For decades, the illicit oil and gas market has plagued the energy industry. Around the world, rising energy and oil prices have led to an increase in fuel smuggling. Just a few years ago, fuel smuggling from Colombia to Venezuela across the porous border became rampant, reversing decades of cheap Venezuelan oil smuggling flows thanks to Venezuela’s acute fuel shortages and high prices. petrol. On the world stage, the UN estimates oil theft at 5 to 7% of the world market for crude oil and petroleum fuels, which equates to US$133 billion per year. But oil theft in Africa’s biggest oil producer has reached such epic proportions that it has become an existential threat.
Nigerian National Oil Company Limited (NNPCGROUP) CEO Melee Kyari has revealed that Nigeria is lose almost all oil production at the Bonny oil hub, the town after which its premium Bonny Light oil is named. Bonny Light is a light sweet crude oil produced in Nigeria, and an important benchmark crude for all West African crude production. Bonny Light has particularly good gasoline yields, which has made it a popular crude for US refiners, especially on the US East Coast.
“As you may be aware, due to very unfortunate acts of vandalism along our main pipelines from Atlas Cove to Ibadan, and all others connecting the 37 depots we have across the country, no d ‘them can only take delivery of products today. The reason is very simple. For some lines, for example, from Warri in Benin, we have not operated for 15 years. Each molecule of product that we put in is lost. Do you remember the sad fire near Sapele that caused so many deaths? We had to shut it down, and as we speak we have a high level of losses on our product pipeline,” he said.
Kyari alleged that stolen petroleum products are now stored in places of worship such as churches and mosques.
“Remember in Lagos when a fire broke out on one of our pipelines? We discovered that some of the pipelines were actually connected to people’s homes. And not only that, in all sensitivity to our religious beliefs, some of the pipelines and some of the products we found are in churches and mosques,Kyari added.
Although the figures are generally estimates, the NNPCL and the Ministry of Petroleum estimated the total amount of barrels stolen at between 200,000 and 400,000 per day. These are huge figures considering that Nigeria only managed to produce 1.083 million b/d in the month of July, well below its OPEC quota of 1.8 million b/d. With a bonny light barrel Currently changing hands at $117.60, Nigeria loses billions of dollars each year to oil theft. In June, NNPC revealed that it had lost $1 billion to oil theft in the first quarter of 2022 alone, with Shell Plc. (NYSE: SHEL) affiliates in the country claiming illegal foreclosures now pose an existential threat to the entire market.
Rise in oil theft
Oil smuggling has become a particular threat in several developing countries, as armed groups siphon oil for resale. Oil smuggling costs Libya about $750 million a year, or 3% of its GDP. Mustafa Sanalla, the head of the country’s National Oil Corporation, called on the European Union naval mission to help stop oil smuggling by seizing their ships in the Mediterranean, and urged Libya to reform massive subsidies that allow to sell fuel for as little as 2-3 US cents per litre.
Meanwhile, Latin America has long been a hotspot for this illicit activity, with oil theft rising sharply in recent times due to high oil prices.
Criminal syndicates associated with powerful drug trafficking cartels have frequently targeted Pemexpipelines to steal crude oil and derivative products. The problem has become so entrenched that by the time President Andrés Manuel López Obrador took office in 2018, the country was lose 80,000 barrels or more of oil and by-products per day to oil thieves.
But it’s not just individual traders and cartels that use crypto in illegal oil deals. In 2018, the Venezuelan government launched a cryptocurrency dubbed “Petro” which was backed by oil in an attempt to circumvent US and international sanctions. The Petro was tied to Venezuelan crude, commodifying token purchases with a barrel of oil. At first glance, this seemed like a perfect niche for capital generation given that Venezuela is home to the largest proven oil reserves in the world. However, Petro failed to gain traction largely due to his lack of usefulness as well as its placement away from traditional shopping websites. As a result, oil traders in the region have been forced to switch to traditional cryptocurrencies like bitcoin, facilitating a thriving black market along the Colombian border.
The very nature of cryptocurrency transactions – encrypted, anonymous and decentralized – makes it the new currency of choice in the oil and gas black market. For “independent” smugglers and rogue countries alike, the rising trend in illicit oil and gas sales using cryptocurrency is adding to the extreme volatility in energy markets. Cryptocurrency has provided a useful alternative to traditional forms of black market commerce thanks to its widespread acceptance. Moreover, digital currencies have a multitude of characteristics that make them attractive to oil smugglers: they are easily transferred, invested, fungible and secure.
By Alex Kimani for Oilprice.com
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