Africa's oil theft crisis

Shell is losing billions as organised crime in the Niger Delta steals and spills its oil. But it is not blameless, says Tom Bawden

Gas flares blasts out heat and pollution in the Delta, where livelihoods and the environment are often damaged by the industry (AP)

Matthew shook his head as he flew the Shell helicopter over the Niger Delta. It's difficult to see why at first, because the mangrove swamps immediately below appear to be a pristine and lush mix of green and blue. But on closer inspection, a large volume of the water arteries that criss-cross the delta are covered in a greasy film.

And swooping closer to the ground, there are clear signs of oil spills and fire remains on the land, which have charred and tarred the environment.

Shell has an infamous reputation for spilling oil in Niger Delta after 44 years of polluting leaks from its 6,000km network of pipes in the region, which some local communities claim have destroyed their fishing and farming livelihoods.

But since the military dictatorship ended in 1998, a new source of oil spills has emerged. Locals and organised crime syndicates have been stealing oil by sawing into the pipes and siphoning it off in an often messy process known as bunkering. And the practice is on the increase.

"They are destroying every part of the forest – look they've just started operating there," says a despairing Matthew through a headset microphone that drowns out the din of the helicopter blades.

He is pointing below to the seedy mixture of spilt oil and the charred earth that results when the crude is refined by heating it in a home-made device made from a barrel and some pipes. The resulting low-quality fuel is typically used to fuel the diesel engines that provide most of the region's notoriously intermittent power supply.

"To the left, to the right, everywhere. This is all messed up. Illegal activity everywhere," Matthew added, as he flew a group of journalists on a carefully choreographed tour of theft-related oil spills.

As the biggest foreign producer in Nigeria, Shell is a key target for oil thieves but the theft cuts across country's entire hydrocarbon industry, as well as depriving the government of billions of dollars a year in lost taxes.

The state-owned Nigerian National Petroleum Company is bigger than Shell and consequently loses even more oil to theft, while companies such as France's Total, Italy's ENI and Chevron of the US have also seen oil theft eating into their profits.

Once stolen, the oil, which Shell claims accounts for 70 per cent of its spills in Nigeria, makes its way by barge along one of the region's many tributaries. Some is dropped off for sale or use locally and some is loaded on to trucks and transported across Nigeria.

Shell suspects that a large and growing portion, however, is sent further afield. In these cases the barges tip their black liquid cargo into larger ships moored off the coast and destined for thirsty Asian markets, such as Singapore. Although it doesn't have proof, the company suspects that organised crime gangs from eastern Europe are central to an oil racket that is becoming increasingly sophisticated.

Shell says oil theft is now so rife that it costs its Nigerian business, a joint venture with the government, which Shell runs, up to 100,000 of barrels of lost oil a day, worth about $4.5bn (£2.8bn) at today's prices. Shell has a 30 per cent stake in the venture, known as the Shell Petroleum Development Company of Nigeria.

NNPC has a controlling stake in the venture, while Total and ENI have 10 per cent and 5 per cent. But the true scale of the damage across Nigeria is higher still, with Shell estimating that about 150,000 barrels of oil a day are lost to theft across the country. To make matters worse, asked if bunkering is on the rise, Mitiu Sunmonu, the chairman of Shell's Nigerian operation, says: "There is no doubt in my mind."

The mounting oil theft is of such grave concern in Nigeria that Austen Oniwon, group managing director of NNPC, warned in March that if the trend continues the country could follow in the path of Mexico and Colombia where, he contends, the vast amounts of money that can be made from crime had allowed criminals to wield huge power.

"If we fail to curb this trend we are inadvertently empowering these criminals to take over our local government areas and then they would move on to take charge of the states since they now have resources to decide who gets to power. One day we may, as well, wake up to discover that they have taken over the entire country," he said.

In conversations with Shell executives in and around Port Harcourt, the centre of the country's oil industry, a variety of theories emerge as to why oil theft is on the up. Firstly, at a near-record high of around $112 a barrel, the price of oil is very high, making its theft far more lucrative. Three years ago, it was less than half the price, at about $55.

Shell's head of spills response in Nigeria Pat Agbo, a dapper man known to his colleagues as "the cleaner", says bunkerers are becoming better at stealing the oil as their experience grows. At the same time, the proceeds from their crimes mean they are increasingly well equipped with tools and weapons, he contends, echoing Mr Oniwon's comments.

Other Shell staff suggested bunkering was attractive to a host of former militia men washing around the region without gainful employment.

Whatever the cause for the rise, Shell is becoming increasingly frustrated about the theft-related oil spills, which reflect badly on the company and, because it has pledged to clean up all spills, is costing it tens of millions of dollars in costs on top of the lost revenues.

"It is certainly very frustrating," said Mr Sunmonu. But, crucially for his credibility as a crusader against bunkering, he acknowledges that Shell's legacy of so-called operational oil spills in the Niger Delta is part of the problem.

"I'm of the firm belief that the issue of the environment has become a very political subject so I'm not surprised people ignore the fact that the bulk of the pollution is caused by third parties," Mr Sunmonu said.

Shell is also aware that, while 70 per cent of spills may be related to bunkering, that still leaves 30 per cent that aren't. Most recently, it reinforced its legacy as a giant oil spiller when it was forced in December to shut down its Bonga oilfield 120kms from the Nigeria coast after an environmentally damaging spill of around 40,000 barrels of crude leaked into the ocean.

This spill, the worst in the area for a decade, came four months after a report by the United Nations lambasted Shell and the Nigerian government for making a significant contribution to 50 years of pollution in Ogoniland, a region of the Niger Delta, in which more than 6,800 spills tipped up to 13 million barrels of oil into the area between 1976 and 2001. The report said the area, where Shell's Nigerian joint venture has dominated crude production, requires the world's largest ever oil clean-up, predicting it would take 30 years and asking the Shell joint venture to kick off the process with an initial contribution of $1bn.

Against this backdrop, the pollution-related court cases pile up. In March, a group of 11,000 members of the Bodo fishing community in the Niger Delta initiated a case in London's High Court against Shell in pursuit of tens of millions of dollars they believe they are owed in compensation for two oil spills in 2008..

Mr Sunmonu seems aware of the link between Shell's legacy of spilling oil in the Niger Delta and the growth of oil theft, in some cases by communities whose livelihoods have been hit by operational spills. And he seems determined to eradicate both.

"I'm not going to get distracted because people are playing politics with oil spills. The challenge for us is to eliminate operational spills. Then it will be easier for people to focus on fighting the criminal activities."

That appears to sum up the situation as well as anyone could. But eradicating these interlinked spill causes will be extremely difficult.