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CRUDE OIL THEFT ALLOCATION: Resolving a Solomon-Like Puzzle By: Andrew Grant and Florence Eke

L-R: Assistant Director Resources Management Upstream, DPR, Mrs. Patience Maseh; Manager PED Petroleum Operations JV NAPIMS, Mr. Ovie Okor; GM, JV Operations, NAPIMS, Dr. Constance Moro and Deputy Director, Mr. Bekee representing the Director of DPR during a meeting of the DPR - NAPIMS Committee on Crude Oil Theft recently

BACKGROUND AND HISTORY
Organized crude theft, locally called “Bunkering” has been on for close to a decade, and has become a major problem in the Nigerian Oil industry. Despite the problem oil production must continue, and Oil industry operators have to bear the crude theft losses on their pipelines and other production infrastructure.

There are various pipeline systems and networks in the country mostly owned by the oil majors. There is no theft allocation problem when a company uses its network all by itself. However, once there are third parties who also utilize the network via Crude Handling Agreements (CHA), these third parties are obliged to partake of the crude theft losses.

In much the same way as crude volumes received at the terminal points are allocated to the contributing parties, theft losses also have to be allocated to all parties on a pipeline network. While there are well established hydrocarbons accounting principles for crude allocation, there are no guidelines for allocating losses.

Over time, the allocation process for lost crude has become VERY ACRIMONIOUS leading to several disputes that have gone on for years. DPR and NAPIMS have had to step in to resolve several of these disputes.

L-R: Mr. Okoro E. Emmanuel of DPR, Mrs. Florence Eke of NAPIMS, Mr. Amadasu Enorense of DPR and Mr. Grant Andrew of NAPIMS

A Joint DPR-NAPIMS Committee was set up to tackle this problem. The committee comprises of two representatives each from NAPIMS and DPR.

In carrying out its assignment, several meetings have been held, field visit, and lots of literature review for this very technical assignment. At the end, DPR and NAPIMS were able to develop a formula to equitably share the theft losses on shared networks.

The Problem: The problem was of equitably sharing the theft losses among the parties, given that there were no established principles on how this should be done, and the impossibility of determining how much of each party’s crude had been stolen.

To further complicate matters, there are disputes about how much oil had been stolen in the first place. This had to be addressed first, before the sharing of the lost volumes.

THE CHALLENGES & SOLUTIONS PROFERRED

a) DETERMINING HOW MUCH OIL IS LOST/ STOLEN
When the crude theft problem initially started, the majors who owned the networks bore the losses themselves, before later the third parties were obliged to partake of the losses. Today many third parties believe that they are taking the lion share, or more than their fair share of the crude losses.

Third Party Fears: The formula for computing crude loss is shown below: Sum of the Oil coming – Oil received = Theft Oil from all input points at the Terminal (Flow stations and injection points)

If the oil coming from the flow stations is exaggerated, then the third parties would be short-changed by having to partake of the exaggerated theft oil volumes. There are challenges to overcome in establishing the volume of losses on a pipeline network, and getting the third parties to agree to these volumes. They are explained.

Computational Methodologies – There are various production accounting methods to account for the oil volumes in the network. To further complicate matters, there are various ways each of these can be implemented. The committee had to demonstrate a very high level of technical competence, to understand the different methodologies that the companies were using.

One company seemed stuck on some method, not realising there are other methods. The committee had to spend much time on educating the parties. Another company’s method was thrown out as being deficient because they could only tell us the steps in their approach, without being able to explain the theory behind it. It took diligent research by the committee for the method to be accepted, and the committee ended up teaching that company’s staff about their own method from first principles.

Field Audit – The committee had to visit practically all the locations on one network. The field inspection showed that all was not perfect at the flow stations. There were some equipment and operational deficiencies. The committee had to make recommendations for both equipment replacements and operational practices like calibration of crude oil measurement meters.

...to be continued in the next edition

© 2015 NAPIMS
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