What Is the Impact of Oil Theft?

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On Friday, Royal Dutch Shell (NYSE:RDSA) reported that a fire in June, resulting in the largest oil spill this year from facilities operated by its Nigerian joint venture, was caused by oil theft. The incident occurred on a major pipeline in the Niger Delta and nearly two-thirds of the oil released from the pipeline burned up at the site.

Earlier this year, Shell said that oil theft in the region had reached ”unprecedented levels,” and had asked the Nigerian government to take aggressive action to stem their growing concerns. The economic and environmental consequences can be immense, as the most recent oil spill shows, and Shell explains that the vast majority of environmental damage in the Niger Delta is the result of attempted theft of oil by thieves.

The June 19 incident released almost 2,700 barrels of oil from its 150,000 barrel-a-day Trans Niger Pipeline, totaling over one-third of all the oil spilled since January in the region, Shell wrote in a report on their website. The oil thefts plaguing the region are also starting to do damage to the Nigerian government’s revenue due to frequent shutdowns of oil production sites. In the first three months of the year, lowered output due to oil theft cost the country an estimated $1.23 billion in lost revenue.

 

The problem is so immense that Shell Petroleum Development Co. announced in June that it would spend $1.5 billion to build a new pipeline that will bypass the section of the Trans Niger Pipeline that has been targeted intensely for theft. The new portion of the pipeline will pass through a swampier area where it will also be further submerged, making it a tougher target for theft. Shell also plans to install stronger intruder-detection technology to the area along with hiring a Military Joint Task Force to catch the thieves.

However, human rights groups and nongovernmental organizations in Nigeria are accusing Shell of displacing at least some of the blame that should be aimed at their aging infrastructure or on operational error. Even if the majority of oil spills are the result of theft, they believe Shell is too quick to place blame.

Last week, Amnesty International and the Nigerian National Coalition on Gas Flaring and Oil Spills called for an inquiry into the June 19th incident to confirm exactly what was responsible for the spill — and in a joint investigation with NACGOND present, it was found that it was indeed caused by theft.

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