The biggest oil-related challenge facing the Nigerian administration in the short to medium term may not be finding markets for Nigeria’s petroleum, but dealing with the many constraints hampering oil companies from boosting the country’s oil production capacity and reserves. Owing to underinvestment, Nigeria’s sustainable production capacity and proven oil reserves have not changed much in recent years. In 2012 crude output (excluding condensates) averaged 2.1m b/d, not much more than it was a decade ago, and proven oil reserves stand at about 37.2bn barrels, having missed an earlier government target to reach 40bn barrels by 2010. Worsening security problems in the volatile oil-producing Niger Delta, as well as investment uncertainties surrounding the long-delayed Petroleum Industry Bill (PIB), have held back billions of dollars of oil investment in exploration and exploitation projects.
Thieves steal around 10% of production
On March 3rd the managing director of Shell Petroleum Development Company of Nigeria, Mutiu Sunmonu, warned that in recent weeks oil theft in the Niger Delta had reached “unprecedented” levels. Mr Sunmonu said that Shell was losing more than 60,000 b/d to theft, which he noted has become a well-funded and more sophisticated activity, probably involving international criminal syndicates. Oil thieves are estimated to steal about 10% of Nigeria’s overall oil output, costing the government billions of dollars in revenue. The theft often involves gangs of criminals hacking into pipelines, causing in the process oil spills and damage to facilities, which can disrupt production and incur costs to rebuild. Shell on March 5th declared force majeure on the Bonny Light crude grade owing to a leak on its key Nembe Creek Trunkline, which may be linked to a recent upsurge of attacks on the facility by oil thieves.
The administration of the president, Goodluck Jonathan, faces a tough task to stop oil theft in the hard-to-police Delta region, where it appears that some of the militants who were granted amnesty in 2009 in exchange for surrendering their arms have moved into the lucrative business of pilfering crude to refine locally in illegal refineries or sell abroad.
