* Billions of dollars in Nigerian oil stolen each year
* Stolen oil is sold on international markets
* One part of complex criminal web
* Money from theft laundered in global financial centres
By Joe Brock
ABUJA, Sept 19 (Reuters) - Stolen Nigerian oil worthbillions of dollars is sold every year on international marketsand much of the proceeds are laundered in world financialcentres like Britain and the United States, a report said onThursday.
An estimated 100,000 barrels per day (bpd) of oil was stolenfrom pipelines in the Niger Delta in the first quarter of thisyear, the report by London-based Chatham House said, notincluding the unknown quantities stolen from export terminals.
The theft amounts to around 5 percent of Nigeria's current 2million bpd production but has a wider impact because oilcompanies are often forced to shut down pipelines due to damagecaused by thieves. Nigeria is producing 400,000 bpd below itscapacity, mainly due to theft and pipeline closures.
The activity costs Africa's second biggest economy anestimated $5 billion a year in potential revenue.
While oil majors like Royal Dutch Shell and Italy'sEni are often the first to complain about theft, it isunclear how much they are losing from it. A measure ofacceptable losses may be keeping them from taking determinedpreventive action, the report said. Oil firms do not payroyalties on stolen oil.
"Nigerian crude oil is being stolen on an industrial scale.Proceeds are laundered through world financial centres and usedto buy assets in and outside Nigeria," said the 70-page report,entitled "Nigeria's Criminal Crude".
"Thieves have many ways to disguise funds ... including cashsmuggling, delayed deposits, use of middlemen, shell companiesand tax havens, bribery of bank officials, cycling cash throughlegitimate businesses and cash purchases of luxury goods."
The report named the United States, Britain, Dubai,Indonesia, India, Singapore and Switzerland as likelymoney-laundering hotspots, and the United States, Brazil, China,Thailand, Indonesia and the Balkans as the most likelydestination for stolen oil.
Nigeria's Oil Minister Diezani Alison-Madueke has called forstolen oil to be labelled "blood oil", arguing the security riskis similar to those in past and present mineral conflict zonessuch as Angola, Sierra Leone or Congo.
But the Chatham House report suggested violence associatedwith the theft is less than supposed, although the armed gangsinvolved have destablised the oil-producing Niger Delta in thelast decade.
However, the links between oil thieves, pirates and globalcriminal networks - including arms and drug traffickers - couldfeed broader insecurity in West Africa, it suggested.
The world's biggest cause for worry is the money launderingwhich poses reputational risks for the financial centres thatfacilitate it, said the report, the first independent, in-depthinvestigation into the international dimensions of Nigerian oiltheft.
HOW IT WORKS
Nigerian oil theft's enduring, if misleading, image is ofyouths in canoes breaking into pipelines. Yet, these gangs aremerely one strand in a complex criminal web that includesforeign oil traders, shippers, bankers, refiners, high-levelpoliticians and military officials, the report said.
Multiple criminal groups, some as small as a family unit,operate independently. Foreign oil majors sometimes seem willingto overlook it, evidence from dozens of interviews showed.
Specific individuals or companies were not named.
"IOCs (international oil companies) pay no royalties oncrude illegally bunkered ... Anything stolen from the field isexempt," it says, adding that the biggest costs are cleaning upafter spills and money spent on security.
"For now, theft may not harm IOCs enough to spur a moredetermined ... approach," it says.
Foreign governments are doing little to stop theft, despitethe risks it poses to legitimate oil markets and its links toall kinds of criminal activities.
"Oil theft is a species of organised crime that is almosttotally off the international community's radar," the reportsays. "Nigeria is the main West African hub for other types oforganised crime ... notably piracy, drug and arms trafficking.The networks involved sometimes overlap with oil theft."
Oil theft begins in the labyrinthine creeks and waterways ofthe Niger Delta, a swampland area spanning over 10,000 squaremiles that has long been blighted by kidnappings, militantuprisings and gangland violence. It is a region capable ofproducing 1.5 million bpd of oil and is rife with corruption.
On the smallest scale, gangs hack into exposed pipelines andsiphon off oil to be processed in makeshift refineries. But thebulk of the theft is done on a larger scale by networks who cantap into infrastructure buried under ground or water.
They break into wellheads and pipelines, install their ownpumps and use hoses, some measuring up to 2 kilometres, to loadoil onto barges which travel through the delta and transfer thecrude onto small tankers at the coast, the report says.
It said the barges were capable of carrying 3,000-18,500barrels of oil and the tankers 31,000-62,000 barrels.
Once there is enough oil in the tankers it is transferred,usually under the cover of darkness, onto an international class'mother ship' waiting further offshore, which can then carry thestolen crude oil to refineries or storage outside Nigeria.
Stolen crude is often mixed with legally bought oil to makeit harder to track.
CAN IT BE STOPPED?
The web of beneficiaries of oil theft makes it difficult tostop and there are doubts whether anyone capable of curbing itreally has the will to do so, the report says.
Oil theft sometimes funds politics in Nigeria, includingelection campaigns. There are nationwide polls due in 2015.
Although security forces have arrested dozens of oil thievesin recent months there have been no high-level convictions.
Nigeria's supposedly legitimate oil sales business is murkyitself, with almost all its crude oil exports sold throughtraders, a unique system among oil exporting countries.
"Lines between legal and illegal supplies of Nigerian oilcan be blurry. The government's system for selling its own oilattracts many shadowy middlemen, creating a confusing, high-riskmarketplace," the report said.
It runs through possible options for foreign powersinterested in curtailing the practice such as genetic oilfingerprinting, sanctions or regulating Nigeria's sales - butdismisses most of them as likely to do more harm than good.
It says following the money trail - "convicting oil thievesof laundering money and seizing their assets should be part ofalmost any cross-border strategy" - is a promising avenue.
Oil theft is likely to persist if Nigerian politicianschoose not to clamp down because foreign states' and companies'first priority will be not to upset their own oil supplies.
Nigeria is among the world's top 10 crude oil exporters anda key supplier to Europe, Brazil and India, providing billionsof dollars in income for foreign oil and shipping firms.
"A key issue is how much oil companies, traders and shipperswould be willing to contribute at the risk of undermining their... capacity to operate in Nigeria," the report said.
