The Murky Underworld of Oil Theft and Diversion
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The author is a Forbes contributor. The opinions expressed are those of the writer.
This picture taken 14 May 2006 shows a stitched hole at an oil pipleline that exploded after it was vandalised by scoopers trying to steal fuel at Ilado beach village in Lagos. The Nigerian Red Cross said Sunday it had halted its rescue work at the scene of a pipeline explosion near Lagos, saying there had been no survivors from the blast that killed up to 200 people. AFP PHOTO PIUS UTOMI EKPEI
Earlier this month I attended the Association of International Petroleum Negotiators 2nd annual International Petroleum Summit, held in Houston. The group is made up of attorneys, petroleum economists and others who cut long-term oil exploration and production deals with foreign governments. Of the dozen or so panels or presentations, none were more interesting than a panel on preventing fuel theft. Anyone who has spent decades in the international oil industry has heard plenty about oil theft, but I came away with a much deeper understanding of how widespread the problem has become, and what countries are trying to do about it.
I have written about oil theft in a previous blog post on Nigeria. Oil thieves there engage in a practice known as bunkering, where pipelines are tapped and crude oil or refined products siphoned off for use or sale on the black market. Money from illicit oil helps fund militant groups like the Movement for the Emancipation of the Niger Delta (MEND) and the Niger Delta Avengers (NDA), and it lines the pockets of garden-variety crooks and corrupt public officials.
The corruption associated with oil theft runs so deep in Nigeria that both the Nigerian Navy and the government’s own anti-insurgency Joint Task Force of the Niger Delta along with other rogue security forces members, politicians, customs agents, tanker captains and countless other shady characters have been accused of aiding and abetting bunkering schemes. According to one estimate, the Nigerian government spends $1.5 billion per month combatting oil theft and diversion.
This much I knew before attending the panel. What I learned and think is worth sharing here is three-fold: First, oil theft and diversion are far more widespread than I realized, and the causes or motives are multiple. Second, the ways oil is stolen and transported goes far beyond bunkering. Third, despite the fact that oil theft and diversion are a way of life in some countries, and have been for decades, the innovative measures and new technologies authorities are adding to their long-standing anti-theft efforts are beginning to pay off.
The panel frequently referenced a January 2017 report on oil theft and diversion by the Atlantic Council, a Washington D.C.-based organization comprising 100 or so international relations experts and policymakers. The report, Downstream Oil Theft: Global Modalities, Trends, and Remedies, written by Dr. Ian M. Ralby, covers 10 countries ranging from major oil producers (Azerbaijan, Mexico, Nigeria) to countries that produce very little oil (Morocco, Mozambique, Turkey). I draw extensively on various parts of the report here.
As one might guess, the highest level of oil theft and diversion occurs in countries that have the most oil. Both Azerbaijan and Mexico, with a few differences, look a lot like Nigeria. In Mexico, fuel theft is on the rise as criminal gangs look for ways to lessen their dependence on earnings from narcotics trafficking. In 2006, state oil company Pemex reported that the country’s pipeline system had been tapped by oil thieves 211 times; last year the hits numbered nearly 7,000. But in the case of Mexico, it’s gasoline not crude oil that’s stolen. Thieves take the gasoline and sell on the side of the road for half what it costs at the pump.
In Azerbaijan, the thieves are not gang members but instead, members of organized crime syndicates; crude oil is the thieves target, not oil products or gasoline; and it doesn’t stay in the country it’s bunkered and secretly taken to neighboring countries via train and tanker truck, taking advantage of open borders and a multinational agreement that prohibit searches of commercial vehicles.