Charity begins Abroad
by Victor Onyegbado
The Ping Game
Chatting with a bunch of friends on the internet a while ago, I sought opinions on the NNPC’s recent decision to become an offshore petrol refiner vied a partnership with Brazil’s Petrobras. Almost everyone was critical of the move. The common argument went thus:
…to add value to our economy and to create jobs for the army of unemployed but qualified youths we should be doing the refining in Nigeria and not in …Brazil or USA.
One of my chums even crunched out figures to buttress his submissions on where Nigeria’s priorities should lie at this time. I reproduce the same figures here for your consideration and in fairness to him as well.
Brazil’s domestic oil consumption was 1.85 Million barrels per day (Bpd) in 2005. At the same time, its national oil company Petrobras was producing 1.68 Million Bpd of refined products. The country now has about 1.9 million bpd of crude oil refining capacity spread amongst 13 refineries. Petrobras operates 11 facilities.
Nigeria on the other hand consumed approximately 280,000 bpd of oil in 2009. The country has four refineries (Port Harcourt I and II, Warri, and Kaduna) with a combined capacity of around 500,000 bpd. As a result of poor maintenance, theft, and fire, none of these refineries have ever been fully operational. Industry analysts estimate that 0-15% of the refining capacity was operational in 2009.
The Quick and the Dead
Now, in spite of the above, my views on this issue are not as radical or extreme as those held my friends. I appreciate the fact years and years of grappling with scarcity have carved charity begins at home right into our bones. Yet, this Brazilian connection appears (to me) a more viable option than the 25 or so Greenfield refineries that we’ve been expecting for donkey years now. Indeed, we live in times when threats of non-renewal of oil mining licences by the Federal Government of Nigeria fails to move even a single IOC to make serious commitments towards local refining. After all (as wikileaks reveal) Shell has seasoned people in every major department of the Government of Nigeria.
The truth is that (and I have said this quiet often) no one is in a hurry to build any refinery in Nigeria. While the way we price our petrol (PSF or Subsidy) is a militating factor, there are even more serious clogs. The excess global crude oil refining capacity is one. Christof Ruehl, Chief Economist at BP Plc. was reported recently as saying;
There has been a rise in unused refining capacity globally to about 20%, which is likely to last through 2030 now that demand from Organization of Economic Cooperation and Development Countries has peaked...
Refiners all around the world are battling with ever shrinking margins. Additional refining capacity in traditional consumer areas is therefore no joking matter for them. Most of the people to whom we run for establishment of local refineries already have interests in overseas ones which could be prejudiced. Here then lies the difficulty being experienced by Nigerian entrepreneurs in sourcing foreign financing for private refineries. Simply put, your landlord will never build a house for you.
The Solo Way
The logical route out of the above problem would have been to download some Do it yourself or Dummies guide to refining books off the internet and get on with the business as architects of our own destiny. But then, construction of refineries is very capital intensive. Yet again, the track record of our very own NNPC in this area is not such as to warrant the committal of another 10 kobo to it; if its proposal is to go solo. So where do we go from here?
Coming to Brasilia
The details of how exactly the NNPC seeks invest in Petrobras’s plan to expand its refinery in Texas, U.S., from 100,000 barrels to 200,000 barrels per day are yet unknown. However, statement s made by the corporation’s Group Managing Director can afford us a rough guess. Mr Oniwon said:
We indicated to them our interest to partner with the company to have an outlet into American market instead of exporting just crude to the American market. We can take Nigerian crude, which is also going into American market anyway, into this refinery, process and sell as value added product into the American market.
From the above, my guess is that NNPC’s proposal is some kind of Crude for Stake arrangement with Petrobras. If this is the case, then I think it is a win-win (at least in terms of earnings to the NNPC). Now before you reel out the litany of how this arrangement does nothing in aid of energy insecurity in our country, please consider what the alternative would have been. Surely, another proposed brand new refinery in say Akpabuyo Cross-River State will not do much in that regard either. The NNPC already has 10s of such utopian agreements and MOUs with a host of people.
I’ve got you babe
The choice of this particular refinery in Texas may also have been strategic. Petrobras acquired 50% stake in it in 2006 and from the outset nursed intentions of expanding its capacity. However a 2008 arbitration award forced the Brazilian company to acquire 100% of the refinery from Astra, its estranged partner at the time. It may very well be that the chunk of cash required for total takeover of the refinery made the Petrobras a bit more perceptive of the NNPC’s proposal.
And it’s a wrap
If you listen to rap music, you must have heard Jay Z say:
I was dealt a bad hand so what else could I do? …but keep something up my sleeves to help me through.
I think the Brazilian connection was as good a bargain as the NNPC could have gotten in today’s world circumstances. Considering that building of new refineries involves a lot of money and also creates relatively few jobs, this was worth the taking. I may be wrong but only time will tell.
by Victor Onyegbado
The Ping Game
Chatting with a bunch of friends on the internet a while ago, I sought opinions on the NNPC’s recent decision to become an offshore petrol refiner vied a partnership with Brazil’s Petrobras. Almost everyone was critical of the move. The common argument went thus:
…to add value to our economy and to create jobs for the army of unemployed but qualified youths we should be doing the refining in Nigeria and not in …Brazil or USA.
One of my chums even crunched out figures to buttress his submissions on where Nigeria’s priorities should lie at this time. I reproduce the same figures here for your consideration and in fairness to him as well.
Brazil’s domestic oil consumption was 1.85 Million barrels per day (Bpd) in 2005. At the same time, its national oil company Petrobras was producing 1.68 Million Bpd of refined products. The country now has about 1.9 million bpd of crude oil refining capacity spread amongst 13 refineries. Petrobras operates 11 facilities.
Nigeria on the other hand consumed approximately 280,000 bpd of oil in 2009. The country has four refineries (Port Harcourt I and II, Warri, and Kaduna) with a combined capacity of around 500,000 bpd. As a result of poor maintenance, theft, and fire, none of these refineries have ever been fully operational. Industry analysts estimate that 0-15% of the refining capacity was operational in 2009.
The Quick and the Dead
Now, in spite of the above, my views on this issue are not as radical or extreme as those held my friends. I appreciate the fact years and years of grappling with scarcity have carved charity begins at home right into our bones. Yet, this Brazilian connection appears (to me) a more viable option than the 25 or so Greenfield refineries that we’ve been expecting for donkey years now. Indeed, we live in times when threats of non-renewal of oil mining licences by the Federal Government of Nigeria fails to move even a single IOC to make serious commitments towards local refining. After all (as wikileaks reveal) Shell has seasoned people in every major department of the Government of Nigeria.
The truth is that (and I have said this quiet often) no one is in a hurry to build any refinery in Nigeria. While the way we price our petrol (PSF or Subsidy) is a militating factor, there are even more serious clogs. The excess global crude oil refining capacity is one. Christof Ruehl, Chief Economist at BP Plc. was reported recently as saying;
There has been a rise in unused refining capacity globally to about 20%, which is likely to last through 2030 now that demand from Organization of Economic Cooperation and Development Countries has peaked...
Refiners all around the world are battling with ever shrinking margins. Additional refining capacity in traditional consumer areas is therefore no joking matter for them. Most of the people to whom we run for establishment of local refineries already have interests in overseas ones which could be prejudiced. Here then lies the difficulty being experienced by Nigerian entrepreneurs in sourcing foreign financing for private refineries. Simply put, your landlord will never build a house for you.
The Solo Way
The logical route out of the above problem would have been to download some Do it yourself or Dummies guide to refining books off the internet and get on with the business as architects of our own destiny. But then, construction of refineries is very capital intensive. Yet again, the track record of our very own NNPC in this area is not such as to warrant the committal of another 10 kobo to it; if its proposal is to go solo. So where do we go from here?
Coming to Brasilia
The details of how exactly the NNPC seeks invest in Petrobras’s plan to expand its refinery in Texas, U.S., from 100,000 barrels to 200,000 barrels per day are yet unknown. However, statement s made by the corporation’s Group Managing Director can afford us a rough guess. Mr Oniwon said:
We indicated to them our interest to partner with the company to have an outlet into American market instead of exporting just crude to the American market. We can take Nigerian crude, which is also going into American market anyway, into this refinery, process and sell as value added product into the American market.
From the above, my guess is that NNPC’s proposal is some kind of Crude for Stake arrangement with Petrobras. If this is the case, then I think it is a win-win (at least in terms of earnings to the NNPC). Now before you reel out the litany of how this arrangement does nothing in aid of energy insecurity in our country, please consider what the alternative would have been. Surely, another proposed brand new refinery in say Akpabuyo Cross-River State will not do much in that regard either. The NNPC already has 10s of such utopian agreements and MOUs with a host of people.
I’ve got you babe
The choice of this particular refinery in Texas may also have been strategic. Petrobras acquired 50% stake in it in 2006 and from the outset nursed intentions of expanding its capacity. However a 2008 arbitration award forced the Brazilian company to acquire 100% of the refinery from Astra, its estranged partner at the time. It may very well be that the chunk of cash required for total takeover of the refinery made the Petrobras a bit more perceptive of the NNPC’s proposal.
And it’s a wrap
If you listen to rap music, you must have heard Jay Z say:
I was dealt a bad hand so what else could I do? …but keep something up my sleeves to help me through.
I think the Brazilian connection was as good a bargain as the NNPC could have gotten in today’s world circumstances. Considering that building of new refineries involves a lot of money and also creates relatively few jobs, this was worth the taking. I may be wrong but only time will tell.
