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The Conundrums of Illicit Crude Oil Refineries in Nigeria and Its Debilitating Effects on Nigeria’s Economy: A Legal Approach

Olusola Joshua Olujobi
Elizabeta Smaranda Olarinde
2 and
Tunde Ebenezer Yebisi
Department of Public and International Law, College of Law, Afe Babalola University, Ado Ekiti 360101, Ekiti State, Nigeria
Department of Private and Business Law, Former Provost, College of Law, Afe Babalola University, Ado Ekiti 360101, Ekiti State, Nigeria
Department of Private and Business Law, Provost College of Law, Afe Babalola University, Ado Ekiti 360101, Ekiti State, Nigeria
Author to whom correspondence should be addressed.
Energies 2022, 15(17), 6197;
Submission received: 20 July 2022 / Revised: 9 August 2022 / Accepted: 16 August 2022 / Published: 25 August 2022


Nigeria’s oil industry encounters crude oil theft in commercial quantities, which is often exported to neighbouring countries. This has occasioned a loss of revenue and has caused environmental pollution due to oil spillages. There is a need for a stringent legal framework to combat the menace caused by incessant crude oil thefts, pipeline vandalisation by militants, and inadequate maintenance of existing crude oil refineries. The study adopts doctrinal legal research methods and a conceptual approach with the consideration of primary and secondary sources of law, for instance, the Petroleum Industry Act 2021, the Nigeria Extractive Industry Transparency Initiative (NEITI Act 2007, International Conventions, law textbooks and peer-reviewed journals. The justification for using the method was to establish the trustworthiness of the findings on illicit crude oil refineries. The findings reveal that the Nigerian government has lost more than 150,000 barrels of crude oil daily valued at USD six billion as a result of crude oil theft. This has reduced oil revenues, which ought to have added to the national treasury. The Petroleum Production and Distribution (Anti-Sabotage Act) 2007, which proscribes disruption of petroleum products in Nigeria, has not been diligently enforced. There is also an absence of a specific oil and gas legal framework criminalising crude oil theft. Section 3(e)(f)(iv) of the Nigeria Security and Civil Defence Corps Act only offers pipeline security as one of the functions of the corps, without distinctly stating the penalties to be imposed on those damaging crude oil pipelines. The study designs a hybrid model for the renovation of the country’s crude oil refineries. It also advocates the need to redefine legal regimes on illegal oil refineries by amending the Petroleum Industry Act to include specifically illegal oil refineries provision and to effectively criminalise crude oil theft. The implications of the main results are as follows: criminalising crude oil theft and pipeline vandalisation with vigorous punishments will serve as deterrence to others in the sector, increase revenues for the government and reduce environmental pollution.
JEL Classifications:
K42; Q5; K2; Q4; K32; K12; P28

1. Introduction

Nigeria is rated the leading economy in Africa, with enormous contributions by the oil and gas sector, the nation’s leading industry. However, declines in oil prices have been a challenge to the nation’s wealth due to the low value of the Naira and the low demand for crude oil and interruption to crude oil production by the country’s oil-producing areas [1]. Furthermore, and as the focus of this paper, Nigerian crude oil is being stolen daily in commercial quantities, and the stolen oil is then exported, and the revenues are laundered via world financial centres and expended on properties in the country and abroad [2]. The four (4) oil refineries in Nigeria produce 445,000 bpd, but these refineries only function at 30% of their capacity, thereby occasioning the need for imported refined petroleum products to satisfy the local demands. Therefore, there is a need to transform the operation of refineries in Nigeria.
Commercial theft of crude oil is an age-long problem, associated with past and present economic downturn and societal disturbances such as the unrest in the Niger Delta region. This is endemic in the country’s petroleum industry. Illegal oil refinery activity began with oil bunkering and vandalism in 2003 but later transformed into stealing and selling of crude oil and illicit oil refinery activities in 2012 after the militants were offered amnesty [3]. This stolen crude oil is refined in illegal refineries to produce diesel and other associated products. The study is important because a lack of transparency and poor governance in the industry has further encouraged illegal crude oil refineries, as the Federal Government of Nigeria has lost more than 150,000 barrels of crude oil, valued at USD 6 billion per day, to crude oil theft. Consistent with the Nigeria Extractive Industry Transparency Initiative’s Report, Nigeria lost USD 41.9 billion daily to oil theft between 2009 and 2018 [4]. Similarly, in 2013, the country’s daily crude oil production slumped to 2.1 million barrels per day (mpbd), contrary to the projected 2.48 [5]. To this end and to the best of our knowledge, there is a dearth of literature about the conundrums of illicit crude oil refineries in Nigeria and its debilitating effects on Nigeria’s economy with the legal perspective. The study aims to contribute to the literature in this area by designing a hybrid model for the renovation of the country’s crude oil refineries and advocate the need to redefine the existing legal regimes on illegal oil refineries to combat the menace.
This stolen crude oil from vandalised pipelines gives room for illegal oil refining, notwithstanding the lack of quality control of products and the presence of sub-standard operations. This has occasioned environmental harms which impact biodiversity, landscape and forest aesthetics, and the water cycle [6].
Sections 1, 2 and 3 of the Petroleum Production and Distribution (Anti-Sabotage Act) 1975 prohibit the disruption of petroleum products in Nigeria. However, the Act has not been consistently enforced. As a result, the Federal Government inaugurated a Joint Task Force in 2013, but the Task Force appears to have been compromised, considering the incessant crude oil theft in the sector [7].
Oil exploration and production activities are currently being affected by illegal crude oil refineries activities. This has impacted the country’s economy as regulatory authorities are not working optimally to combat these illicit activities. In addition, the problem was compounded by the decrease in crude oil prices, which has affected Nigeria’s economy [8].
Nigeria had a population of over 200 million people and a Gross Domestic Product of USD 397 billion in 2019 [9]. Nigeria is the leading economy in Africa, but illicit crude oil refineries activities and corruption have affected the country’s economic policies, thereby occasioning low revenue for the government. The implications of the study are as follows: criminalising crude oil theft and pipeline vandalisation with stringent sanctions will have deterrence effects on prospective vandals, upsurge revenues for the Federal Government, reduce environmental pollution and open more investment opportunities and encourage more private investors to invest on modular oil refineries in Nigeria.
The article is apportioned into four parts, with the introduction as the first part. Part 2 considers the general challenges facing refineries operations in Nigeria. Part 3 explores the problems under the existing regulatory framework. It considers Nigerian law-enforcement agencies that are active in combating crude oil thievery, the consequences of the petroleum legal framework on oil-producing communities, and legal solutions for combating illegal oil refineries in Nigeria. Part 4 concludes. It is worth noting that an (unsurprising) lack of data on illicitly obtained crude oil and secrecy involved in crude oil thieves and illegal refiners’ operations limited the generalization of the findings of the research.

2. The Problem of Crude Oil Theft

There are (4) four refineries in the country. Port Harcourt, Kaduna and Warri are exclusively managed by the Nigerian National Petroleum Corporation Limited with a combined working capacity of 445,000 bpd (approximately 30% of the theoretical capacity). Over 300,000 bbl barrels are officially allocated to local refineries to promote local content in the industry. The annual growth rate in fossil fuel commodities consumption in Nigeria is 12.4%. The average daily Premium Motor Spirit (PMS) local consumption is 30 million litres nationwide with Lagos at 8 million litres daily [10].
The concept of national oil wealth has been developed in a quest for fairness in sharing natural resource revenues. Petroleum resources are perceived as a common patrimony of all Nigerians for equitable national development. The distribution of natural resource rights, with such rights not to be imperilled by exploitation and over-use of such natural resources, is considered fundamental [11]. This concept offers the legal basis for permanent national autonomy over natural affluence and possessions (Articles 1 and 4 of the Resolution on Perpetual Sovereignty over Natural Resources, UNGA Resolution 1803 xvii). Linked to this, the law requires sustainable use of crude oil, so that the present generation has optimal use of the resource while preserving the resource for future generations. This is to avoid the depletion of such natural resources to the detriment of human health, the environment and future generations [12].
In exercising its power over such natural wealth, the Federal Government must evolve legal strategies to drive sustainable development in the industry as national wealth entails the value of natural capital, produced assets, and human resources, all critical factors concerning sustainable development. The enactment of clear strategies, policies and laws by the Legislature for sustainable development of the industry is, therefore, essential [13].
However, as noted, the country is rated the third high-ranking trader of fossil fuel commodities in Africa, bringing in above 80% of its distilled petroleum commodities [14]. The sector is characterised by shortage and erratic supply of petroleum products to retailing stations due to recurrent breakdowns of existing refineries, a flawed allotment system, and insufficient importation by oil marketers arising from the Federal Government’s regulated pricing. Illegal export of petroleum products to neighbouring countries at substantial prices therefore fundamentally undermines the nation’s economy and threatens the value of the national wealth heritage [15].
Furthermore, the overall economic significance of the oil sector cannot be overstated. It is the largest sector of the Nigerian economy, with over 70% of the Federal Government’s revenues emanating from the sector. Moreover, this has occasioned a shift from agriculture to petroleum, due to the massive cash flow from crude oil exports by the Nigerian National Petroleum Corporation [16]. This structural change renders the loss of income from the oil sector even more significant. The Nigerian oil industry has been in intense public glare due to the persistent smuggling of petroleum products despite insatiable national demands. However, the demand has also driven the development of illegal oil refineries. Legitimate refineries suffer recurrent shutdowns due to faulty equipment and low turn-around maintenance culture in the industry. Whilst refineries are expected to incorporate ease of maintenances into their operational processes and to reduce delays in routine maintenance exercises of the nation’s refineries the loss of income from oil theft threatens the ability to maintain existing refineries [17].
Such low production capacities, and an increase in domestic demands for fuel utilization, are coupled with distribution issues. Petroleum products are transported by road due to pipeline network vandalization. This has critically undermined efficiency in the supply chain in the industry. There is a problem with allotment. Independent suppliers are unable to obtain products due to a lack of access to credit facilities.
Finally, there has been inadequate funding of the industry’s regulatory authorities by the Federal Government to enhance efficiency in the discharge of the statutory duties [18]. Taken together, these economic problems show the critical importance of robust regulation of the oil sector, with an enhanced focus on solving the problem of crude oil theft. This will generate income to support pipeline and refinery maintenance against oil theft.
The problems are not only economic, however. There are also environmental issues, and, related to this, tensions with local communities. In some cases, this has generated open hostility towards the national government. For example, ethnic militias from the Niger Delta Areas are purportedly fighting injustice occasioned to their people owing to ecological dilapidation and contamination from oil exploration operations in the areas. However, these tensions also, in part, give rise to militancy concerning oil production, generating the theft activities explained above.
According to Osinibi [19]. environmental degradation persists in the oil-bearing areas due to continued insensitivity to the inhabitants’ plights, continued pollution of their areas by oil firms and failure to properly clean up oil spills due to non-enforcement and meagre sanctions embedded in some of the relevant environmental laws (2020) [20] agrees; he argues that flagrant violations of environmental protection laws pervade the oil exploration, exploitation, and production activities of oil majors in Nigeria and that this is primarily responsible for the harmful, degrading impacts or consequences affecting Nigeria’s environment.
It has also been argued that there exists a link between problems in the oil sector and increased militancy in some areas of Nigeria. Balogun shows that the deficiency of a unified law for combating illegal oil refineries, meagre sanctions, and poor implementation allow the emergence of militancy in the sector. Oke [21] and Akinrele argue that social, economic and political factors are responsible for militancy activities in the sector. Indeed, Adamu [22] argued that the area’s militancy is due to the people’s need to control their natural resources, but the current author argues that this is a criminal act and economic terrorism that should be punishable with severe sanctions to serve as deterrence to others and to boost the incomes of the government from the petroleum industry.
To combat the above problems, the Federal Government has set up the Niger Delta Amnesty Programme to rehabilitate and reintegrate the militants responsible for crude oil theft. The Niger Delta Development Commission and the Ministry of the Niger Delta have acted to appease and overhaul the oil extraction regions by attempting to regulate the environmental degradation caused by oil exploration activities. A Presidential Panel on Amnesty and Disarmament of Insurgents in the oil extraction regions was inaugurated on 5 May 2009, to grant unconditional forgiveness to all individuals who participated in the belligerent actions in the oil extraction areas. Reintegration and reformation of ex-belligerents, vocational training, scholarships and huge infrastructure development Oluduro [22].
Other solutions have been proposed for example [23] it has been suggested that the licensing of modular refineries in oil-producing areas where illegal refineries thrive will combat this menace. Modular refineries are basic refineries requiring considerably or a smaller amount of startup capital than the traditional full-scale refinery features. It allows incremental structural improvements without requiring constant shutdowns to ensure proper maintenance to guard against theft. Thus, modular refineries may offer a simple, efficient, easy, and fast way to increase refining capacity. The conventional refinery is an intricate operation by which crude oil is transformed into several petroleum products which are capital intensive. However, this is not sufficient to tackle the problems; a clear legal strategy is needed to underpin investment in new refining strategy, to ensure that ongoing damage caused by crude oil theft is addressed.
Under Section 197 of the Petroleum Industry Act 2021 and depending on Sections 111 and 174 of this law, the regulatory agency subject to authorization of a request and disbursement of the stipulated charges deliver to a competent individual a wholesale oil supply permit by the authority with the right to sell and distribute oil to wholesale purchaser for sales overseas.

3. Methodology

The study adopts doctrinal legal research methods and a conceptual approach with the consideration of primary and secondary sources of law, for instance, the Petroleum Industry Act 2021, the Nigeria Extractive Industry Transparency Initiative (NEITI Act 2007, International Conventions, law textbooks and peer-reviewed journals. The justification for using the method was to establish the trustworthiness of the findings on illicit crude oil refineries in Nigeria. The study is important because a lack of transparency and poor governance in the industry has encouraged illegal crude oil refineries, as the Federal Government of Nigeria has lost more than 150,000 barrels of crude oil, valued at USD 6 billion daily, to crude oil stealing. The study aims to contribute to the literature in this area by designing a hybrid model for the renovation of Nigeria’s crude oil refineries and it advocates the need to redefine the existing legal regimes on illegal oil refineries to combat the crime. Related methodological papers were authored by Oluduro, who argues that reintegration and reformation of ex-belligerents through vocational training, scholarships and huge infrastructure development in the area will discourage the menace. The study offers a synopsis of the legal regime, policies and institutional frameworks that can combat crude oil theft if diligently enforced. It will boost government revenues, protect the environment and guarantee energy efficiency, security and sustainability.

4. Problems under the Existing Regulatory Framework

4.1. Problems for Refineries and Investors

Under the current law, a request for a refiner’s permit may be made by anyone in the stipulated form regarding the locations to site the refinery with a comprehensive report of the proposed project. The request must be supported by an Environmental Impact Assessment Report with evidence of payment of non-refundable fees as stated under Petroleum Refining (Amendment) Regulations 1974 and Section 3 of the (Repealed) Hydrocarbon Act Cap. H5, Laws of the Federation of Nigeria 2004. If the Board is satisfied with the refinery’s proposed site in terms of suitability and provision of equipment, the Board shall issue a refiner license to the applicant.
Otherwise, it shall refuse the application for a licence and notify the applicant in writing of the reasons for the refusal, as stated in Sections 1 and 2 Petroleum Refining Regulations No: 45, 1974. Licensees are expected to commence the refinery’s construction in conformity with the terms of the license, the Hydrocarbon Act, and other extant regulations and guidelines. Existing regulations prohibit establishing refineries, and the transportation of petroleum products without a license. The license issued shall remain in force unless revoked, and upon expiration, the refiner is at liberty to apply for renewal under Sections 3 and 4 of the Hydrocarbon Act.
On the other hand, there is also existing regulation supporting financing and investment in the petroleum industry. The government has introduced various reform programmes to encourage private refineries to promote investment in the sector and to support long-term economic growth in the industry through the privatisation of the existing crude oil refineries. This can be achieved through the issuance of a license to private financiers for the formation of private refineries, gas recapture and distilling factories, and natural gas and autonomous power plant schemes. Deregulation of the downstream industry and elimination of subsidies on petroleum products are also on the regulatory agenda [24].
However, many fundamental legal problems facing licensees or investors in building functioning refineries in Nigeria remain. These impose significant regulatory burdens, without tackling the problem of theft, permitted by and contributing to failures to maintain the existing plant.
First, there is a problem of incoherent supervision and regulation of the petroleum industry by multiple regulatory agencies, for instance, the Ministry of Petroleum Resources (MPR) and the Nigerian Midstream and Downstream Petroleum Regulatory Authority. These agencies’ efficiency in the downstream petroleum sector is questionable due to ineptitude in the industry [25].
Second, the protracted delays associated with the enactment of the Petroleum Industry Bill (PIB) 2020 and the Federal Government’s delay in implementing a comprehensive deregulation policy of the industry have affected or discouraged potential investments in the sector. This has similarly occasioned Nigeria to forfeit approximately USD 15 billion yearly in foreign investments due to regulatory regime uncertainty in the industry (Nigerian Extractive Industries Transparency Initiative (NEITI) Report 2018). The government’s capability to make as a minimum USD 10 billion or NGN 4 trillion via marginal fields in the petroleum industry has been stalled owing to uncertainty in the fiscal and legal regime) [26]. Such policy somersaults may burden refineries projects with unforeseen operational costs and may discourage potential investors. Equally, foreign exchange fluctuations or instability may impact operating cash flow and the decline in value of the Naira against the United States’ Dollars may increase the debt service burdens of prospective investors. Thus, the uncertainty generated by the regulatory delay limits the possibility of investment.
Third, incessant industrial incapacity due to crude oil theft, pipeline vandalism and piracy have occasioned declarations of force majeure on crude oil shipments by investors in the industry. This undermines the reliability of contracting in the sector and generates the potential for litigation.
Fourth, the government, through the NNPC, controls the oil industry via its ancillary Pipelines and Product Marketing Company. It purchases crude oil for the processing plant at values fixed by the government and vends the distilled commodities to the selected contractors. This often opens doors for corruption and bribery among its officers and oil firms for preferential treatment, challenging both the robustness of the legal framework and the ability of the system to respond to external illicit activities [27]. There is a significant underutilisation of private industry capacity due to irregular supply and inconsistent ability to import products independently.
Finally, protracted delays by regulatory authorities in issuing the necessary licenses or permits, when twinned with volatility in crude oil prices, adversely affects investors’ investment decisions and profit margins in the industry. The nonexistence of unadulterated staunchness to regulatory reform by the Federal Government, as shown by the fact that the Petroleum Industry Act 2021 was delayed, shows the government’s reluctance to formulate regulations that will promote sustainable economic growth in the industry.

4.2. Problems for Local Communities

The effects of a lack of proper regulation of the petroleum industry on crude oil extraction localities in the country, with all the attendant ecological, social and equity concerns, are clear. Section 20 Chapter II of the 1999 Constitution of Nigeria (as amended) related to the environment is non-justiciable, thereby denying Nigerians and the court the power to litigate environmental issues such as illegal refineries operations and compensation payable to victims of environmental pollution under Nigerian laws.
Existing laws on petroleum have relegated oil-producing communities’ ownership rights and values derivable from oil exploration. Furthermore, exploitation of their land due to the negative impacts on the environment of oil processing is not tackled by the existing regulatory framework [28]. Private ownership of oil has been removed from indigenous landowners and placed in the hands of the Federal Government under Section 44(3) of the 1999 Constitution of the Federal Republic of Nigeria (as amended). Furthermore, Section 1(1) of the (Repealed) Petroleum Act 1969, bestows exclusive ownership of petroleum in the Federal Government. Section 1 of the Land Use Act 1978 also vested in each state government the right to manage the land for all Nigerians’ common benefit. Section 2 of the Exclusive Economic Zone Act 1978 also authorises the government to exploit its natural resources. Likewise, Section 3(1) of the Mineral Act vested all minerals in Nigeria to the government. These laws have strained the relationship between native landowners, oil firms and the government by removing land, minerals and oil from the oil-bearing communities. A liberal legal regime on proprietorship of extractive resources is lacking, and as such, oil-bearing communities’ interests may be sidelined. It has been suggested that a joint ownership approach may be the way forward [29].

4.3. National Legal Framework

As has been noted above, whilst many of the activities associated with crude oil theft are unlawful, the enforcement of such rules has been insufficient. The Petroleum Production and Distribution (Anti-Sabotage) Act CAP, P.13 Laws of the Federation of Nigeria 2004 prohibits obstruction or interference with the production and distribution of petroleum products with not less than twenty-one years imprisonment as a penalty. This Act prohibits such pipeline vandalisation and crude oil theft. Equally, the repealed Petroleum Act, CAP P.10 Laws of the Federation of Nigeria 2004 Section 13(1) criminalises interference or obstruction of holders of a permit or lease permitted under the Act. A convicted offender is culpable with sanction not less than NGN 200 or incarceration for a term not less than six (6) months or the two. This penalty appears paltry and not in line with the contemporary economic materiality in the industry, and it is inconsistent with the alleged crime’s scope. Section 13(2) of the Act criminalises the construction and operation of refineries in Nigeria without a valid license. Any infraction is punishable with a penalty of not less than NGN 2000 on conviction. The penalty does not appear to be sufficient to discourage the perpetration of the crime.
Section 4(1) of the repealed Petroleum Act, CAP P.10 Laws of the Federation of Nigeria 2004 (Repealed) provides that no one shall bring in, accumulate, trade or allocate any fossil-fuel commodities in Nigeria devoid of a permit awarded by the Petroleum Minister. Hoarding and hawking petrol is an illegal act criminalized with NGN 2000 sanction and forfeiture of the product. This punishment is meagre, viewing the consequences of the offence in the sector and to discouraging stolen of crude oil and its allied products.
Moreover, the Oil Pipelines Act, Cap 338 Laws of the Federation of Nigeria (LFN) 2004 and the Oil Pipelines Regulations fail to provide sanctions for the damage of pipelines and disruption of crude oil or refined petroleum products. Sections 1 and 2 of the Petroleum Production and Distribution (Anti-Sabotage Act) offer sanctions against anyone who wilfully obstructs or prevents the sales of petroleum commodities in any part of the country. This crime has a potential sanction of 21 years imprisonment or the imposition of the death penalty. The penalties stated in this law are stringent, but the lack of diligent prosecution of the crime has been the challenge, making the laws ineffective against vandalism.

4.4. The Petroleum Industry Act 2021

The Petroleum Industry Act 2021 is to separate the government’s functions in the petroleum industry into policy, regulatory and commercial activities as there is currently no distinct division of regulatory functions leading to conflicts of interest in the sector. The Act aims to diminish the governing and business-related roles of the Minister of Petroleum in the sector. The Act is to establish an Upstream Petroleum Regulatory Commission as the controlling organization for the upstream oil sector. The Downstream Petroleum Regulatory Agency called the Authority is to regulates the mid and downstream oil sector. The Act is to unbundle or restructure NNPC to different legal entities. It foists a responsibility on the Federal Government to encourage indigenous firms’ usage in the industry and authorizes the Petroleum Inspectorate to annul a license or permit if the Oil and Gas Industry Content Development Act 2010 is not adhered to.
The Act aims to establish a well-organized governing organization with vibrant and distinct roles by creating profit-making oriented petroleum entities [30]. It creates the Nigerian Petroleum Regulatory Commission as an independent corporate body to replace the Petroleum (DPR) Department. The Act separated the regulator from the regulated. It should, subject to minor modifications and if adequately implemented, have much more robust accountability and governance provisions than all the extant laws in the sector. However, the Act has not adequately addressed gas flaring in the country as the exemption provision for gas flaring in accordance with Section 107 of the Petroleum Industry Act 2021 appears to encourage gas flaring [31]. The wording of the Act has shown that it is likely that routine flaring of associated gas will continue in the country. The Act is also silent on the funding of the National Oil Company and Nigeria Gas Company. In addition, there is a need to strengthen public reporting and accountability under the Act by making oil firms subject to regulations to ensure probity and accountability [32].
The Petroleum Industry Act 2021 has been enacted, the Minister of Petroleum’s power to determine oil prices has lapsed, and the power to determine oil prices would be exercised by the market forces and monitored by the Downstream Petroleum Regulatory Agency to enhance the total deregulation concept of the sector. However, licensees are prohibited from the transfer of their licenses, rights or duties devoid of the prior written assent of the regulatory authority. Registration of a license is conclusive evidence that the rights described therein are vested on the licensee.
The Petroleum Industry Act fails to emphasize energy transition, its impact and its outlook in the industry. The Act is anticipated to enhance certainty, entice more financings in the petroleum industry, and upsurge incomes for the Federal Government if stringently implemented. However, certain grey areas require further amendment. President Muhammadu Buhari requested an amendment to the managerial arrangement of the Upstream Petroleum Regulatory Commission, the Nigerian Midstream and Downstream Petroleum Regulatory Authority to increase the membership of Non-Executive Board Members from two to six, one representative from each geopolitical zone, to give a sense of involvement in the policymaking procedure of the petroleum sector Section 34(2)(b) of the Act.
Section 186 of the Petroleum Industry Act 2021 provides that a crude oil refining permit shall be considered to be approved dependent on the circumstances that the holders shall perform their licensed operations carefully and consistently in conformity with any legal regime that is applicable and stipulated well-being and precaution-connected guidelines, ethics and operational practice declared in the Act. Considering the consequences of its authorized undertakings on the ecosystem and adhere to the prerequisites for ecological safeguard, administration and reinstallation.
Section 11(2)(b) two (2): Non-Executive Commissioners to be replaced with six (6) Non-Executive Members, one from each geopolitical zone. Section 11(2)(f): One delegate of the Ministry of Petroleum not lower than the rank of Director is to be obliterated. Section 11(2)(g): One delegate from the Ministry of Finance with a minimum rank of Director is to be expunged. Section 34(2)(f)(g): One delegate of the Ministry of Finance and Petroleum not below the position of Director is to be expunged. Since the Ministries of Petroleum and Finance now have a statutory responsibility of either regulatory or public administration, which can be implemented without being part of the Board. Marking, maintenance and security of its resources and related substructure in the permit and any statute applicable and other circumstances prescribed by the Authority.
Section 11(3) and Section 34(3): The appointment to the Commission’s Board shall be constituted by the President and with the validation of the Senate. The appointment of the Executive Directors is to be amended to subject the confirmations of the Board by the Senate. The appointee should be a civil servant and not a political appointee to effectively manage these regulatory institutions via stringent public service rules for employees. This is to ensure growth and enhance efficiency in the industry.
Moreover, 187(1) of the Petroleum Industry Act avers that the regulatory agency may approve a request after the imbursement of the specified charges, funding and grant a competent individual wholesale fuel storage permit authorizing the bearer to embark on wholesale storage of oil for himself or representing customers dependent on to Sections 111 and 174 of the Act.
There is a vacuum in the existing body of knowledge on illegal refinery in Nigeria that the study intends to fill.

4.5. Tackling Accountability and Encouraging Local Content in the Regulation of the Sector

The Nigeria Extractive Industry Transparency Initiative (NEITI Act 2007) is a legal regime on transparency, accountability, reporting and disclosure in the petroleum sector by all participants in the industry. The agency has not transformed the sector due to lack of transparency in the utilization of oil revenues accruable to the oil-bearing communities under the principle of derivation due to persistent corruption in the sector [33].
The National Environmental Standard and Regulations Enforcement Agency (NESREA) (Establishment) Act 2007 established NESREA as an agency of the government to regulate environmental standards in Nigeria by offering a framework for the regulation of air, water and prevention of depletion of ozone layers via the discharge of substances and effluent wastes [34]. Section 27 criminalises the discharge of harmful materials into the air, land, and water with a fine. In this event, NGN 1,000,000 or a period of incarceration not exceeding five (5) years and a legal entity, a penalty of NGN 1,000,000 and NGN 50,000 daily for the crime exists. Despite the ample power given to the agency to regulate the environment, its scope is exempted from the petroleum industry under Section 7 of the Act. There is a need to review the law to include oil and gas pollution arising from illegal refineries’ operations and to reflect the sector’s current economic reality with maximum penalties for defaulters [35].
The National Oil Spill Detection and Response Agency (Establishment) Act 2006 established the Oil Spill Detection and Response Agency to regulate oil spillage to prevent sources of Green House Gases (GHG) in Nigeria but without the jurisdiction to punish or regulate oil and gas firms operating in the oil-bearing communities.
The Nigerian Oil and Gas (Industry and Content Development) Act 2010 is designed to leverage on the country’s petroleum firm’s indigenous satisfied to enhance socio-economic development and value addition to the economy. However, the nonexistence of political will and dedication to the spirit of Nigeria’s local content policy has been a challenge due to the lack of adequate capacity and efficiency of the Nigerian Content Development Monitoring Board (NCDMB) [36].
The Economic and Financial Crimes Commission (Establishment) Act, CAP E1 Laws of the Federation of Nigeria, 2004. The Act established the Economic and Financial Crimes Commission to combat fiscal and financial corruptions, including oil crimes that have become notorious for fiscal, environmental and economic crimes confronting Nigeria. The EFCC has not been efficient in prosecuting and convicting these offenders in the country. Therefore, there is a need for a total overhauling of the agency to be proactive in combating Nigeria’s various oil-related crimes.
The Nigerian Oil and Gas Industry Content Development Act, 2010, objective is to encourage Nigerian content in the petroleum sector by building local capacities for sustainable economic development. The Nigerian Content Development and Monitoring Board enforce the Act, but the Board is facing staffing problem in supervising the petroleum sector. Additionally, there is no standard or specific manner of measuring local content in Nigeria. The Board has not been efficient in the assessment of Nigerian content in tender for oil permits. Section 102 of the Act requires the Board to review its schedule every two years for the National Assembly amendment into law, but such a review has not been done since its commencement in 2010. The various uncertainties in the law need to be addressed to ensure that the Act encourages economic growth via local content in the sector [37]. These measures fail to generate sufficiently robust accountability to ensure good governance of the sector.

4.6. Theoretical Framework for the Oil and Gas Industry

The study uses comparative cost advantage and balanced growth theory in the pursuit to evaluate the undertakings of illegal oil refineries to prevent pollution and guarantee sustainable economic growth. Nigeria has an edge in producing crude oil for the benefit of its citizens, but the reverse is the case. David Ricardo enunciated the principle of the concept in 1817. He contends that nations have diverse features of a natural gift, for instance, workforce, property and wealth involvements, and will concentrate on the distribution of those merchandises such as crude oil and use the invention issues in which they are utmost bestowed or gifted. The country is one of the foremost oil producers and global merchants of crude oil in Africa and the greatest ten prominent oil producers internationally [38]. However, its petroleum sector generates joblessness among its populace and capital flight through the importation of refined petroleum products.
Similarly, another theory used in the research is an economic theory advocated by Ragnar Nurkse in 1907–1959. The concept supports developing nations for instance Nigeria to achieve stable development. The model supporters that the government must finance the oil industry to guarantee steadiness in the growth of country’s energy resources through the establishment of local refineries to discourage the importation of refined products. The execution of the Nigerian Oil and Gas Industry Content Development Act 2010 to build indigenous capacity and by making Nigeria diverse energy sources safeguarded by countries to encourage fiscal development and energy diversification.
Table 1 shows the merits and demerits of modular and conventional refineries.

4.7. Alternative Legal Solutions for Combating Illicit Activities in Nigeria Oil Industry

To combat the proliferation of illegal oil refineries in Nigeria, the Federal Government may utilise statutory instruments, private remedies at common law via torts of a nuisance, infringement, carelessness and the Rule in Rylands v. Fletcher (1868) LR HL, 330 among others legal remedies in combating illegal oil refinery activities in the country and other oil crimes, in addition to the criminal law measures outlined above.
Nuisance is irrational or illicit utilization by an individual of his property, causing impediment or damage to the right of another or the public by creating substantial infuriation, inconvenience and embarrassment that the statute prohibits. The Supreme Court in Adediran & Anor v. Interland Transport Ltd. (1991) 9 NWLR (PT214),155 held that authority is now vested on a private person to maintain a personal action in public nuisance provided one can prove that one suffered a personal injury sufficient to grant the action. An individual can bring an action in a nuisance for compensation to compel illegal refiners to abate the nuisance source.
An action for damages can be obtained from court for trespass by a private person or the government where the government is the vendor of the land or in lawful possession of the land upon which the illegal refineries activities or operations occurred. Additionally, an action for trespass can be maintained against the refiner. Trespass is an unlawful interference with the Plaintiff’s possessory right, whereas nuisance is unnecessary meddling with the utilisation and enjoyment of the Plaintiff’s property, and damages may be awarded in favour of the Plaintiff [39].
Similarly, an action for negligence can be initiated against the refiner. Negligence is an inadvertence to do something a reasonable man would do, which occasioned damage or injury. Failure to obtain a license before the commencement of refining activities that occasioned pollution, other environmental degradation and economic loss can be combated via an action for negligence against the suspected owners of such illegal refineries for damages [40].
Likewise, a claim can be brought under the Rule in Ryland v. Fletcher. The rule prohibits the accumulation of any dangerous thing such as stolen crude oil in an illegal refinery by the refiner or the Defendant, which causes damage, injury and environmental damage or deleterious effects is strictly liable for such escape or damage. Umudeje v. Shell BP Nigeria Ltd. (1975)9–11, S.C115 and Oladehin v. Continental Textile Mills Ltd. (1978) 2. C. 23, the Supreme Court held the Respondents legally responsible for the escape of crude oil and industrial wastes water.
As part of our contribution to knowledge the study of a hybrid prototype for the overhauling of the country’s crude oil refineries to promote efficiency, deter illegal refineries, and ensure the availability and satisfactory supply of fossil fuel commodities in the Country. Figure 1 shows the hybrid model for the development of Nigeria’s crude oil refineries.

5. Findings and Discussion of Results

As the above review demonstrates, severe laws do not exist to combat the menace caused by incessant crude oil theft and pipeline vandalisation by militants, and low maintenance of the existing crude oil refineries has impeded the country’s economic growth [41]. There is a proliferation of regulatory measures, without the necessary coherence and enforcement mechanisms to deter the crime. The absence of a specific and comprehensive provision on illicit oil refineries in the Petroleum Industry Act (PIA), criminalising crude oil theft with stricter penalties for pipeline vandalisation in Nigeria, is a fundamental flaw. Sections 183, 202, and 204 of the Act only provide for the detailed permits to be acquired to work in the industry for instance crude oil processing, wholesale storage, haulage conduit, haulage system processes, extensive fuel supply, fossil fuel merchandise allotment and set-up of resources for the manufacturing of petrochemicals. However, no rigorous and comprehensive sanctions exist for non-compliance with law; the penalties should be reviewed in conformity with the current global economic reality, considering the adverse effects of the menace on Nigeria’s economy.
As vandalism of crude oil pipelines and sabotage of oil infrastructure are hurdles to developing Nigeria’s oil industry, the government must reform the industry’s various legal regimes and facilitate strict implementation of the Petroleum Industry Act 2021 and remedy the various lacunas identified in the Act.
Furthermore, as discussed above, there is significant potential for the use of modular and smaller-scale refineries, twinned with such robust regulation, to address some of the challenges in the sector. By ensuring local communities’ full participation in modular refineries, resource and environmental management through negotiations and dialogue on agreed terms, there is the potential for collaboration in resource governance among investors, locals and regulatory authorities. Interaction between regulator communities and oil firms will promote peace, economic development and good stakeholder relationships in the sector. Community participation in decision-making will help to generate sustainable resource governance and reduce restiveness and violence in the oil-producing areas [42].
Since illegal refining activities in the oil-bearing areas are a threat to Nigeria’s economy and ecosystem, there is a need for total deregulation of the downstream petroleum sector to encourage private investor participation in the refineries, for the refurbishing of the existing refineries or building more modular refineries with sound petroleum product distribution networks in the country. Stringent sanctions such as freezing oil thieves’ assets and bank accounts, placing them on a blacklist and denying them travelling visas with other stringent measures may combat oil theft and illegal oil refineries in Nigeria [43].
A well-designed supply-chain due-diligence initiative such as scrutinising crude oil supplies before purchase will combat crude oil theft and sanitise global crude oil markets.
Additionally, there is a need for maritime security reform and sound security intelligence gathering and analysis [44]. The institution of legal actions against buyers and sellers of stolen crude oil via national criminal laws and civil suits, a conviction for crude oil thieves and seizure of their assets is another strategy for combating crude oil theft and illegal oil refineries [45].
There is a need for unalloyed supports for the Extractive Industries Transparency Initiative Act 2007 by all stakeholders in the industry to promote transparency, accountability, proper disclosure and reporting of all transactions in the sector [46].
The adoption of a modular refinery model is the best option for Nigeria to combat the proliferation of illegal refineries and their deleterious effects, representing a cost-effective supply option for investors [47]. It can be established with a relatively low capital cost, flexible with a short payback duration for bank-sponsored facilities, making it distinctly attractive for investors. It will ensure the availability of refined petroleum products and deliver value beyond the traditional oil production business model and build local capacities in the sector as the quality of human life, survival, and country’s economy is under colossal danger from the various pollution activities and loss of revenues occasioned by the deleterious effects of illegal oil refineries operations in Nigeria.

6. Conclusions, Recommendations and Policy Implications

Corruption and structural inefficiencies within the regulatory processes are damaging both in economic terms and environmental terms [48]. This study being policy-centred, the following policy recommendations are made: transparency initiatives should form an important part of a successful regulatory package for the petroleum industry. Full deregulation of the downstream sector is needed to combat malpractices and investment in modular refineries by the government and foreign investors are key to promoting economic development in Nigeria.
Since illegal refining activities in the oil-bearing areas are challenging and represent a threat to Nigeria’s economy and ecosystem, there is an urgent need for robust legal reform to guaranteed energy security and sustainability. There is a need to improve local refinery capacities through private participation to enhance local production and markets for refined petroleum products and to encourage domestic gas and renewable energy utilization, being an environmentally preferable source of energy. A well-organized legal and regulatory regime for national refineries to employ present and future generations in Nigeria is sine qua non. Lastly, there is a need for mainstreaming Nigeria’s energy policies into the global quest for low-carbon transition by promoting economic diversification to focus less on the petroleum sector. The promotion of energy diversification by integrating renewable energy and other low-carbon energy sources into the country’s energy mix and the promotion of technology development and active engagement of citizens in the development of low-carbon technologies are essential, and a review of the current legal frameworks, contracts and regulatory institutions is also needed to ensure that they are compliant with the global low carbon energy transition objectives.
The study does not provide all responses to the challenges of illegal oil refineries in Nigeria. However, it has provided insight for combating the menace in Nigeria’s oil and gas sector. The study contributed to knowledge by designing a hybrid prototype for overhauling of the country’s crude oil refineries to promote energy efficiency, deter illegal refineries, and ensure the availability and satisfactory supply of fossil fuel commodities in the country. The implications of the study are as follows: criminalising crude oil theft and pipeline vandalisation with strong penalties will serve as pre-emptive action to others in the sector, increase revenues for the government, and reduce environmental pollution.
Future research should focus on the influence of illicit crude oil refineries on Africa’s economy and to use a quantitative analysis methodology to evaluate the suggested propositions to further supplement the current literature on the subject.

7. Limitations of the Study

A lack of data on illegally obtained crude oil, illegal refinery operations and secrecy involved in crude oil stealing and illegal refinery operations limited the generalization of our research findings, limiting access to some required information for the research. However, the findings are suitable for the adoption by legislators and other policy makers in reforming the energy laws and dealing with operational clandestineness of refiners and regulatory agencies in the industry to combat the menace. There is a need to properly collate data on stolen crude oil in Nigeria for efficient intervention and tracking of stolen crude oil.

Author Contributions

O.J.O. Writing—original draft, review, editing, investigation, formal analysis, conceptualization, project Administration, E.S.O.: resources, visualization T.E.Y.: methodology and validation. All authors have read and agreed to the published version of the manuscript.


The financial support of Afe Babalola University Ado–Ekiti, Nigeria, is exceedingly appreciated. Thank you greatly the Nigeria’s legal icon—Aare Afe Babalola OFR, CON, SAN, D.Litt, the President and Founder, Afe Babalola University, Ado Ekiti, Nigeria.

Institutional Review Board Statement

Not applicable.

Informed Consent Statement

Not applicable.


We acknowledged the financial support of Afe Babalola University Ado–Ekiti, Nigeria.

Conflicts of Interest

The authors declare no conflict of interest.


PIAPetroleum Industry Act
LFNThe Laws of the Federation of Nigeria 2004
NDDCNiger Delta Development Commission.
DPRThe Department of Petroleum Resources.
NEITIThe Nigeria Extractive Industry Transparency Initiative.


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Figure 1. Hybrid Model for the Development of Nigeria’s Crude Oil Refineries. Sources: The Authors Created the Figure.
Figure 1. Hybrid Model for the Development of Nigeria’s Crude Oil Refineries. Sources: The Authors Created the Figure.
Energies 15 06197 g001
Table 1. Advantages and Disadvantages of Modular and Conventional Refineries in Nigeria.
Table 1. Advantages and Disadvantages of Modular and Conventional Refineries in Nigeria.
S/NTypes of RefineriesMeritsDemerits
1.Modular RefineriesIt is flexible to meet the refined petroleum products demands of Nigerians.It only requires fewer configuration options (usually topping or hydro skimming plant).
It requires minimum space/land for setting it up or establishing it.More staff may be required for adequate distillation capacity to meet refined product demands.
It requires relatively lower capital to set up. A small loan with short payback period.Production is frequently restricted to middle distillates, naphtha, and lights.
It is quick and easy to install.It has a low production capacity. Therefore, it is suitable for meeting local demands, not for exports.
The modular refinery has more control over the environment and work procedure during installation.It has lower profit margins on refined products or production due to low inputs of crude oil.
2.Conventional RefineriesConventional refineries require many configuration choices (topping, coking, cracking, hydro skimmingConventional refineries require a substantial initial capital outlay for the establishment or a long payout for loans or facilities.
Conventional refineries also require small staff for adequate distillation capacity.Conventional refineries are suitable for one location for different market supplies.
Conventional refineries productions are of a higher value than refined petroleum products.Conventional refineries require significant space or land for establishment.
Conventional refineries are of higher production capacity.Conventional refineries require large storage for a wider variety of product yields that need to be kept independently.
Conventional refineries necessitate excessive economies of scale for innovative profits on oil commodities.Conventional refineries require momentous turn-around time for construction.Inconsequential influence over the ecosystem during construction and installations of the refineries
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Olujobi, O.J.; Olarinde, E.S.; Yebisi, T.E. The Conundrums of Illicit Crude Oil Refineries in Nigeria and Its Debilitating Effects on Nigeria’s Economy: A Legal Approach. Energies 2022, 15, 6197.

AMA Style

Olujobi OJ, Olarinde ES, Yebisi TE. The Conundrums of Illicit Crude Oil Refineries in Nigeria and Its Debilitating Effects on Nigeria’s Economy: A Legal Approach. Energies. 2022; 15(17):6197.

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Olujobi, Olusola Joshua, Elizabeta Smaranda Olarinde, and Tunde Ebenezer Yebisi. 2022. "The Conundrums of Illicit Crude Oil Refineries in Nigeria and Its Debilitating Effects on Nigeria’s Economy: A Legal Approach" Energies 15, no. 17: 6197.

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