May 14, 2017

How Nigeria ‘lost N2 trillion to poor metering of oil wells’ in two years

How Nigeria ‘lost N2 trillion to  poor metering of oil wells’ in two years


By Ediri Ejoh

Nigeria may have lost about $64 million ( about N2 trillion) between the second quarter of 2015 and the first quarter of 2017 to poor metering of  its oil wells.


As part of the efforts to curb corruption in the oil and gas industry, former administration of President of Goodluck Jonathan  had approved the 2014 Weight and Measures Act  which marked the commencement of the  computerised metering system of oil wells under the Ministry of Industry, Trade and Investment in 2015.

Nigerco Nigeria Limited was subsequently appointed the consultant to oversee the issuance of licenses and the meters to oil and gas prospecting companies in the country.

The Chairman, Chief Executive of the company, Yussuf Sani, who spoke to Sunday Vanguard, said Nigeria, in the first quarter of 2015, made over $8 million as part payment for monitoring and licensing fees from oil firms.

Sani noted that  the $8 million was the minimum the nation should have made quarterly following the commencement of the scheme.

But the dispensation was discontinued after only being operated for one quarter, implying that Nigeria could have in the past two years earned a minimum of $64million, which, going by the current official exchange rate at N306, would have amounted to about N2 trillion.

The country also loses huge sums of money through crude theft due to the absence of metering of oil wells. This leads to lack of accuracy in the records of volume of crude oil extracted and exported daily, giving rise to varied figures by local and international sources.

“The scheme (metering) would not have only prevented crude oil theft in the country but equally serve as a means of measuring the true volume of our production as well as generate revenue for government as the oil companies were expected by the Weight and Measures Act 2004 to devote about 0.00025 per cent value of production to the project,” the Nigeria Limited boss said.

When asked why the project could not continue, he said only those in the Ministry of Industry, Trade & Investment  could explain.

“As a consultant, you can only work when you are called upon to do so,” he stated.

Sani explained that the current administration appears not to have the political will to continue with the project.

He further explained that bearing in mind that the multinational oil companies, who are engaged in crude extraction in the country are against the project, “I am not surprised that the scheme has been stalled.”

He, however, wondered why a government that is focused on fighting corruption will fail to deploy metering to the core source of Nigeria’s revenue earnings.

According to him, several letters had been written to the Ministry of Industry, Trade & Investment, to remind it of the need to continue the project without response.

On how the operation was sabotaged, Sani said oil companies simply stopped cooperating by not allowing his staff access into their premises to install meters, adding that he was told unofficially that there was an order from above to stop the program.

He, therefore, called on the Presidency to return the metering project, saying that was the only way crude oil stealing could be minimized as well as get the accurate volume extracted and exported from the country daily.

$4.1bn lost to inadequate meteringNEITI 20-14 audit report

The Nigerian Extractive Industry Transparency Initiative, NEITI, in its latest Independent Audit Reports, identified non-metering as a major source of revenue loss to the country in the oil, gas and mining sectors.

Speaking on the losses incurred by negligence and the impact on the country’s economy, Director of Communications, NEITI, Dr. Orji Ogbonnaya Orji, said, “Our 2014 Audit Report showed that $4.3 billion worth of crude was lost. This is made up of $4.1 billion reported loss by the companies, $100 million worth of crude reported lost by PPMC, $198.7 million worth of crude lost to OPA/SWAP and another $2.5 million exchange loss on gas”.

Orji, however, said government had provided encouraging political will to support NEITI’s commitment to ensure that metering infrastructure is put in place in the oil and gas industry in line with international best practices.

DPR reacts

Also speaking on the issue, the Public Affairs Department of the Department of Petroleum Resources, DPR, stated that dynamic method of petroleum fluid measurement is, globally, by means of metering systems, otherwise referred to as Lease Automatic Custody Transfer (LACT) system.

“All the terminals handling crude petroleum adopt this method which is backed up by the Static Method of measurement, otherwise known as physical hand-dip measuring, which is done by using recommended steel tapes or Ultrasonic equipment”, the DPR said.

“These meters at custody transfer points are systematically calibrated annually (without fail) in line with DPR guidelines.

“Please note that most American Petroleum Institute’s (API) Standards are adopted by DPR as a means of bench-marking our operations .

“However, we reiterate that crude measurements are done critically at two points; firstly at the wellhead to allow for the separation of BSW (Basic Sediments & Water) for rolty purposes etc. And then at the custody transfer point where the dry crude is measured preparatory for export .”

Global institution’s perspective

According to the US Energy Information Administration (EIA), Country Analysis Brief on Nigeria, published in May 2016, oil theft, encouraged by the absence of metering, runs on a complex network that demands strong political will to conquer.

The report stated: “Nigeria’s oil theft and trade business is based on a complex system of networks composed of domestic, regional, and international actors, involving various people, local youth and communities, professionals such as corrupt bank managers, and high-level elites such as government officials and security force personnel.

“Oil is stolen at various stages of the production process from upstream to downstream operations, wellheads, manifolds, pipelines, and storage tanks at export terminals. Most oil theft operations typically involve tapping or siphoning oil from a pipeline by a hose and pumping the oil onto barges or small tankers.

“Estimates of stolen crude oil vary and are as high as 400,000 b/d, but some believe that estimate is too high and may include the volume lost in oil spills. The volume of crude oil that is stolen is difficult to measure because metering systems are usually at export terminals and, therefore, oil stolen between the wellhead and pipelines is not easily detected.”

On the role of the multinationals operating in the sector, the report stated: “The IOCs do not collectively report volumes stolen, so there is no authoritative source for total stolen volumes.”

Similarly, the US Deputy Ambassador to the UN, Michele Sison, citing a Chatham House report, said Nigeria loses over $1.5 billion monthly to damage from piracy, theft and fraud.

“By some estimates, Nigeria is losing about $1.5 billion a month due to piracy, armed robbery at sea, smuggling and fuel supply fraud,” Sison said.

Meanwhile, it will be difficult to tackle corruption in the oil and gas industry, without fighting to recover all the loopholes exploited by these oil majors as well as other oil firms across the country.