• Fri. Sep 29th, 2023

Why Nigeria’s unable to meet its oil output target capacity – NUPRC

ByBassey Udo

Jul 2, 2022

By Bassey Udo

Nigeria has not been able to meet its target oil production capacity due to the “monumental scale of losses arising from crude oil theft”, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) has said.

The Commission’s Chief Executive Officer, Gbenga Komolafe, who disclosed this at a seminar by the Lagos Chamber of Commerce & Industry (LCCI) in Lagos said the menace of crude oil theft has created a hostile environment and a huge disincentive to existing and prospective investors in the upstream sector of the Nigerian oil and gas sector.

Komolafe who spoke on the theme: “Creating an Enabling Environment for Local Refining (Artisanal Modular Refineries & Private Refineries), said the magnitude of divestments by the international oil companies (IOCs) in the industry was traceable to the menace.

He said due to the menace of oil theft several operators have been compelled to undertake deliberate shut-in of oil production in oil wells, facilities and pipelines, further worsening the country’s low oil production scenario.

The impact of crude oil theft on the industry, the NUPRC Chief said, has affected the daily combined average crude oil and condensate production, which stood at about 1.53 million BPD in 2021, against the national oil production potential advised by the Commission to all producers at approximately 2.2 million BPD for crude oil and 420,000BPD for condensate, totalling approximately 2.62 million BPD.

As a result, Komolafe said the country has been able to produce only 58 percent of the Technical Allowable Rate (TAR) achieved in 2021.

The poor performance trend, he lamented, has continued in 2022, hence the need for more concerted efforts across all quarters to stem the ugly tide.

Crude oil theft, which initially declined from about 71,000 BPD in 2012 to 21,000 BPD in 2016, the NUPRC boss noted, has consistently growned to an average of 103,000 BPD in 2021, and even 108,000 BPD in the first quarter of 2022.

During the period, Komolafe said out of about 141 million barrels of fiscalized crude oil production at the country’s flow stations, only approximately 132 million barrels of oil was received at the export terminals.

He said indications were that over nine million barrels of crude oil was lost to crude oil theft during the period alone.

At an average price of $116 per barrel, the loss in government revenue translated to about $1 billion, or about N434 billion (at Central Bank of Nigeria (CBN exchange rate of N415 to the dollar) in just one quarter of the year.

This trend, he noted, portends an existential threat to the oil & gas sector, and by extension, the Nigerian economy, if not curbed, adding that the situation has also impacted gas production, both for domestic utilisation and export.

Komolafe used the public-private dialogue, which focused on crude oil theft and artisanal modular refineries, to highlight the Commission’s regulatory initiatives to mitigate oil theft as well as create the enabling regulatory environment for local refining in the country.

He said the illegal access to crude oil and condensate by economic saboteurs popularly called “crude oil thieves” has impacted the oil and gas sector for over a decade, particularly the onshore/shallow water terrains.

On the various ways the country’s oil was being stolen by vandals, he said it was through either “hot or cold tappings”.

While the former involved an unauthorized secondary pipeline being attached to an operator’s facility (well head, flowline, or pipeline) to allow oil flows under pressure, the latter involves blowing up, or cutting off pipelines and putting it out of use to enable illegal connections.

The prevalence of “hot tapping” and related engineering contraptions today, he pointed out, underscores the growing sophistication in the illegal practice.

He said the rising incidence of crude oil theft resulted in the declaration of force majeure at Bonny Oil & Gas Terminal (BOGT) and shut-in of Wells from fields evacuating through the Nembe Creek Trunk Line (NCTL) and the Trans Niger Pipeline (TNP).

Apart from the negative impacts of crude oil theft on production loss and associated revenues losses to both the government and investors, Komolafe identified other challenges to include threat to National security; erosion of investor’s confidence; unemployment; health, safety and environment (HSE) impact resulting in environmental degradation and health risks to dwellers in oil producing areas, as well as the impact on global competitiveness, in terms of insecurity, increase in operating costs, and loss of revenues by the government and investors.

To deliver on the government production target of three million barrels of oil per day in the next three years, the CEO said the Commission has developed some key initiatives to reduce the menace to the barest minimum in the short run, and eventual elimination in the long run.

These include a roadmap for tackling the insecurity in the industry, by identifying and implementing areas of collaboration between the government and operators to realize their full production potentials.

Also, he said the Commission was collaborating with the security agencies to develop a security framework to secure the pipeline and other assets.

Other initiatives include promoting the Nodal surveillance technologies on the main trunk lines at each manifold for real-time loss detection to enable swift and more proactive responses; enforce installation of tamper detection technologies as part of designs for pipeline and related oil & gas production facilities; ensuring that operators implement approved security protocols in their areas of control to promptly identify and remove illegal connections and conduct remedial works in record time.

Considering the substantial impact the oil and gas value chain has on the country’s economic survival, he said the Commission advocates for a refinery revolution, in terms of more modular refineries development, as solution to the challenges.

Modular refineries of installed capacities of betwen 1,000 and 30,000 barrels per day, he said, were easier and relatively more cost-effective to build, in terms of capital and time than the traditional refinery.

He said the Commission was, however, completely against
artisanal refining, considering that it operation was outside the ambit of the law and below acceptable minimum standard of technology.

“Other than engage in criminal activities disguised as artisanal refining, the youth in oil producing environment could better be engaged through establishment of more modular refineries and derivative legitimate activities,” he said.

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