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Shell puts cost of crude oil theft in Nigeria as high as £1.1bn a year

February 21, 2009

Robin Pagnamenta, Energy and Environment Editor

As many as 100,000 barrels of crude oil are being stolen or smuggled from Nigeria every day, representing 5 per cent of national production, according to estimates from Shell.

The Ango-Dutch oil group plans to lend Nigeria more than $3 billion (£2.1 billion) in bridging loans to maintain investment and keep production flowing despite political turbulence.

Shell said yesterday that the theft of oil in Nigeria, Africa’s largest oil-producing country, ranged from 20,000 to 100,000 barrels per day but may have peaked at more than this. At today’s price of slightly more than $40 for a barrel of benchmark Brent crude, this equates to between $300 million and $1.6 billion (£1.1 billion) a year.

Nigeria has proven reserves of 36 billion barrels – the seventh highest in the world – but the industry has been wracked by violence, corruption and crime, particularly across the volatile Niger Delta region.

One method for stealing crude oil involves boring holes in the thousands of miles of pipelines that crisscross the Delta and inserting valves – a highly risky practice that often results in explosions and deaths. Crude is also stolen by organised criminals who steal directly from the wellhead.

Stolen Nigerian crude is usually exported by barge for refining in other parts of West Africa. There is also evidence that it is shipped as far afield as Brazil and Eastern Europe.

“A lot of people have died in this illegal activity – they get terrible burns,” said a source close to Shell, who estimated that local oil smugglers in Nigeria earned up to $2,000 to $3,000 per shipment. He said that stolen oil was delivered to larger, seagoing barges for onward export. “It is a very high-risk activity and there is huge pollution associated with it,” said the source. “Somebody needs to resolve the social issues in the region to come down heavily on crime.”

Nigeria produced about 1.9 million barrels of oil per day in January, according to Opec figures.

The source said that Shell was paying a 30 per cent premium to operate in Nigeria because of the lack of security and the complications of doing business there.

Nigeria’s Government was investigating technology to determine the origin of crude oil in an effort to clamp down on theft. “It might not eliminate everything, but it might kill off some of the demand,” the source said.

Shell has been active in Nigeria, which provided more than a tenth of its 2007 oil production, since 1958 and is one of the country’s largest producers, pumping oil from land and swamps in the Niger Delta and from deep-water reserves off the coast.

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