A Review of the Nigerian Energy Industry

Oil crisis: OPEC blames poor refining capacity for Nigeria’s woes

OPEC Secretary General Al-Badri addresses a news conference after a meeting of OPEC oil ministers at OPEC's headquarters in ViennaOscarline Onwuemenyi

17 November 2014, Sweetcrude, Abuja –
The Organisation of Petroleum Exporting Countries, OPEC, has blamed the dismal refining capacity in the country for its inability to weather the headwinds in the global oil industry.

It also criticised the huge refining gap within the continent, even as it notes that the region is lagging behind in implementation of refinery projects.

According to OPEC in its World Oil Outlook 2014 report, released last week, the continent would boast of only about 0.6 million bpd of new crude distillation capacity by the end of 2019.

However, global oil demand is expected to increase by just over 21 million bpd during the period 2013–2040, reaching 111.1 million bpd by 2040.

It further stated that Nigeria has failed to fast track the implementation of new refinery projects, while it continued to face setback on rehabilitation of the existing refineries.

Nigeria presently has four refineries in PortHarcourt (old and new), Warri and Kaduna with a total 455,000 barrels per day installed capacity, but issues like corruption and mismanagement have greatly impaired several government efforts to implement Turn Around Maintenance.

Also, challenges associated with regularisation and political instability has slowed down investment in new refineries. The government over the past few years has entered agreements with both local and international investors to build new greenfield refineries at a number of locations across the country, which are yet to materialise.

The report stated, “Africa as a region is perfectly positioned for future downstream capacity additions. Demand for refined products in the region is set to grow, there is sufficient crude oil production to cover demand and a relatively high level of product imports emphasizes the need for new refining sector investments.

“Despite this need and the number of refining projects under consideration, there are currently only a few projects already under construction or in an advanced planning stage. The result is that only around 0.6 million bpd of new crude distillation capacity is expected to be available in Africa by the end of 2019.”

It added that, “The need for additional capacity in other large countries has led to talk of several other major refining projects. This is the case in Nigeria where options range from the rehabilitation of existing refineries, through to several new smaller projects and a large-scale new grassroots refinery.”

A new world-scale refinery is also under consideration in South Africa, possibly from a joint venture between PetroSA and Sinopec. Other projects include new refineries in Uganda, South Sudan, Mozam- bique, among others. However, the timing, as well as size of these projects, remains uncertain,” it stated.

The cartel however forecast a constant nominal price of $110 per barrel is for the rest of the decade, which it said was corresponding to a small decline in real values.

It stated that moving forward, real values are assumed to approach $100/b in 2013 prices by 2035, with a slight further increase to $102/b by 2040. Nominal prices reach $124/b by 2025 and $177/b by 2040. These are assumptions and should not be considered as indicative of any desired or targeted price level.

From the global oil demand estimates, OPEC stated that developing countries alone would account for growth of 28 million bpd, while demand in the OECD will fall by over seven million bpd during the same period.

On the supply end, the report sees non-OPEC supply growth in the medium term, albeit decelerating over the time horizon.

“In the long-term, OPEC will supply the majority of the additional required barrels, with the OPEC liquids supply forecast increasing by over 13 million bpd in the reference case from 2020–2040.

In terms of the global energy mix, renewables from hydropower and other renewables, such as wind and solar are expected to continue to grow at a fast pace, partly as a result of government support.

About 15 planned projects are however identified in non-OPEC African countries: one in Cameroon, one in Chad, five in Congo, one in Cote d’Ivoire, two in Equatorial Guinea, two in Gabon, one in Ghana and two in Uganda.

The projects are estimated to add a total supply of about 0.5 mbpd. “The largest of these is Congo’s Moho North project with a plateau rate of 100,000 bpd. As a result, total production from non-OPEC Africa will increase in 2014 by about 40,000 bpd and reach 2.3 mbpd. It will then continue to grow at a modest rate to reach 2.4 mbpd by 2019,” it stated.

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