Nigeria: Positioning Nigeria As Reliable Supplier, Mele Kyari Sees Beyond Current Crisis

9 April 2020

Managing Director of Nigeria National Petroleum Corporation (NNPC), Mr. Mele Kyari, yesterday said Nigeria would remain in production despite the prevailing below-the-cost-of-production price of oil in order to strategically position itself as a reliable global supplier of the product.

In fact, he said, it would even be more profitable to borrow to sustain the level of production, knowing fully well that the current situation of negative impacts of COVID-19 and the price war between Saudi Arabia and Russia would blow away, after which the oil price would be on the upward swing again.

Kyari, while fielding questions on 'The Morning Show,' a breakfast programme on Arise Television, THISDAY Newspapers' broadcast arm, also faulted projections by some experts that crude oil, the mainstay of the country's economy would no longer be relevant in the future as the world shifts to non-fossil fuels as its major source of energy.

He unfolded plans by NNPC and its first partner for the condensate refinery project to take the Final Investment Decision (FID) by June or July this year.

In addition, he said the demand for Nigeria's crude oil had dropped by 6.8 million barrels at the international market, while the corporation was prescribing the adoption of the LNG business model and structure in the running of the nation's four refineries for efficient and effective performance and transparency.

Speaking on the concerns about the rock bottom price of oil, Kyari said Nigeria was not alone in the crisis, pointing out that even Saudi Arabia and Russia, as well as Canada were battling with the situation.

He said the Saudis have had to give a massive discount around $10.2 to sell off their cargoes.

In the case of Canada, he said, its oil had to be pushed out not just for free but with a tip for the buyers.

"But it is also an opportunity for us because if you are able to expand your capacity to produce more within this period, even if at lower prices, even if it is below cost, ultimately it places you in a position in the market, where tomorrow, people will rely on you as a reliable supplier of the petroleum that the whole world requires in time to come. Therefore, you are taking a position in the future by losing today," he explained.

But he argued that by taking that option, Nigeria would not have lost completely.

According to him, "This is because there are many things you can do to make sure that the revenue stream support what you are doing, which is by cutting down your cost; slimming down your projects so that the one you can push forward, you push forward. So, you reduce your cost and move your priority to the asset that produces at a lower cost."

The national oil company boss argued that the ultimate that everybody would do in this kind of situation would be to borrow.

His argument: "Of course the ultimate that everybody does is to borrow. And you borrow so that you can fill this gap of today believing and consciously thinking that tomorrow would come; that tomorrow would bring higher oil prices that will cover for the price of the borrowing that you have done today and the cost of the losses of today."

Nigeria's Oil Not Threatened by Non-fossil Fuels

Acknowledging the projection by the International Energy Agency (IEA) that crude oil would not be relevant as an energy source by 2040, he, however, added that other experts had projected that oil would still serve 70 per cent of global energy needs by 2050.

On the future of oil, Kyari said: "I don't want to dispute what IEA said but I know that there are other assessments by several other organisations and institutions, which, if you look at the average views of all of them, you'll see that by 2050, fossil fuel will continue to be the source of energy.

"In the energy mix, it will constitute about 70 per cent. This means petroleum will be relevant in 2050."

He added that only companies or countries that would be able to deliver fuel in the best cost effective way would remain in business by then.

Kyari also stated that NNPC has five condensate refinery initiatives with estimated combined production capacity of 200,000 barrels per day.

According to him, such kind of refinery could become operational within two years.

He explained that the condensate refineries would complement the upcoming Dangote Refinery as well as other refineries in the country under rehabilitation, with the hope of guaranteeing energy security for the country.

He said: "We are doing something about what we call a condensate refinery. What that means is that the condensate resources that we have, which are very easy to convert to fuel, not like a typical refinery but it does work very quickly; and then we can also convert up to 90 per cent of the feedstock into, for instance, the light petroleum products.

"We have gotten commitments by one of our partners to take FID in June or July, so that we know that we are doing that because it is almost like the off-the-shelve kind of arrangement.

"But it is something that you can get into work in two years. So, we have four other initiatives of that nature with a combined capacity of probably getting 200,000 barrels condensate. The combination of that with the Dangote's 650, 000 barrels per day and our refineries that we are fixing can guarantee energy security for us.

"So, once you have such opportunities, you will see Nigeria becoming a net exporter of gasoline (petrol) to the West African countries, the whole of Africa within our view and probably reverse the flow of products because it comes from Europe not because Europe is the source of petroleum but because the processing facilities are there.

"And once you see these market dynamics, the only thing that is going to reverse is freight. And you can see the flow of petroleum products coming from Nigeria even into Europe, that is possible within the short term."

Kyari, who expressed displeasure over the low production of the refineries in the country, said the corporation has decided to take a different look at them.

He said for over two decades efforts had been made by successive administrations and corporation's management to rehabilitate the refineries without success.

He attributed such failures to the fundamental problem of not knowing what the problems were with the petroleum facilities.

According to him, NNPC has discovered what was wrong with Port Harcourt Refinery, which was never addressed, and has secured the finance to fix it.

He added that NNPC would shut down all its oil refineries as it works to secure funding and a model to upgrade them.

"Today, after proper scoping, which was not done in the past, we know exactly what to do to get them back on stream," he stated.

Kyari said the oil industry would look to cut costs and extend payments wherever possible to survive oil prices that hit 18-year lows late last month.

Kyari said NNPC was pursuing "a different model" for the refineries, including the type used by Nigeria LNG, which is run by international companies such as Shell, Total and Eni alongside NNPC.

He explained that NNPC was prescribing the adoption of an LNG-business model and structure in the running of the nation's refineries, adding that with that, the private sector players would be the main decision-makers and not NNPC.

He said: "And on the basis of that, we have also secured finance for getting it done; and on top of that we are going to have an O & M (operation and maintenance) contract, NNPC won't run it. We are going to get somebody who will give us a guarantee that this will run for a period of time on the basis of a fee.

"Let's try a different model of getting these refineries to work. We are going to apply the same process to the other two refineries so that at the end of the day, and once we are done with the fixing on the basis of full scoping, we will get a private partnership to put their money into it, and ultimately, we will allow the shareholders to decide what they want to do with it.

"Our prescription will be to make it the LNG kind of structure where there is clear ownership of the private sector in these refineries; where decision making does not rest with NNPC and where any process that is world-class is allowed to come into play."

The NNPC boss, however, dispelled any notion that Nigeria's economy and revenue were tied to the outcome of today's OPEC+ meeting with Saudi Arabia and Russia as the main actors, saying: "We are re-balancing our expectations to the crude oil price as if we are going to have it even at $30 in the year."

He expressed optimism that Nigeria would survive the crisis of oil price fall through cutting of cost and changing of strategies about what it does with petroleum.

"So, I am not sure it is connected in any way to what could be the outcome of tomorrow's (today's) meeting. It will be a good thing if the meeting comes up with some form of intervention and code that will enable the rebound of crude oil price to above the level of $57.

"Even if that doesn't happen, and we are not expecting that there will be full recourse to that balancing by tomorrow's meeting, because the build-up to the stock took a time, and then the recovery of demand will also take time.

"So, it is not something that you will see the immediate effect today. Even that taken into consideration, we know that this country will survive this crisis through the cutting of costs and changing of strategies about what we do with petroleum."

Demand for Nigeria's Oil Drops by 6.8m Barrels

Kyari said the demand for Nigeria's crude oil in March dropped by 6.8 million barrels due to the COVID-19 pandemic.

Speaking yesterday when he appeared on Channels Television's Sunrise Daily programme, Kyari said the drop in the demand for oil was a global trend that was not peculiar to Nigeria.

Assessing the performance of Nigeria's crude oil at the global market, Kyari said: "Well, it is doing badly but it is improving. Last week, it went down to close to $15 per barrel but as I speak this morning, we are at $32.79 to a barrel.

"So, we think with all the engagements going on, countries going back to work like in Europe, it means consumption will come back, demand will rise because we have lost about 6.8 million barrels of demand in March alone.

"And when things come back, the market will balance and make sure that the market recovers. I am sure you are aware of all the engagements that have gone on internationally with OPEC, producers and the partners to make sure that there is a balance."

See What Everyone is Watching

More From: This Day

Don't Miss

AllAfrica publishes around 800 reports a day from more than 140 news organizations and over 500 other institutions and individuals, representing a diversity of positions on every topic. We publish news and views ranging from vigorous opponents of governments to government publications and spokespersons. Publishers named above each report are responsible for their own content, which AllAfrica does not have the legal right to edit or correct.

Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica. To address comments or complaints, please Contact us.