Low refining capacity dims Nigeria’s hope on OPEC’s positive market forecast
Low refining capacity of Nigerian oil refineries has combined with weaker refining margins in key European countries to dim the nation’s hope for better 2016 oil and gas business year, as initially predicted by the Organisation of Petroleum Exporting Countries (OPEC).
In its latest World Oil Outlook report for 2016, OPEC said it remained optimistic on the prospect for improved crude oil demand in 2016, which it projected at 30.8 million barrels per day, representing an increase of 1.5 million barrels per day over the 2015 demand levels.
Also, at the 168th OPEC conference in December 2015, Ibe Kachikwu, Nigeria’s minister of state for petroleum and OPEC president for the conference said global economic growth in 2016 was projected at 3.4 percent, representing an improvement on the 3.1 percent figure of the previous year.
However, “this positive prediction has become a subject of increasing uncertainty, as West African Crude (WAC), led by Nigeria price differentials, remains under pressure from weaker refining margins in key energy consuming nations of Europe,” a situation the OPEC report described as weighing heavily on demand for most of November 2015 loadings.
As majority of European refineries are aging, their competitiveness with newer plants in Asia, the Middle East, and the US has also weakened due to higher maintenance and operating costs, says the European Energy Review published in 2015.
Ultra-modern new refineries in these regions, aided by low-priced feedstock, low operating costs and cheaper refinery fuel (natural gas), have increased their competitiveness relative to European plants and their exports of diesel, gasoil, and jet oil to the euro region.
“At present, it makes more economic sense for Europe to import the middle-distillates than to produce them at home, since the imports are cheaper,” the publication further read.
Nigeria’s low earnings from crude further worsen its economic case to fund the importation of an estimated 48 million litres of premium motor spirit (PMS) consumed in the country every day.
The nation’s three refineries, which resumed production in December 2015, are currently producing just a paltry 6 million litres of the product daily.
In January, Brent crude hit a 13-year low of $27.67 before a slight recovery, but again went down 7.2 percent on February 9 to $30.50.
To return the country’s oil sector to profitability, Kachikwu, in the NNPC’s Energy in Brief Report of January 2016, harped on the Corporation’s restructuring for a new organisational outlook composed of four autonomous business concerns, including an upstream and a downstream company, a refining company as well as a gas and power company.
Industry experts have repeatedly called for the privatisation of Nigerian refineries in order to attract scarce and desperately needed capital from interested non-government financiers to fund their total overhaul for increased efficiency.
However, the government has insisted on retaining ownership of the refineries, despite posting losses year after year, with the loss for 2015 put at N255.28 billion, according to NNPC’s financial report of January 2016.
Elsewhere in the world, oil giants are embracing reforms to increase efficiency and save cost, shelving assets that could cause a drag of business prospects and delaying certain projects in favour of higher priority ones.
According to the Arabian Sun, a magazine for Saudi Arabia‘s Aramco Group, the country is tightening its budget to cope with an expected lengthy period of low oil prices, even as its 2016 plan includes spending cuts and reforms to energy and utility subsidies.
Aramco has also slowed down some projects, shelved less important ones and asked for discounts on some contracts, which it had awarded.
According to John Kilduff, a partner at Again Capital, New York based investment-management firm that specializes in commodities, the US rig count has fallen by nearly two-thirds from December 2014 to December 2015, causing US oil production to fall by over 500,000 barrels per day, with further production decline expected.
NNPC data also shows that the Corporation saved $1.5 billion from revised contracts in various Joint Venture (JV) and PSC arrangements, but this is also dwarfed by annual losses from gas flaring and pipeline vandalism, with each of the factors claiming $14 billion each year, totalling $28 million annually.
From January to November 2015, the Corporation recorded 2,557 vandalised points on its network of pipelines resulting in substantial value loss in crude oil and petroleum products.
YANGE IKYAA