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Shell, Chevron Unaware of NNPC’s Plan to Extend $1bn Gas Pipeline to Cote d’Ivoire

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Gas-Pipeline
  • Shell, Chevron Unaware of NNPC’s Plan to Extend $1bn Gas Pipeline to Cote d’Ivoire

Shell and Chevron, which are major shareholders in the Chevron-run West African Gas Pipeline Company Limited (WAGPCo), owners of the $1 billion West African Gas Pipeline, are not yet aware of the plan by the Nigerian National Petroleum Corporation (NNPC) to extend the 678-kilometre pipeline to Cote D’Ivoire, investigation has revealed.

Also, investigation gathered at the weekend from the Managing Director of WAGPCo, Mr. Walter Perez that the existing pipeline, which runs from Nigeria to Togo is currently underutilised with only 70 million standard cubic feet per day of gas (mmscf/d) available in the 150mmscf/d capacity pipeline.

Perez, however, noted that the 70 mmscf of gas available daily is enough to service end users in Ghana, Togo and Benin Republic.

N-Gas, which is a separate company, also jointly-owned by Shell, Chevron and the NNPC, buys gas from oil companies in Nigeria and transport the it to its customers in Benin, Togo and Ghana, through the pipeline, operated by WAGPCo.

With headquarters in Accra, WAPCo is owned by Chevron West African Gas Pipeline Ltd (36.9 per cent); NNPC (24.9 per cent); Shell Overseas Holdings Limited (17.9 per cent); Takoradi Power Company Limited (16.3 per cent), Societe Togolaise de Gaz (two per cent) and Societe BenGaz S.A. (two per cent).

The pipeline is connected to Escravos-Lagos pipeline from Itoki area of Ogun State and goes through Agido near Badagry in Lagos, passing through 33 Nigerian communities and thereafter goes offshore to the three countries.

Despite the inadequate gas supply to the existing pipeline, which has left the $1bn facility virtually empty, the Group Managing Director of NNPC, Dr. Maikanti Baru, represented by the corporation’s Chief Operating Officer in charge of Gas and Power, Mr. Saidu Mohammed, had told a delegation led by the Deputy Director, Production, Ministry of Petroleum of Cote d’Ivoire, Mr. Patrick Marshal, in Abuja early this month, that Nigeria would extend gas supplies from Escravos to Cote d’Ivoire through the pipeline.

The commitment to extend the pipeline is also coming at a time many power generating plants in Nigeria are idle as a result of insufficient gas to generate electricity.

However, Chevron and Shell, which are also major shareholders in the project, are not part of the plans to extend the pipeline.

A Shell official who spoke on condition of anonymity, said at the weekend that extending the pipeline was not a priority of the company as “project economics would not justify such investment in the face of the prevailing gas supply challenges in Nigeria”

“Where is the gas that will feed the pipeline? The agreement initiated by ECOWAS is that N-Gas should be allocated a space in the pipeline to take up to 200 million standard cubic feet of gas per day to its customers. But at the best of times, the gas supply has never exceeded 120 mmscf/d. So, what are the fundamentals driving the proposed extension?” he queried.

A Chevron source, who also spoke on the matter, disclosed that NNPC, Shell and Chevron, which are the owners of N-Gas, had paid in excess of $15 million as compensation to Ghana’s Volta River Authority (VRA), for failure to meet their contractual obligations on gas supply to the Ghana’s electricity producing company as specified in a 20-year contract.

According to him, the contract provides that if N-Gas does not supply the gas, it pays compensation to enable VRA buys crude oil to augment the gas shortfall.

“They have defaulted on several occasions and paid compensation in excess of $15 million. If the shareholders are paying compensation because they default in providing gas, how could they talk of extending the pipeline to supply gas to additional areas when there is no gas to feel the space in the existing pipeline and supply current customers? I think NNPC was making political statement,” he explained.

Investigation gathered that WAGPCo’s nameplate capacity is to transport 475mmscf of gas per day but only less than 130 mmscf/d of gas was available at the best of times, thus leaving the facility to be sub-optimally utilised.

Perez said at the weekend that the pipeline has the capacity to move 150 mmscf of gas to customers daily at the moment but is currently transporting only70 mmscf/d because that is what the customers require.

“We can move over 150mmscf per day today but we are operating at 70 mmscf/d currently. Today, they (customers) require 70 mmscf/d and that is why we are moving 70 mmscf/d. What they call for is 70 mmscf/d and that is why we are moving 70 mmscf/d but we are working to increase it to higher levels but today, that is what they are calling for,” he explained.

Perez also cited pipeline vandalism, debt and availability of alternative energy supplies to the company’s customers as some of the challenges facing the company.

“The industry has been challenged with vandalism but the good news is that the volumes of gas have come back and we are quite please with that,” he said.

“The challenge for us is that when the gas supply is not available, our customers have to find alternative supplies of energy. That is a real challenge for us. When the pipeline was built, there was gas only in Nigeria and very affordable but today, people have access to LNG and are also developing their own resources. So, when our pipeline is not available, it makes our customers to go out and look for alternatives. For us, it is important that when the gas is available, we can move it. Today, like I said, the customers are calling for a certain amount and we are providing them,” Perez explained.

“Debt is an issue that we are working to resolve. We see a window of opportunities coming in the next couple of months. So, we are working with the people involved to settle their accounts with WAGPCo,” he added.

Investigation revealed that due to the non-utilisation of the pipeline by N-Gas, sub-regional ministers, otherwise referred to as the Committee of Ministers of the West African Countries had planned to amend the International Project Agreement (IPA) to enable other entities to use the pipeline.

Meanwhile, the NNPC has disclosed that it will drastically cut down by 80 per cent, the amount of Nigerian crude oil it gives to third-party traders to export on its behalf for Nigeria from 2018.

It said from the end of 2018, its reformed trading subsidiary – the NNPC Trading Limited, would market 80 per cent of Nigerian crude in the international market, leaving the remaining 20 per cent for third-party traders.

Usually, the corporation uses tenured oil lifting contract with third-party traders to sell volumes of Nigeria’s share of oil produced in its Joint Venture (JV) and Production Sharing Contract (PSC) with International Oil Companies (IOCs) operating in the country.

For instance, it shortlisted 39 firms comprising 18 Nigerian-owned oil companies; 11 international trading houses; five foreign refineries; three foreign National Oil Companies (NOCs) and two of its trading subsidiaries, to lift and export about 700,000 barrels per day (bpd) of crude oil in the 2017 lifting term contract.

However, in an interview obtained yesterday from the latest edition of a refurbished in-house quarterly magazine of the NNPC, the Managing Director of NNPC Trading Limited, Ibrahim Waya, disclosed that from 2018, the corporation would be marketing most of its crude oil with minimal volumes to third-party traders.

Waya, explained that the plan was in line with the merger of NNPC’s four trading subsidiaries – Duke Oil; Hyson Carlson; Nigermed; and NAK Oil, into a single unit, and training of young oil traders at the Princeton College of Petroleum Studies, Oxford England, to undertake the task.

“We have a vision, we want to be somewhere and when we look at what we are doing today, compared to where we were yesterday, we know that we are on a threshold of history,” said Waya in the interview.

However, the NNPC has invited the Economic and Financial Crimes Commission (EFCC), and Department of State Security (DSS) to deal with the lingering acts of fraudulent crude oil sales contract.

In a statement from its Group General Manager, Public Affairs, Ndu Ughamadu, it noted that the fraudulent activities of crude oil scammers was on the rise, and provided insights into the mode of operations of the perpetrators.

Quoting its Group General Manager, Crude Oil Marketing Division (COMD), Mr. Mele Kyari, the statement said the scammers were fond using hotel rooms to perpetrate their acts, adding that NNPC does not sell crude oil from hotel rooms.

Kyari, said the scammers usually lure their unsuspecting victims with higher discount offers on cargoes, and crude allocation.

He noted that: “Some of them even go to the extent of luring their victims to hotels to transact these fraudulent crude oil contracts. The entire public should know that NNPC doesn’t do business of crude oil marketing from hotel rooms.”

According to him, there was only one way of buying crude oil from the NNPC which was through advertisement for the selection of customers who were screened for compliance with NNPC’s expectations and standards.

“There are very high standards we have set and if you don’t meet them, you cannot be our customer. And once you become our customer, we sign a single annual contract with you,” Kyari added, while stating that the crude contracts were typically 30,000 to 32,000bpd which accumulate into a standard cargo size of 950,000bpd per month, but not two to three million bpd contracts as peddled by the scammers.

He also said for the crude oil sale processes to be completed, the customer had to show that he had the capability to sell the cargo to the market and that the NNPC could get its money back.

Stating that 98 per cent of all the documents used by the scammers were fake, Kyari explained that the processes employed by the corporation had not leaked so far.

He said in line with the government’s anti-corruption crusade and NNPC’s commitment to transparency and accountability, the COMD had been collaborating with the Nigerian Police Force (NPF); DSS; and EFCC to checkmate the fraudsters, and that the collaboration was yielding results.

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

Fed’s Decision to Hold Rates Stalls Oil Market, Brent Crude Slips to $82.17

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Crude Oil - Investors King

Oil prices faced a setback on Thursday as the U.S. Federal Reserve’s decision to maintain interest rates dampened investor sentiment.

The Federal Reserve’s announcement on Wednesday indicated a reluctance to initiate an interest rate cut, pushing expectations for policy easing possibly as late as December. This unexpected stance rattled markets already grappling with inflationary pressures and economic uncertainty.

Brent crude, the international benchmark for Nigerian crude oil, saw a drop of 43 cents, or 0.5% to $82.17 a barrel, reflecting cautious investor response to the Fed’s cautious approach.

Similarly, West Texas Intermediate (WTI) crude oil also slipped by 46 cents, or 0.6% to settle at $78.04 per barrel.

Tamas Varga, an analyst at PVM Oil, commented on the Fed’s decision, stating, “In the Fed’s view, this is the price that needs to be paid to achieve a soft landing and avoid recession beyond doubt.”

The central bank’s move to hold rates steady is seen as a measure to balance economic growth and inflation containment.

The Energy Information Administration’s latest data release further exacerbated market concerns, revealing a significant increase in U.S. crude stockpiles, primarily driven by higher imports.

Fuel inventories also exceeded expectations, compounding worries about oversupply in the oil market.

Adding to the downward pressure on oil prices, the International Energy Agency (IEA) issued a bearish report highlighting concerns over potential excess supply in the near future.

The combination of these factors weighed heavily on investor sentiment, contributing to the decline in oil prices observed throughout the trading session.

Meanwhile, geopolitical tensions in the Middle East continued to influence market dynamics, with reports of Iran-allied Houthi militants claiming responsibility for recent attacks on international shipping near Yemen’s Red Sea port of Hodeidah.

These incidents underscored ongoing concerns about potential disruptions to oil supply routes in the region.

As markets digest the Fed’s cautious stance and monitor developments in global economic indicators and geopolitical tensions, oil prices are expected to remain volatile in the near term.

Analysts suggest that future price movements will hinge significantly on economic data releases, policy decisions by major central banks, and developments in geopolitical hotspots affecting oil supply routes.

 

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Crude Oil

Nigerian Oil Loses Ground to Cheaper US and Russian Crude

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Crude oil

Nigeria’s once-thriving oil industry is facing a significant challenge as traditional buyers increasingly turn to more affordable alternatives from the United States and Russia.

This shift has led to France emerging as the leading buyer of Nigerian crude, marking a significant change in the global oil market dynamics.

Top Nigerian crude grades like Bonny Light, Forcados, and Brass have long been favored by refineries in Europe and Asia due to their low sulfur content.

However, the country’s primary customers, including India and China, are now opting for cheaper US and Russian oil.

This trend poses a substantial risk to Nigeria, which relies on oil exports for more than half of its foreign exchange earnings.

Data from BusinessDay reveals a stark decline in India’s purchase of Nigerian crude. In the first quarter of 2024, India bought N1.3 trillion worth of Nigerian oil, a significant drop from the average of N2 trillion purchased between 2018 and 2021.

“Buyers are increasingly turning to cheaper alternatives, raising concerns for the country’s revenue stream,” said Aisha Mohammed, a senior energy analyst at the Lagos-based Centre for Development Studies.

The latest tanker-tracking data monitored by Bloomberg indicates that India is buying more American crude oil as Russian energy flows dwindle amid sanctions.

India’s state-owned oil refiners and leading private companies have increased their imports of US crude, reaching nearly seven million barrels of April-loading US oil. This shift is the largest monthly inflow since last May.

Russian crude flows to India surged following the invasion of Ukraine, making Russia the biggest supplier to the South Asian nation.

However, tighter US sanctions have stranded Russian cargoes, narrowing discounts, and prompting India to ramp up purchases from Saudi Arabia.

“Given the issues faced with importing Sokol in Russia, it’s no surprise that Indian refineries are turning toward US WTI Midland as their light-sweet alternative,” explained Dylan Sim, an analyst at industry consultant FGE.

As a result, France has overtaken the Netherlands to become the biggest buyer of Nigerian crude oil, purchasing products worth N2.5 trillion in the first quarter of 2024.

Spain and India occupied second and fourth positions, with imports valued at N1.72 trillion and N1.3 trillion respectively, as of March 2024.

The sluggish pace of sales for Nigeria’s May supplies highlights the market’s shifting dynamics. Findings show that about 10 cargoes of Nigerian crude for May loading were still available for purchase, indicating a reduced demand.

Rival suppliers such as Azeri Light and West Texas Intermediate have also seen price weaknesses, impacting Nigerian crude demand.

“We’ve got much weaker margins, so Nigeria’s crude demand is taking a hit,” noted James Davis, director of short-term oil market research at FGE.

Sellers seeking premiums over the Dated Brent benchmark have found the European market less receptive, according to Energy Aspects Ltd.

“May cargoes were at a premium that didn’t work that well into Europe, but lower offers have seen volumes move,” said Christopher Haines, EA global crude analyst. “Stronger forward diesel pricing is also helping.”

Some Nigerian grades are being priced more competitively, including Qua Iboe to Asia and Bonny Light to the Mediterranean or East, with the overhang slowly reducing, according to Sparta Commodities.

However, the overall reduced demand could lead to a decrease in revenue from oil exports, a major source of income for the Nigerian government.

“Reduced demand could lead to a decrease in revenue from oil exports, a major source of income for the Nigerian government,” warned Charles Ogbeide, an energy analyst with a Lagos-based investment bank.

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Refiners Predict Petrol Prices to Fall to N300/Litre with Adequate Local Crude Supply

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Petrol - Investors King

The pump price of Premium Motor Spirit (PMS), commonly known as petrol, could drop to N300 per litre once local production ramps up significantly, according to operators of modular refineries.

This projection hinges on the provision of sufficient crude oil to domestic refiners, which they say would undercut the exorbitant costs currently imposed by foreign refineries.

Speaking under the aegis of the Crude Oil Refinery Owners Association of Nigeria (CORAN), the refiners stressed the urgency for the government to ensure a steady supply of crude oil to local processing plants.

They argue that the reliance on imported petroleum products has been economically disadvantageous for Nigeria.

Eche Idoko, Publicity Secretary of CORAN, emphasized that the current high costs could be mitigated by boosting local production.

“If we begin to produce PMS in large volumes and ensure adequate crude oil supply, the pump price could be reduced to N300 per litre. This would prevent Nigerians from paying nearly N700 per litre and stop foreign refiners from profiting excessively at our expense,” Idoko stated.

The potential price drop follows the model seen with diesel, which experienced a significant price reduction once the Dangote Petroleum Refinery began its production.

“Diesel prices dropped from N1,700-N1,800 per litre to N1,200 per litre after Dangote started producing. This is a clear indication that local production can drastically reduce costs,” Idoko explained.

In a previous statement, Africa’s richest man, Aliko Dangote, affirmed that Nigeria would cease importing petrol by June 2024 due to the Dangote Refinery’s capacity to meet local demand.

Dangote also expressed confidence in the refinery’s ability to cater to West Africa’s diesel and aviation fuel needs.

Challenges and Governmental Role

However, achieving this price reduction is contingent on several factors, including the provision of crude oil at the naira equivalent of its dollar rate.

CORAN has advocated for this approach, citing that it would bolster the naira and reduce the financial burden on refiners who currently buy crude in dollars.

The Nigerian government has shown some commitment towards this goal. Gbenga Komolafe, Chief Executive of the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), confirmed that a framework has been developed to ensure consistent supply of crude oil to domestic refineries.

“We have created a template for the Domestic Crude Oil Supply Obligation to foster seamless supply to local refineries,” Komolafe stated.

Industry Reactions

Oil marketers have welcomed the potential for reduced petrol prices. Abubakar Maigandi, President of the Independent Petroleum Marketers Association of Nigeria (IPMAN), expressed optimism about the Dangote Refinery’s impact on petrol prices.

“We expect the price of locally produced PMS to be below the current NNPC rate of N565.50 per litre. Ideally, we are looking at a price around N500 per litre,” Maigandi noted.

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