Thursday, Nov 27, 2014, 12:43 PM CST – China

Society

Oil Theft

Refined Criminals

Supported by vast networks of vested interests, China’s oil bandits are fueling a highly lucrative market in stolen crude

Oil slick in a river in the Nandagang Industrial Park, Cangzhou, Hebei Province, June 2013 Photo courtesy of Daqing police

Chinese people aren’t too fond of rodents. In old Chinese tales, rats are portrayed as sneaky, cunning creatures, often stealing rice or oil in the dead of night. This may be why China’s notoriously devious oil thieves, some of them powerful and well-connected enough to avoid serious investigation from the authorities, are known colloquially as “oil rats.”

“Oil rats” operate around many of China’s major oilfields, and along oil pipelines and highways. And as with many kinds of crime in China, it is not rare for government officials, police officers and oil company supervisors to be complicit in their heists. While more and more incidents of oil theft have been exposed in recent years, many go unresolved, revealing the entangled web of interest networks supporting  this kind of crime in China.

In early June, 45 suspects were arrested in a sweeping police operation in the northeastern province of Heilongjiang. It was discovered that more than 10,000 tons of crude oil had been stolen from PetroChina’s Daqing Oilfield, before being transported across four provinces to Cangzhou, Hebei Province. But even though the Daqing police appeared to have solved the crime, their efforts to return the stolen oil to the Daqing Oilfield have been consistently obstructed by the local authorities in Cangzhou.

Illegal refineries are thought to be the biggest buyers of this oil. Despite complaints of pollution from local residents and frequent nationwide crackdowns over the years, these refineries have survived, and thrived, around the country. For local governments, they are important generators of tax revenue.

Fat Rats

It took the Daqing police half a year to crack the case. Before crossing into Liaoning Province, which borders Hebei, the trucks carrying the stolen oil were shielded from inspection at police checkpoints. Bribes were paid to ensure safe passage, with cargo inspectors receiving the equivalent of US$4,500 per truck to look the other way. After a certain distance, protection was no longer even necessary – the oil, destined for two companies based at the Nandagang Industrial Park in Cangzhou, was partly processed at small refineries along the way.

Months later, China National Petroleum Corporation (CNPC), the parent company of the Daqing Oilfield, was still struggling to retrieve their oil from the compound in Cangzhou. At the gates, their trucks were blocked, and their drivers threatened by families of the suspects and a number of other locals who the Daqing police claim were hired thugs paid by the two companies. Various local authorities with jurisdiction over the industrial park, including the courts and government departments in charge of production safety and environmental protection, attempted to sieze the companies’ assets from Daqing police, making it even more difficult for the latter to reclaim the stolen oil.

Senior officials with the Daqing police appealed to their counterparts in Cangzhou for cooperation, but were repeatedly referred to the local government, and, bizarrely, asked to appease the suspects’ families. According to Sun Huacheng, director of the Daqing police, it is the responsibility of any police force to cooperate with their counterparts from other areas. The way the Cangzhou police and government handled the case was “irresponsible” and showed “contempt for the law,” Sun complained.

Cangzhou, a city notorious for its “oil rats,” is home to a booming stolen oil market, its many illegal refineries being the major buyers. And the Daqing oilfield is just the most recent victim – oil bandits operating in other major oil-producing provinces around the country, such as Shaanxi and Shandong, also provide stolen crude. Nearly all major oilfields in China have been plagued by oil bandits, whose networks extend across the country.

Highways are another battlefield in China’s oil wars. Oil truck drivers often park their vehicles by the roadside to nap, leaving their cargo unprotected. In Wenzhou, Zhejiang Province this March, five people were arrested on suspicion of stealing oil from tankers on several occasions over the past two years. The gang was allegedly so skilled and well-equipped that its members were able to siphon off 60 liters of diesel within 14 seconds, according to local media. They then sold the oil to the owners of excavators on nearby construction sites, raking in the equivalent of tens of thousands of US dollars from such deals.

In China, oil theft first became a problem in the 1990s, when villagers living on the perimeter of oilfields began stealing crude for their own daily use. Since then, oil thieves have formed large, organized operations, and are becoming increasingly rampant. China’s Ministry of Public Security disclosed in 2010 that 39,000 cases of oil theft had been uncovered since 2002, involving a volume of oil worth hundreds of millions of dollars. In 2003, the only oil pipeline into Beijing was damaged by oil thieves attempting a heist, cutting off the supply for 10 hours. In 2006, a seabed oil pipeline belonging to the Shandong Shengli Oilfield was damaged by thieves, causing tens of millions dollars in damage, much of it due to severe marine pollution.

Black Gold, Blacker Market

Often, oil company staff and local police, either in the area where the oil was stolen or at the stolen oil’s destination, are found to have had a hand in heists. In 2009 and 2011, staff members at the Shanghai and Shandong offices of Sinopec, China’s largest oil refinery company, were convicted of stealing oil worth millions of US dollars. In 2011, scores of senior police officers in Daqing were arrested for protecting a gang that had been buying and selling stolen oil under the guise of an oil company.

“This year’s tax revenue will likely fall short of targets, because the Daqing police are cracking down on oil theft, and many refineries have been shut down,” a local government official in Cangzhou said.

The local government apparently benefits more from oil crime than from crackdowns. “The population of the Nandagang Industrial Park is 40,000, roughly the same as a town. But the annual tax revenue contributed by the park, thanks to its refineries, is as much as that of several towns combined,” the official said.

Even in the localities of oilfields, some local governments are reluctant to suppress oil crime. The enormous tax revenue paid by State-owned companies, including the State energy oligopolies, is piped directly to the central government, benefiting local governments only by creating jobs and boosting their service industries. Most local governments are uncomfortable with this imbalance, especially when State energy giants tap natural resources that local governments consider to be their own. Over the past few years, many local governments have been more eager than ever to invite oil and gas giants to invest in local enterprises, but at the same time, they are warier than ever of the power at the disposal of these State-owned enterprises (SOEs).

If State-owned oil companies want local governments to be more motivated to crack down on oil theft, they should serve the local economy better, said an official with the Daqing Oilfield.

But for the public, this illicit oil business often does more harm than good.

With shabby facilities and backward technology, illegal refineries are engaged in very dangerous and dirty oil production. Since the late 1980s, several campaigns have aimed to close down illegal refineries. None has succeeded in keeping them closed for very long.

Walking into the Nandagang Industrial Park, the air is thick with the heavy stench of oil being processed. “The tap water is red in the mornings, so we have to buy bottled water. The air smells so bad that we can’t open the windows, even in summer,” a local resident told our reporter. Since the refineries were built, he said, cancer rates in the village have skyrocketed, as has the rate of birth defects.

Pan Zhiguo, a man from another village in the area, showed our reporter a petition letter signed by more than 800 villagers, protesting the toxic air and water pollution caused by the refineries. At the end of May, the Ministry of Public Security held a meeting in Cangzhou to launch another inter-provincial crackdown on oil crime, resulting in the closure of many refineries. “This is only the second time in decades that air quality here has improved. The last time was during the 2008 Beijing Olympics, when all refining activities were suspended,” said Chi Huaiyu, another local resident.

It will likely take more than a single crackdown to clean the oil stains from Cangzhou.

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