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Refineries May Become Scrap Once Dangote’s Begins Production – Kachikwu

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  • Refineries May Become Scrap Once Dangote’s Begins Production

The four refineries belonging to the Federal Government may end up as scrap once the Dangote Group begins processing crude oil at its refinery in Lagos by 2019, the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, has said.

According to him, if the country fails to take urgent steps to revamp the refineries in Port Harcourt, Warri and Kaduna, the facilities may be worthless in three years’ time after the Dangote refinery must have come on stream.

Kachikwu, who spoke at a stakeholders’ consultative forum on the draft National Gas Policy and National Oil Policy in Abuja on Thursday, stressed that Nigeria had no other option than to ensure that its refineries work in the shortest possible time.

The minister said, “Refineries will have to work. It is really not an option anymore. And not only should they work, they have to work very quickly. The reality is that if we do not privatise and we do not concede them, which is not what we are doing now, then we have a responsibility to find private capital to get them to where they should be.

“This is because if we do not get them to work, in 2019, I can assure you that if the Dangote system works well, we will have scrap, we won’t have refineries, because by then it will be too late to do anything.”

Kachikwu urged stakeholders to work together in bringing down the cost of production in the industry to a reasonable and manageable level, noting that crude oil was still being produced at $27 per barrel in Nigeria.

This production cost, according to him, is high as no decent country will produce at that amount at a period when the oil price is unpredictable.

“We are going to try to get those figures below $18 per barrel,” he said.

On the total deregulation of the downstream oil sector, Kachikwu said, “At every given time in the history of every country, you will always have partial deregulation. The reason being that you have to catch up each time and make an amendment, and even if it is just one day, you may have some level of subsidy for that one or two days before it is removed.

“What is important is the goal post, where are we headed? Where we are headed is to try and free the industry so that it can do its own rules and set its own prices. There are few mechanics that we still need to get in place properly. We can’t forget the fact that we still have foreign exchange challenges and that income to the government is still very tight.

“You still have to find a way to balance that. But what is important is what the objective is. And the objective is still to fully deregulate.”

The minister stated that more policies and activities had to be fine-tuned in the petroleum industry to make it run smoothly like in other countries where the sector was being successfully run, adding that Nigeria would exit Joint Venture cash calls before December this year.

He said, “We have dealt with subsidy removal. We began the process of exiting Joint Venture Cash Call. Hopefully, before December, we will get to a point where Joint Venture cash call would be a thing of the past.”

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Crude Oil

Oil Prices Steady Ahead of Crucial OPEC+ Meeting on Output Cuts

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Oil prices stabilized in Asian trading on Monday as markets turned their attention to an upcoming OPEC+ meeting, where producers are expected to discuss maintaining voluntary output cuts for the remainder of the year.

This critical meeting, scheduled for June 2, will be held online following a brief postponement, OPEC announced last Friday.

The Brent crude oil, against which Nigerian crude oil is priced, stood at $82.36 a barrel, while the U.S. West Texas Intermediate (WTI) crude oil rose by 28 cents to $78 per barrel.

The stabilization in prices comes after a week of declines with Brent ending last week about 2% lower and WTI losing nearly 3%.

This downturn was influenced by minutes from the Federal Reserve’s recent meeting, revealing that some officials are open to further tightening interest rates if deemed necessary to control persistent inflation.

Market activity is expected to be relatively subdued on Monday due to public holidays in the United States and the United Kingdom.

However, anticipation is building around the OPEC+ meeting, where producers will deliberate on extending the current voluntary output cuts of 2.2 million barrels per day into the second half of the year. Sources within OPEC+ suggest that an extension is likely.

Sugandha Sachdeva, founder of Delhi-based research firm SS WealthStreet, expressed confidence in the potential extension, stating, “Oil futures are expected to maintain today’s gains due to expectations of the cuts being extended.”

She also highlighted the influence of upcoming U.S. Producer Price Index (PPI) data on market movements, which will shape the Federal Reserve’s approach to potential rate adjustments.

Combined with an additional 3.66 million barrels per day of production cuts valid through the end of the year, these measures account for nearly 6% of global oil demand.

OPEC remains optimistic about continued growth in oil demand, forecasting an increase of 2.25 million barrels per day for the year, while the International Energy Agency (IEA) anticipates slower growth of 1.2 million barrels per day.

Analysts at ANZ noted that they will be closely monitoring gasoline usage as the Northern Hemisphere enters summer, a peak season for driving holidays.

They commented, “While U.S. holiday trips are expected to hit a post-COVID high, improved fuel efficiency and EVs could see oil demand remain soft,” but added that this could be offset by rising air travel.

This week’s market dynamics will also be influenced by the U.S. personal consumption expenditures (PCE) index, due to be released on May 31.

The PCE index is regarded as the Federal Reserve’s preferred measure of inflation, and its findings could provide further indications of the central bank’s interest rate policies.

In a related development, Goldman Sachs has revised its forecast for 2030 oil demand upwards to 108.5 million barrels per day from the previous 106 million barrels per day.

The investment bank also projects peak oil demand to occur by 2034 at 110 million barrels per day, followed by a prolonged plateau until 2040.

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Nigeria’s Oil Sector Sees $16.6bn Investment Boost, Plans $20bn Expansion

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Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, announced on Monday that approximately $16.6 billion in investments have been committed over the past year.

This significant influx of capital marks a period of rejuvenation for the oil sector following years of stagnation caused by policy inconsistencies and the delayed passage of the Petroleum Industry Act.

Lokpobiri shared these updates during a briefing in Abuja, where he highlighted the achievements in the oil sector since President Bola Tinubu assumed office on May 29, 2023.

The minister emphasized that the government’s efforts to create a more investment-friendly environment have paid off, attracting substantial foreign and domestic investments.

Rekindling Investor Confidence

“One of our main objectives has been to create an environment where investments can thrive,” Lokpobiri stated. “Today, I am pleased to announce that our efforts have rekindled investor confidence in the sector.”

He pointed to notable investments, including $5 billion and $10 billion commitments in deepwater offshore assets, and a $1.6 billion investment in oil and gas asset acquisition.

The surge in investments is attributed to a series of roadshows in the United States and Europe, which successfully showcased Nigeria’s potential and the government’s commitment to sectoral reforms.

This renewed global interest is also evident in the ongoing bid rounds for new assets.

Production Increase and Strategic Initiatives

A significant achievement since President Tinubu took office is the increase in crude oil production.

“When we took office, production was at approximately 1.1 million barrels per day, including condensates,” Lokpobiri reported. “Today, I am proud to report that we have increased our production to approximately 1.7 million barrels per day, inclusive of condensates.”

To achieve this increase, the government has undertaken several strategic initiatives.

These include revamping redundant oil assets, continuous engagement with international oil companies, and resolving industry disputes.

Efforts to protect critical assets and reduce oil theft have also been intensified, with collaborations between private security firms and government agencies leading to a sharp decline in crude oil theft.

Upcoming $20bn Expansion Deal

In addition to the recent investments, Lokpobiri revealed that the Federal Government is on the verge of finalizing a $20 billion deal aimed at further boosting oil and gas production.

During a meeting with Olivier Le Peuch, CEO of Schlumberger Limited, Lokpobiri disclosed that negotiations with major investors are nearing completion. “Investments of over $20 billion are coming. One company alone will invest $10 billion,” he noted.

This deal, once consummated, will represent one of the largest single investments in Nigeria’s oil sector in recent history, promising to significantly enhance the country’s production capacity and economic growth.

Ongoing and Future Projects

Lokpobiri also highlighted the commencement of production from Oil Mining Leases (OMLs) 13 and 85, managed by Sterling Exploration and First E&P respectively.

These projects are expected to produce an average of 20,000 and 40,000 barrels per day, further bolstering Nigeria’s output.

This period of renewed investment and increased production is a testament to the government’s commitment to optimizing the nation’s oil and gas assets.

President Tinubu’s administration aims to sustain this momentum, ensuring continued growth and stability in the sector.

Government Transparency and Accountability

In line with President Tinubu’s directive for transparency, all ministers have been tasked with presenting their performance reports to the public.

The Minister of Information and National Orientation, Mohammed Idris, announced that the first-anniversary celebrations will include sectoral media briefings by the 47 federal ministers, starting on Thursday.

These briefings are designed to keep Nigerians informed about the government’s achievements and ongoing initiatives.

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Energy

Oil Prices Stable Amid Federal Reserve’s Talk of Interest Rate Tightening

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In a landscape where global oil markets often sway with the slightest economic shifts, stability can be a rare commodity.

However, amidst discussions from the U.S. Federal Reserve regarding potential interest rate adjustments, oil prices have remained surprisingly steady.

Brent crude oil, against which Nigerian oil is priced, gained 10 cents, or 0.1% rise to $82.00 a barrel, while U.S. West Texas Intermediate (WTI) crude oil edged up 7 cents to $77.64 a barrel.

The Federal Reserve’s release of minutes from its recent policy meeting unveiled deliberations on the possibility of raising interest rates to combat persistent inflationary pressures.

The minutes stated, “Various participants mentioned a willingness to tighten policy further should risks to inflation materialize in a way that such an action became appropriate.”

Such discussions surrounding interest rates can have a profound impact on oil demand. Higher interest rates typically result in increased borrowing costs, potentially constraining funds that could otherwise stimulate economic growth and, consequently, oil consumption—particularly in the United States, the world’s largest oil-consuming nation.

Additionally, the Energy Information Administration’s report indicating a 1.8 million barrel rise in U.S. crude stocks last week, as opposed to an anticipated draw of 2.5 million barrels, added a layer of complexity to the market dynamics.

This unexpected increase in inventory weighed on market sentiment, despite ongoing efforts to balance supply and demand.

Furthermore, global physical crude markets have been grappling with subdued refinery demand and abundant supply, exacerbating the pressure on oil prices.

Analysts from Citi highlighted recent market softness, attributing it to weaker data encompassing rising oil inventories, tepid demand, and refinery margin weakness, compounded by the looming risk of production cuts.

Russia’s announcement that it surpassed its OPEC+ production quota in April due to “technical reasons” added another dimension to the market narrative.

The Russian Energy Ministry revealed plans to present a compensation strategy to the Organization of the Petroleum Exporting Countries (OPEC) Secretariat shortly.

Against this backdrop, anticipation mounts ahead of the OPEC+ meeting scheduled for June 1, where crucial decisions regarding production cut levels will be deliberated.

Despite uncertainties surrounding the meeting’s outcome, industry experts foresee challenges in significantly tightening the market in the near term, potentially leading to a rollover of existing voluntary cuts.

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