Nigeria Doesn’t Know Exactly How Much Oil It Produces, But Is Pretty Sure $17 Billion Is Missing

BY CHRIS STEIN

Nigeria is unable to accurately account for all the oil it produces. (AP Photo/George Osodi)

Nigeria’s president has claimed “mind-boggling” sums have been stolen from the country’s oil industry. Just how much is now becoming clear.

Lawmaker in the House of Representatives Johnson Agbonayinma alleged last month that $17 billion in oil and liquefied natural gas was exported from Nigeria without being properly declared between 2011 and 2014.

It was the latest allegation of multibillion-dollar graft directed at Nigeria’s oil industry. Nigeria has long been Africa’s top-oil producer, and oil proceeds make up 90% of the country’s exports and a large part of its budget.

The reliance on oil revenue dragged Nigeria’s economy into hard times when the price of crude on the global market started dropping in 2014. The situation worsened earlier this year when militants began sabotaging pipelines in the country’s oil-rich Niger Delta.

As a result, production fell to around 1.5 million barrels per-day from its normal level of over two million barrels, and the country officially entered a recession in the second quarter of this year.

President Muhammadu Buhari has cast himself as a corruption fighter and claimed that the petroleum industry is riddled with graft.

The government believes international oil companies are at least partially responsible for the missing money. In a series of lawsuits filed earlier this year, Nigeria claimed several oil majors, including American firm Chevron and Italy’s Eni, didn’t declare $12.7 billion worth of crude and natural gas exports.

How could a foreign company make off with hundreds of millions of dollars worth of petroleum without declaring it? The answer, analysts say, lies in the unique deficiencies of Nigeria’s oil infrastructure.

Nigeria doesn’t measure its oil production based on how much individual oil wells produce, but rather how much oil leaves through its export terminals, says Dolapo Oni, head of energy research at Ecobank. That approach is vulnerable to undercounting.

Faulty or non-existent meters on pipelines and wellheads occasionally lead to disputes between well and pipeline operators over how much oil an individual well is sending through a pipeline.

And thieves have also been known to tap into pipelines and syphon off oil, either to refine or just to sell.

If pipelines and wellheads had meters, Oni said regulators would be better able to track where Nigeria’s oil is going, and figure out exactly how much oil the country produces.

“That’s part of where the corruption in industry is, because once the metering is done, there’ll be no more gaps or loopholes,” Oni said. “If we had efficient metering, there’s no way either party would be lying.”

Nigeria Officer at the Natural Resource Governance Institute Dauda Garuba says oil companies have rejected calls to put meters on oil infrastructure, saying it would be too expensive.

But Nigeria’s government hasn’t pulled its weight either, Garuba said.

The Petroleum Industry Bill would reform Nigeria’s oil sector but has languished in the national assembly for years. One of those reforms could be to mandate metering on all segments of the oil supply chain, Garuba said.

“For me, I think they’ve been sleeping on their rights and their responsibility forever,” Garuba said of the lawmakers. “It’s also getting worrisome that each time you hear of scandals like this, nothing gets to come of it.”

Filing lawsuits would solve one immediate need for Nigeria’s government—cash. The government is in desperate need of new revenue, and plans to borrow billions from lenders like the World Bank and African Development Bank to fund its budget.

Payouts from these lawsuits would go a long way to funding the $30 billion the country wants to spend this year, Oni said.

“The government is just broke and willing to go through every transaction in the oil and gas business to make sure that if there’s any money that they didn’t earn, they can get it now,” Oni said.