America's LargestShell: Oil Theft in Nigeria Costs Company $1.6 billion a Year
A fire at a Shell refinery in Nigeria following an attack by a rebel group in May of 2008. (image: Reuters via javno.com)
According to Royal Dutch Shell, smuggling and theft of oil in Nigeria account for $1.6 billion of the companies losses every year. Nigeria, the world’s seventh-largest producer of crude oil and biggest producer on the African continent, is fraught with oil thefts and attacks on oil infrastructure perpetrated by rebel groups and bands of outlaws.
Shell’s announcement on February 20th estimated that Nigerian thieves make off with 20,000 to 100,000 barrels of crude per day. All in all, Shell pays a 30 percent premium to produce oil in Nigeria, once security issues and other complications.
Repeated efforts by the Nigerian government have failed to significantly improve the security situation in the oil sector, which has been unstable for several years. Shell is planning to lend the Nigerian government $3 billion in “bridging loans” to keep up production amid political turbulence, The Times of London reports.
Although supply disruptions caused by political unrest and lawlessness in Nigeria do not usually have a major effect on world crude prices, the potential for a catastrophic event causing a rise in prices is definitely there. An overthrow of the Nigerian government, for example, would undoubtedly drive up the price of crude overnight and bring about higher prices for refiners and heating oil consumers alike.
Just another example of how tightly the various sectors of the energy markets around the world are woven together.
[...] Case in point: Royal Dutch Shell announced that, for the fifth month in a row, oil shipments from Nigeria were disrupted, Bloomberg reported yesterday. Shell had expected to produce over 200,000 barrels of oil a day from its production facility. But, due to the damages to the region’s pipeline, it will be unable to do so. Just last year, Shell was producing 360,000 barrels per day. As reported in February on The HEAT Zone, smuggling and disruptions in Nigeria costs Shell $1.6 billion a year. [...]