How crude oil is stolen, refined, sold in Niger Delta

Communities or criminals, a new report, goes deep to unearth the working of oil theft and illegal oil refining in Nigeria’s oil rich Niger Delta.

The business of oil theft and illegal oil refining in the Niger Delta region has become so brazen and networked, involving communities, government officials, oil workers, and security agencies that it is difficult to properly classify the sabotage as a crime, a new report by Stakeholder Democracy Network indicates.

The oil is being stolen at an industrial scale. Moderate estimates suggest 150,000 barrels of crude oil are stolen every day in Nigeria. The vast majority of this is sold internationally.

But at least one in every four barrels of crude oil stolen everyday ends up in the Niger Delta region where it is refined at illegal refineries by locals who claim proceeds supplant non-existent government welfare package and help support their families; in the process destroying the environment and threatening legal oil refining.

The report claims the illegal refining industry is worth several billions annually, and Nigeria’s politicians and security officials are among those profiting. Oil and gas experts, and Niger Delta activists believe oil theft and local refining is growing rapidly, with suspicions that as the 2015 general elections gets closer, it will boom.

The SDN report is the first study that explains how illegal oil refining in the Niger Delta operates and what is driving its rapid growth. It also analyzed the political, economic and societal drivers, networks and impacts and nature of local oil refining.

Illegally refined diesel is transported to market

How it works – Instal a tap

The illegal petrol refining industry in the Niger Delta is organized like the legitimate, applying the same basic technology – distillation.

The illegal refineries do not drill, but tap from the established oil companies at the point of transporting the crude from one point to another. According to the report, the installation of pipes is done with great dexterity and mostly at night.

Skilled welders, many who were previously contractors for the oil companies and are now formally unemployed, typically carry out this installation.

“The most skilled operators can install taps both on dry land and underwater. They often work in small teams of 3 to 6 people and can set up a tapping point in just a few days,” the report said.

Installing is a dangerous step. The pipes could explode while high in pressure. During the tapping process, the pressure on pipes must be reduced before a tap can be installed, and oil companies’ control room staff provide this service, the report stated.

The installation of taps is the beginning of the illegal refinery production chain, and operated by an organized “union” criminal gang that boasts of support from community members and staff of tapped oil companies; and security officials posted to the area to stop the crime.

“We have unions here, you don’t just come into the community and start refining,” one of those interviewed told SDN.

Oil theft “unions” serve to organize the placement of an illegal tap for an average fee of N1 million. Control room operators, for a fee of N900 thousand, would inform the union members when pressures are being reduced for routine maintenance, to allow tap installations.

The union also provides an informal control on illegal pipeline activity across the region, like the petroleum ministry would do in the formal oil and gas industry.

The union also provides new entrants with personal connections to rogue actors within the JTF whose protection is needed to ensure a steady supply of crude.

The report says Nigeria’s security forces are neck deep in stealing oil in the Niger Delta. When installed, each tap point is owned by a consortium of three key parties – security, technical capacity and operational access.

Running the tap

Once the tap is installed, a small team of around five workers guards and operates the tap, using the oil pressure and a rubber hose to siphon crude oil from the tap into a boat – called Cotonou Boat – built to receive oil.

Tap operators well are guarded and dangerous for outsiders. “They are well protected either by armed local boys or the JTF,” the report said. An average tap point spends N200 thousand on security monthly.

Operating a tap point is the most lucrative segment of the illegal oil theft business. They earn as much as N165 million per month supplying both local refiners and international oil thieves.

Distribution

Distributors, riding in Cotonou Boats, transport the stolen crude, once filled, from the point of tapping, through the creeks where they supply a small quantity to illegal refineries -camps – scattered around the creeks of the Niger delta.

A bulk of the stolen crude, up to 75 percent is transported to oil tankers waiting off the coast for national, regional and possibly, international markets.

“When shipping stolen crude, distributors tend to avoid middlemen. This keeps costs low and margins high,” the report said.

The local transport vessels can be owned by the tap owner, a local refiner or by other individuals engaged in export oil theft.

Within the first half of this year, the JTF said 861 giant Cotonou boats have been “scuttled.”

Refining

When the stolen ‘black’ arrives by boat from the tapping point, camp workers transfer the cold crude oil to a storage tank using a rubber hose and pump. The most common storage tanks are large locally made “GEEPEE” tanks. In some camps open-air pits are also used for storing stolen crude.

Some camps are set-up like a well run small company employing a wide variety of workers, including women. Average camps employ between 12 to 20 workers.

“I have an escort boat (deck man) paid N20,000 per trip, my camp manager is paid N100,000 a month, camp security is N2000 per person and I have three people on security,” one camp owner told SDN.

The basic refining technique, first used during the Biafran Civil War, is what the camps apply. These techniques were most recently used by members of militant camps between 2005 and 2009, providing fuel and cash to support the Niger Delta insurgency.

In Bayelsa, gangs can set up camps with N250,000. In Delta state, a camp may cost from N750,000 – N1 million. In Rivers state, the camps are more established and may cost up N3 million to set up.

The report suggests former militants brought back refining skills from militant camps.

“Now illegal refineries are a core part of the local economy of many Niger Delta communities, and refined products from them find their way at least as far as Lagos and into other licit distribution networks,” SDN said in the report.
The report described camp owners as the least profiting, earning up to N1.2 million per month.

Distribution

A security boat allegedly collecting bribes at a hub where illegally refined diesel is distributed.

If you buy diesel in the Niger Delta region, or in Lagos, there is a possibility that you bought an illegally refined type. The bulk of petroleum product produced at illegal refineries in the Niger Delta is diesel – 41 per cent – and waste, 55 percent. Petrol, kerosene, and bitumen are produced in very little quantity.

Distributors get into the towns to sell their products at N100 a litre to traders and filling station owners, or go to the high sea and sell to other middlemen with big vessels at N15,000 – N18,000 per drum (200 litres).
A large distributor makes up to N13.1 million monthly, the report said.

After the tapping point, distribution is the second most profitable area of the oil theft business.
Many refiners also give their host communities’ small quantities of kerosene for lighting and cooking at no charge.
“We give out kerosene and fuel to our people here at home and fuel our community generator with our diesel. We don’t sell at home, we dash,” one of the refiners told SDN.