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Communities not Criminals – Illegal Oil Refining in the Niger Delta

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“The government and oil companies are collecting our oil, and we don’t have jobs, no money, so we have to collect the oil and refine our own”. Local Oil Refiner

SDN latest report analyses the massive growth in artisanal oil refining in the Niger Delta. The report explains for the first time why local refining is now entrenched and having a major impact on communities, economy and stability unless urgent action is taken.

Oil theft in Nigeria has reached an unprecedented sustained level, with approximately 100,000 – 150,000 barrels of crude oil stolen every day. The vast majority of this oil is sold internationally and involves complicated insider industry networks, as recently noted in Chatham House’s report, “Nigeria’s Criminal Crude”. However, 25% stays in the Niger Delta for refining and consumption. SDN’s report describes in detail the economics of artisanal refining which is already having a dramatic impact on communities and stability in the region.

‘Local refining’ has grown swiftly over the past four years, providing communities with employment opportunities and filling the supply gap of refined fuel in the Niger Delta. The industry fills an economic vacuum where local communities suffer the impacts of oil extraction but see none of the economic benefits. The failure of the Nigerian state to provide basic public services and security in the Niger Delta has resulted in a significant breakdown of the social contract. In the face of extraordinary corruption by political elites communities view artisanal refining as doing what they can to survive in the absence of mainstream livelihoods.

The scale of the local refining business explains why campaigns to end it risk being met with stiff resistance or an unpredictable backlash. Our research indicates a local industry worth around $28m (?4.4 Bn) per month or $336m (?52.8 Bn) per annum. This far exceeds the revenues reaching affected communities via local governments and makes refining by far the highest value local employer.

Illegal oil refining in the region comes with steep economic, environmental and social costs that are not felt by those making short term gains. Oil theft also complicates existing environmental damage from pipelines that are up to 50 years old. In some cases artisanal refining has become an excuse for inaction by oil companies over oil spill clean ups. A pivotal UNEP report on pollution in Ogoniland put a $1 billion dollar cost on starting a 20 year clean-up process. Illegal oil refining and theft for the international market continues to cause widespread environmental damage with regional clean-up costs now estimated in multiple billions of dollars.

Analysts and oil sector leaders already agree that the sustained impact of oil theft is exceeding the more dramatic closures caused by the peak of militancy in the region between 2007-2009. It is no coincidence that the largest oil operator Shell continues to sell its onshore assets indicating that some actors are effectively admitting defeat.

SDNs exclusive report, “Communities not Criminals” is the first study that explores how illegal oil refining operates in the Niger Delta and what is driving its rapid growth. Despite the dangers of the refining process the informal industry supports families, small businesses, and social aspirations of many Niger Delta communities.

SDN’s report looks at the community level consequences of oil theft and illegal oil refining as an entrepreneurial free market response to local economic dysfunction, the Niger Delta’s chronic energy shortages, and government’s failure to deliver basic public services.

Unless the economic and political drivers of crude oil theft and illegal refining are dealt with the stability of Nigeria’s oil sector is at further risk. These risks include a return to militancy and the potential that the country’s primary revenue stream will again be locked in.

SDN believes an urgent multi-stakeholder response is required of government, civil society, and oil majors to combine efforts to raise awareness of the health and environmental impacts of illegal oil refining.

The lack of appreciation and understanding of the massive medium to long term damage caused by oil pollution is a significant issue concerning all actors, including government and oil operators. Educating communities of the risks are essential; industry and government actors need to realize that the next steps of such advocacy would be a much wider and deeper shut-downs of the oil industry than has taken place to date accompanied by a dramatically more effective and sustained spill response.

In the absence of alternative credible livelihoods, ‘local refining’ will continue to thrive and provide a solution to the acute energy shortages, unemployment and poverty in the Niger Delta.

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