Uchenna Izundu
International Editor
LONDON, Aug. 14 -- Nigeria hopes to add 400,000 b/d of new refining capacity by 2011-12 with joint venture partners, according to Nigerian media reports.
Funsho Kupolokun, group managing director of Nigerian National Petroleum Corp. (NNPC), was quoted as saying the country is unlikely to meet its target of declaring 40 billion bbl of oil reserves from 35 billion bbl by 2010 because of violence in the Niger Delta that is rising operational costs and creating funding difficulties.
Alex Gorbansky, managing director of Frontier Strategy Group, told OGJ that Nigeria's missing its target would add to the increasing uncertainty impacting the supply of both crude and refined products. "Project delays given major technical and bureaucratic challenges should be expected, particularly in emerging producing countries like Nigeria that have had significantly less industry expertise."
NNPC is in discussions with Royal Dutch Shell PLC, ExxonMobil Corp., Chevron Corp., Total SA, and Agip to set up two refineries, each with 200,000 b/d refining capacity. According to the News Agency of Nigeria, the refineries would be built in Okrika and Brass.
A source told OGJ that analysis has just begun to see if building new refineries "makes economic sense," adding, "We are a long way from making any kind of decision on our participation in a new refinery."
The reports quoted Kupolokun as saying the partners are working out the details, and NNPC is involved in producing a regulation mandating that oil producers refine a certain percentage of their production. Kupolokun admitted that previous directives to compel producers to refine 50% of their production locally had failed because they were not supported by legislation, adding: "When the regulation comes, they cannot give excuses."
Speaking Aug. 6 at the annual Society of Petroleum Engineers conference and exhibition in Abuja, Kupolokun said continued violence in the Niger Delta had dissuaded potential companies from repairing the Chanomi Creek Channel pipeline that carries feedstock to the Warri and Kaduna refineries. These had operated at 70% and 75% capacity before militants damaged the pipeline in February 2005.
"I talk of Chanomi Creek today; I cannot even find a contractor that will do this job for me. We started with Willbros. They withdrew because of the problem. We went to Saipem…[but cost] has become an issue," Kupolokun said. Nigeria has been forced to import fuel products to meet its needs.
Nigeria's hydrocarbons production has grown by only 5%/year over the last 10 years, Kupolokun said. To reach the 40 billion bbl reserves mark, Nigeria would need to find the equivalent of three giant finds, each the size of Bonga (600 million bbl of reserves) in the next 3 years. The target was set under the presidency of Olesegun Obasanjo who has now been replaced by Umaru Yar'Adua. Obasanjo's government set the objective to raise oil production to 4 million b/d by 2010.
Another challenge facing Nigeria's oil industry is replacing ageing assets which have been in place for the last 40 years. "Of course the fields are also maturing, assets are ageing, and the number of assets and facilities that have been put in place 40 years ago, all these translate to cost implications," Kupolokun added.
Contact Uchenna Izundu at [email protected].
