Crude Oil Theft

Oil Sector In 2013: Shale Oil Threat, Much Ado About PIB

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Juliet Alohan takes a look at the major events that shaped the petroleum industry in the year 2013. 

Flag-off Of Marginal Field licencing round

The federal government flagged off  marginal field licencing round with a total of 31 fields, located within different oil blocks owned by the Nigeria National Petroleum Corporation (NNPC) joint venture in the year under review.

The exercise which came 10 years after the last round, according to government, was geared towards opening up the oil and gas sector to a wider participation with a view to creating a robust industry that will positively impact on the lives of Nigerians.

Of the 31 fields on offer, the Minister of Petroleum, Mrs. Diezani Alison-Madueke, who announced the flag-off exercise, said 16 are located onshore while the remaining 15 are located in the continental shelf.

The first marginal field licencing round, announced in 2001, resulted in the allocation of 24 fields to 31 indigenous companies in 2003. Eight of the fields are presently producing while the others are at various stages of development.

The Director, Department of Petroleum Resources (DPR) Mr George Osahon,  speaking during the Abuja road show, stated that the eventual winners of the 31 fields would have a period of two years to develop the fields or risk losing them.

This is consequent upon the fact that some winners of the 2003 marginal field round are yet to develop their fields 10 years after.

“We do not want to give these assets out and wait for another 10 years for them to be developed, therefore we have indicated as one of the conditions, that if you get a field, within two years of getting the field you should have done something. If not, the powers that be will take the field from you,” Osahon said.

Shale Oil Boom

With the United States perfection of hydrolic fracking technology to get oil out of shale rocks resulting in the boom of shale oil, the Organisation of Petroleum Exporting Countries (OPEC) finally admitted that it could lose significant share of its oil market in the next five years to shale energy.

The organisation which had initially ruled out any negative impact on its share of the oil market due to Shale oil dicscovery, carried out its own research into shale oil earlier this year before acknowledging the impact that shale gas would have on members’ supply based on the findings.

The organisation also said it saw an even larger drop in demand for members’ crude to 28 million bpd in 2018, representing 7.6 per cent less than 2013 figure and two million bpd below what it is currently producing.

It further admitted that it would be faced with the choice of cutting its own output to boost prices, or accept a lower price to drive some of the more costly competing supplies out of business. Either of the choices would have a direct consequence on Nigeria’s economy due to its over dependence on oil proceeds.

Crude oil theft on the rise

Crude oil theft thrived unabated throughout the year, forcing the Group Managing Director of the NNPC, Mr Andrew Yakubu, to admit its impact on the nation’s revenue.

The GMD pointed out that the continuous crude oil theft, pipeline vandalism and production shut-ins have constrained the sector from meeting its revenue projection and ultimately affected revenue flow to the Federation Account. He disclosed this during his submission at the Senate and House of Representatives Joint Committee on the Medium Term Expenditure Framework (MTEF) for 2014-2016.

Yakubu disclosed that the production figure had been very erratic as a result of the several attacks on the arteries since February. Daily crude oil production, he said, hovered between 2.2mpbd to 2.3mbpd.

He informed that when the artery conveying crude oil to the terminals is hit, it reduces production volume by 150,000 barrels per day and for the period that the line is down, revenue is lost. It is estimated that between $6 and $10 billion is lost annually to oil theft. The minister of petroleum has since declared the challenge as another face of terrorism, calling on the international community to help rescue the situation.

Passage of PIB meets brick wall

Despite calls from Nigerians, experts and pro-transparency groups, in Nigeria and abroad, the Petroleum Industry Bill (PIB) currently before the National Assembly, still did not see the light of the day.

The Bill which has been in the making for years and designed to overhaul the operations of the nation’s oil and gas industry, met with one barrier or the other all through the year, despite promise by government that the PIB will be given an accelerated passage.

The Bill is  the framework upon which the various reforms initiatives in the oil and gas sector will rest and is expected to create an open and transparent industry that will ensure optimal government take, for the benefit of all Nigerians.

The non-passage of the Bill has created uncertainties in the industry and delaying  planned investments worth about $100 billion over the next four years by the International Oil Companies (IOCs).

Chairman of Shell Companies in Nigeria, Mr Mutiu Sunmonu, while speaking during the 2013 Nigeria Oil and Gas (NOG) conference and exhibition in Abuja, noted that the potential for growth and improvement in Nigeria’s oil and gas sector was enormous, but maintained that turning those potential to reality would largely depend on the PIB passage.

Sunmonu who regretted Nigeria’s loss of revenue and investments opportunities to uncertainties created by the delayed PIB among others, warned that Nigeria’s oil and gas industry may be slipping into a similar  era which took Mexico about 50 years to recover from.

Sanusi’s poor oil revenue maths

In a letter that shocked Nigerians, the accusation by the Governor of the Central Bank of Nigeria (CBN), Sanusi Lamido Sanusi, that the NNPC  failed to remit or account for $49.8 billion, being proceeds from crude sales between January 2012 and July 2013, to the Federation Account. As it turned out, the CBN governor got his figures wrong.

According to the letter written by Sanusi to President Goodluck Jonathan, the amount represents 76 per cent of the value of crude oil lifted during the period, for which the NNPC was said to have remitted only $15.5 billion, representing a paltry 24 per cent of the total value.

But when within days, the CBN Governor admitted to an error in his letter, leaving Nigerians to wonder if future data from the Bankers’ bank could be trusted.

Sanusi, during a joint meeting with the Coordinating Minister of the Economy, Mrs Ngozi Okonjo-Iweala, her petroleum counterpart, Diezani Alison-Madueke, and the NNPC GMD, later clarified that the amount was $12 billion and not $49.8 billion as he earlier claimed.

It was even further established that the $12 billion shortfall was a matter of on-going discussion at the Federal Executive Council (FEC). The finance minister explained that the amount was as result of over time difference in expected oil revenue remittance by the NNPC and what was actually remitted by the corporation due to claims of oil theft and production shortfall.

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