oil and gas projects – the Forcados-Yokri Integrated Project and the Southern Gas Swamp Associated Gas Project – completing a $6bn initiative to cut gas flaring. ALL OVER NOW? It is expected that these steps will please the aggrieved citizens of the Delta, but some question marks remain. Widespread bunkering is a bad sign. Underemployment remains high and, as to the amnesty, the efficacy of training depends on the availability of jobs. The monthly payments will not continue indefinitely, either. New threats have also come up. Once motivated to move offshore by the instability of the Delta region, international oil companies are now faced with sea-borne piracy, with several attacks on supply boats recorded during 2012.
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