OIL TRADING AND EXPLORATION/NIGERIA

 

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TABLE OF CONTENTS

Nigerian National Petroleum Corporation

Nigerian Oil Industry

Nigerian Refined Products

Exploration in Nigeria

Nigerian Natural Gas

Nigerian refineries

Refining in Africa

South Africa

Egypt

Algeria

African Refineries

THE NIGERIAN NATIONAL PETROLEUM CORPORATION

The Nigerian National Petroleum Corporation was formed in 1977 through the merger of some of the departments of the Ministry of Petroleum Resources, and the old Nigerian National Oil Corporation. The Corporation has sole responsibility for upstream and downstream developments, and is also charged with regulating and supervising the oil industry on behalf of the Nigerian Government. In 1988, the corporation was commercialized into 12 strategic business units, covering the entire spectrum of oil industry operations: exploration and production, gas development, refining, distribution, petrochemicals, engineering, and commercial investments. The subsidiary companies include:

• National Petroleum Investment Management Services (NAPIMS)

• Nigerian Petroleum Development Company (NPDC))

• The Nigerian Gas Company (NGC))

• The Products and Pipelines Marketing Company (PPMC)

• Integrated Data Services Limited (IDSL)

• Nigerian LNG limited (NLNG)

• National Engineering and Technical Company Limited (NETCO)

• Hydrocarbon Services Nigeria Limited(HYSON)

• Warri Refinery and Petrochemical Co. Limited (WRPC)

• Kaduna Refinery and Petrochemical Co. Limited(KRPC)

• Port Harcourt Refining Co. Limited (PHRC)

• Eleme Petrochemicals Co. Limited (EPCL)

In addition to these subsidiaries, the industry is also regulated by the Department of Petroleum Resources (DPR), a department within the Ministry of Petroleum Resources. The DPR ensures compliance with industry regulations; processes applications for licenses, leases and permits, establishes and enforces environmental regulations. The DPR, and NAPIMS, play a very crucial role in the day to day activities throughout the industry.

Most of the major oil and gas projects focus on the joint venture operations in which NNPC is the major shareholder, and the deep offshore development program, being carried out under production sharing contracts. All development plans for such projects must be approved by NNPC. There are other projects which the corporation develops primarily in areas of products distribution (pipelines, depots), refining, and petrochemicals. Current projects being handled by subsidiaries of NNPC, include the gas supply pipeline to industries in Lagos, under a major initiative of the Nigerian Gas Company (NGC), and Shell Nigeria Gas (SNG).

NIGERIAN OIL INDUSTRY

The Oil Industry, is the backbone of the Nigerian economy, accounting for over 90% of total foreign exchange revenue. Estimates of the total crude oil reserves  vary, but are generally accepted to be about 25 billion barrels, although new offshore discoveries are likely to push this figure to about 30 billion barrels. 

Current daily production has been limited by OPEC quota reductions in, to about 1.787 million barrels per day, from an average figure of  2.23 million barrels per day in the first half of 2001. As a member of OPEC, the global oil cartel, oil production in Nigeria fluctuates in line with the cartel's response to world oil supply.

Most of Nigeria’s crude oil production, comprising 10 major crude streams (including condensate), is light sweet crude, API grades 21-45, with a low sulphur content. Nigeria's marker crudes on the International oil market are Bonny Light and Forcados. All of the crude oil in Nigeria comes from numerous, small, producing fields, located in the swamps of the Niger Delta, and product is exported through 7 terminals, and a number of floating production vessels.  There are about 606 fields, most with less than 100 million bbls of extractable reserves. Numerous other fields are known throughout the Niger Delta, and some of the marginal fields have become the focus of a longstanding debate over their possible reallocation to small private local companies.

Current Government policy is to raise total reserves to 30 billion barrels, by the year 2003, while daily production is targeted at 3 million barrels.

In June 1999, a new democratically elected government, led by President Olusegun Obasanjo, was inaugurated.  After 3 years in office, the new government has done much to restore confidence in the oil sector.  The oil sector is headed by a special adviser in the office of the president, the former OPEC chief Rilwanu Lukman.  Well respected internationally, his appointment was a major boost of confidence for Nigeria's partners.  A new Managing Director was also been appointed for the Nigerian National Petroleum Corporation, (NNPC) in the person of Gaius-Obaseki.

In 3 years of democracy, there has been a major upsurge in exploration activity in the offshore region of the Niger Delta.  The NNPC now issues reports on operations quarterly, and has commenced a number of initiatives to reduce gas flaring.  The development of major gas projects aimed at ending gas flaring by 2008, has been one of the highlights of the past 3 years in the Nigerian energy sector. 

The industry still has to contend with a number of issues, including community restiveness throughout the Niger Delta.  Despite tha increased revenues to the Niger Delta States, development of infrastructure has been slow, and most of the oil majors have been the targets of continual community unrest.

NNPC PRODUCT PIPELINES

WEST AFRICA PIPELINES

The industry is dominated by 6 major joint venture operations managed by a number of well known multinationals, Shell, Mobil, Chevron, Agip, Elf, and Texaco.  The production concessions are managed through joint venture companies, in which the Nigerian Government, through the Nigerian National Petroleum Company (NNPC), holds about 60% shareholding. The foreign joint venture partners manage the operations, under a joint equity financing structure regulated by a Joint Operating Agreement. All operating costs are financed jointly, by a system of monthly cash-calls. A Memorandum of Understanding (M.O.U.) defines the commercial agreement between the partners and the government.

A small production sharing operation, previously managed by Ashland, has now been taken over by Total.  Apart from the major joint venture operations, a number of private Nigerian firms have been awarded concessions, and most have been involved in the exploration of their blocks over the past 2-3 years. 3 of the firms have commenced production-Amni International, Dubri Oil Limited, and Consolidated Oil.  The government plan to press ahead with more local investment in the oil sector, and have issued directives guiding the development of ‘marginal fields’ comprising small, abandoned fields, which have remained undeveloped by their joint venture partners. Offshore companies have been invited to participate in the development of these fields. 

The last few years have been a difficult period for Nigerian Upstream oil sector-political problems brought on by the hanging of the activist, Ken Saro-Wiwa, cash-call problems with the Government, budget cuts, and the continuing problems with the host communities in the Niger Delta area.  Despite all of this, given the important role that this sector plays in the economy of Nigeria, the business of oil continues.

The new democratically elected government in Nigeria, has indicated their resolve to press ahead with policy objectives to enhance Nigeria's production capability to 4 million bbls/day by the year 2010, and to increase reserves to 40 billion barrels.  A restructuring of the NNPC is being undertaken to ensure that the company can meet these objectives.  Considerable interest is again being generated in the Nigerian oil industry, and a major marketing effort will be undertaken by government in the next 18 months to highlight the opportunities within the sector.

NIGERIAN REFINED PRODUCTS

The refining, petrochemical, and transportation sectors of the oil industry in Nigeria, are controlled by government and indigenous operators, and is an area in which government has made considerable investment over the years.  The downstream sector is beset by a non-commercial pricing environment, and lack of resources to maintain and manage the infrastructure properly. 

The focus of the government's policy on the downstream sector can be summarized as follows:

• To maintain self-sufficiency in refining

• A need to ensure regular and uninterrupted domestic supply of all petroleum products at reasonable prices

• To establish infrastructure for the production of refined products for export.

The oil marketers in the downstream sector in Nigeria are divided into two segments: the majors and the independent Nigerian marketers.   Currently, the independent marketers number over 500, with a market share of less than 30%.

The downstream sector has been a major problem for the country over the past 3-4 years, as the NNPC has found it impossible to maintain the country's 4 refineries, and to provide adequate supply of pms, diesel, and kerosene nationwide.  The NNPC recently completed the 3rd phase of their national pipeline distribution system, however large segments of the distribution system are in urgent need of maintenance.

Two of the country's refineries at Kaduna and Warri, have petrochemical plants which utilize refinery by-products to produce carbon black, polypropylene, linear alkyl benzene, and a host of other products.   It is recognized that for an Olefin-based petrochemicals plant to be viable in Nigeria, it must be developed by cracking natural gas liquids in the Olefins plant.

EXPLORATION IN NIGERIA

The deep offshore zones of the world have long been considered to hold considerable potential.  Within the past 8 years, the developments in 3D seismology and deep drilling technology have made the deep seas very attractive prospects for the oil companies.  Many of these developments are taking place in the Gulf of Guinea, from Angola to the Ivory Coast.

As part of its program to boost the country's crude oil reserves, and increase production capacity, the Federal Government of Nigeria, decided in 1990 to offer for bidding, various deep offshore blocks in the Niger Delta.  Some of the blocks on offer were located in water depths of up to 3,000 meters.  These new concessions were given out based on production sharing contracts.

The concessions attracted a number of major oil companies, including some with production operations in Nigeria.  Some of the successful bidders included Statoil, Amoco, Exxon, and Conoco.  Many small indigenous companies were also awarded concessions.

There has been very keen interest in these offshore blocks, and most of the successful companies have concluded initial seismic surveys and exploratory drilling.  A number of major discoveries have been made, notably Shell's Bonga field. 

Other major finds have been announced by Texaco and Statoil.   It is estimated that the current finds will add about 600,000 barrels to Nigeria's daily oil production over the next 5 years.

These are very exciting times for oil exploration in the West African basin, in spite of the depression in world oil prices. 

NIGERIAN NATURAL GAS

Estimates of Nigeria’s proven natural gas reserves, are approximately 104 trillion cubic feet. Nigeria has the tenth largest reserves in the world, approximately 30% of African gas reserves. Much of this is associated gas, as many Nigerian oil fields are saturated, and have primary gas caps. There is presently no dedicated exploration for gas. About 75% of the associated gas is currently flared off, as no domestic gas infrastructure or market exists, while fiscal terms remain unattractive.  Growing pressure from environmentalists, has now led to increasing utilization of the associated gas, and Shell has committed to ending all flaring of associated gas from their fields by the year 2008.  This has been embodied in the National Gas Policy.

A number of major gas projects are under way, and more are being planned. The largest and most significant of these projects is the Liquefied Natural Gas Project (LNG).  The LNG project, with a development budget of approximately $4 billion, is a joint venture with 4 shareholders- NNPC (49%), Shell Gas (25.6%), CLEAG-(an ELF subsidiary)(15%), and Agip (10.4%). Shell are the technical managers to the project.

The project is being built at Bonny Island, in Rivers State, and will consist of a 2 train liquefaction plant, a gas treatment system, transmission pipelines, a loading terminal and storage tanks. Initial gas supply will be from non-associated gas reserves. Shell, Elf and Agip are all developing projects which will gather gas from their various fields, and the project is expected to process 750 million cubic feet of gas daily.

Other gas projects include the Escravos gas-gathering project developed by Chevron to recover associated gas from its offshore fields. The first phase of the project is completed, and first shipment of liquefied petroleum gas (LPG) was in September 1997. The plant processes 185 million cubic feet of associated gas daily. Engineering studies have recently been contracted for the 2nd phase of the project.  Development of a domestic gas market is also being promoted by a new company, Shell Nigeria Gas.

Another major project currently underway is the development by a Mobil/NNPC joint venture of the Oso NGL (Natural gas liquids). The Mobil Oso field was commissioned in 1992, and produces 110,000 bbls/day of condensate. Contracts for the 2nd phase NGL plant were awarded in 1995. Reserve estimate for the NGL’s is around 350 million barrels. The project is due for completion at the end of 1998.

There are plans for the construction of a Trans West African pipeline to supply natural gas to Benin Republic, Togo, and Ghana. The gas is intended to be used to generate electricity in the three countries, and would require the construction of about 600 kilometres of pipeline. The World Bank has shown interest in providing project finance, and both Shell and Chevron have shown an interest in the project.

Current estimates of Nigeria's oil and gas reserves are about 22 billion bbls. and 3.5 trillion cu. meters  respectively.  However less than half of the country's basinal acreage has been subject to serious exploration.   Current investment in exploration is concentrated in the offshore deepwater zone of the Niger Delta.  A number of finds have been made, notably by Shell, who have  commenced development of their Bonga field located in about 1,000 metres of water.

The Nigerian Government has a declared policy to increase current reserves to 40 billion bbls and daily production levels to 4.0 million bbls by the year 2010.   The oil and gas sector will remain the bedrock of the Nigerian economy for the foreseeable future.  The Nigerian National Petroleum Corporation (NNPC) has put in place a Strategic Investment plan, agreed with government.  The Strategic plan covers both the joint venture operations, and NNPC's own production, refining and distribution operations.

Some elements of the plan include:

• Increase of national crude oil reserves to 30 billion barrels

• Stimulate and promote private sector investment in gas related industries

• Ensure efficient and adequate supply of refined products throughout the country

• Improve on rehabilitation and maintenance of all the company's assets

The Nigerian Government has introduced a number of incentives in an attempt to encourage new foreign and domestic private sector participation in the oil and gas industries:

Tax Holidays

A five year tax exemption will be granted for all new plants, from start of production.

Equity Structure

Foreign private investors can now own 100% of the shares in any venture incorporated in Nigeria.

Guaranteed Export Earnings

Earnings from the export of any local production, will be permitted to be retained in approved export accounts in any country nominated by the investor.

 NIGERIAN REFINERIES

Nigeria has three refineries, all owned by the Nigerian National Petroleum Company, NNPC. The Nigerian government has announced its intention to sell 51% of each of the refineries in 2004.

• Kaduna refinery in northern Nigeria was built in 1980 with a capacity of 5.5 million mt/yr (110,000 b/d). A Lube Baseoil plant was added in 1982, and an LAB plant in 1987. 

• Warri refinery in the south central region was built in 1978 with a capacity of 6.2 million mt/yr (125,000 b/d). A Carbon Black plant and a Polypropylene plant were added in 1986.

• Port Harcourt refinery in the southeast is made up of two refineries, built in 1965 and 1989. In 1993 they were merged into one, with a total capacity of 10.500 million mt/yr (210,000 b/d). The Eleme Petrochemical plant, which was built adjacent to the Port Harcourt refinery in 1995, has an Olefin production capacity of 483,000 mt/yr, a Polypropylene capacity of 80,000 mt/yr and a Polyethylene production capacity of 250,000 mt/yr.

The Nigerian oil industry has been impacted seriously by operational problems during recent years, and production has been below 50% of capacity.

REFINING IN AFRICA

Oil refineries convert crude oil into fuel products, lubricating oils, bitumen and chemical feedstocks.

Prior to 1954 there were no refineries in Africa. All refined products were supplied to Africa from European and American refineries. For many years, Shell and Mobil managed The WARP program for all the marketers operating in West Africa. Under this program, each month Shell arranged a ship from Curacao refinery, and Mobil arranged a ship from the UK. All marketers would request the quantities of each product they needed, and the ship would make a “milk run” along the coast. There was a similar arrangement in East Africa.

In the 50 years between 1954 and 2004 48 refineries were built in Africa. In 1954 the first African refineries were built in Algiers (CFP/Total) and Durban (Socony/Mobil). These were followed by the building of Luanda refinery (Petrofina) in 1958, and refineries in Kenya (Shell/BP), Ghana (ENI/Agip), and Senegal (consortium), in 1963. In the 1960’s refineries were also built in Cote d’Ivoire, Gabon, Tanzania, Nigeria (Port Harcourt I), and Capetown. In the 1970’s, following nationalization of the oil industry in many countries, several state controlled refineries were built, such as Arzew in Algeria, Warri in Nigeria, CORAF in Congo, and SoNaRa in Cameroon.

A final burst of refinery building took place in the 1980’s, including refineries at Warri and Port Harcourt in Nigeria. Whilst there have been a number of modernization projects since then, the only new refineries built in the past 10 years have been Khartoum in 2001, and MIDOR in Egypt in2002.

Even whilst refineries were being built, others were already being closed. In 1966 the Zimbabwe refinery closed due to sanctions imposed during the UDI period. Between 1980 and 2003 a further 10 uneconomic refineries closed permanently.

All the refineries are basically of the topping/reforming type, except for the 4 refineries in South Africa, 2 in Egypt, 3 in Nigeria, 1 in Cote d’Ivoire, and 1 in Ghana, There are also 3 Synfuel plants (coal and gas feedstock) in South Africa. The total active distillation capacity for the continent is around 3 million b/d (15 million mt/yr), an average of 79,000 b/d per refinery.

The largest refinery in Africa is the Skikda refinery in Algeria (300mbd), the second largest the Ras Lanuf plant in Libya (220mbd). In Sub Saharan Africa the largest are the Port Harcourt refinery I and II in Nigeria (210mbd), and the Shell/BP Sapref refinery in Durban (165mbd).

Excluding some specialty plants (remote locations, bitumen) the smallest operating refinery is the 14mbd Solimar refinery in Madagascar, which operates only occasionally. There are several small 20mbd refineries including Sogara Gabon, Indeni Zambia, SAR Senegal and CORAF Congo.

The major refining centres in Africa are in South Africa, Nigeria, Egypt and Algeria.

South Africa has 4 refineries and 3 synfuels plants.

• Caltex has a 5.5 million mt/yr (110,000 b/d) refinery in Cape Town.

• Shell and BP have joint ownership of the 8.2 million mt per annum (165,000 b/d) Sapref refinery in Durban.

• Engen has the 6 million mt/yr (125,000 b/d) Enref refinery in Durban.

• Sasol and Total have joint ownership of the 4.2 million mt/yr (85,000 b/d) Natref refinery in Sasolburg.

All the South African refineries have undergone major expansions and upgrading since 1990.

Egypt has 9 refineries mostly concentrated in the northeast (Cairo, Alexandria, Suez). Egyptian General Petroleum Corp (EGPC) operates all but one of the refineries. The exception is the MIDOR Refinery in Alexandria.

• El Mex refinery in Alexandria is operated by the Alexandria Petroleum Company. It has a capacity of 100,000 b/d, and 22,500 b/d of vacuum distillation capacity. In addition it has a Lube Baseoil manufacturing plant and a Bitumen unit.

• Cairo Petroleum Refining Company in Mostorod, near Cairo. This refinery has a capacity of 145,000b/d.

• The El-Nasr Petroleum Company near Suez has a capacity of 99,300 b/d. It has a 35,000 b/d Hydrocracker and a Bitumen unit.

• The Amiriyah Petroleum Refining Company in Alexandria has a capacity of 78,000 b/d, and a 15,000 b/d vacuum distillation unit. It has a 9,000 b/d Alkylation unit, and a 2,000 b/d lube baseoil manufacturing unit.

• The Suez Petroleum Processing Company near Suez has a capacity of 66,400 b/d, and a 9,500 b/d vacuum distillation unit. It has a 16,400 b/d Delayed Coker, and a 1,000 b/d Lube Baseoil unit.

• The Asyut Petroleum Refining Company near the center of Egypt has a capacity of 47,000 b/d. This simple refinery has a small Naphtha Reformer, and is designed to supply product to the central and southern regions.

• The Tanta refinery near Port Said is operated by the Cairo Petroleum Refining Company. It has a capacity of 35,000 b/d. Other than a small Hydrotreating unit it has no upgrading capacity.

• The El-Nasr Petroleum Company operates the small Wadi Feran refinery on the Red Sea in the Gulf of Suez. It has capacity of 7,000 b/d, and was designed to service operations related to the Suez Canal.

• The Middle East Oil Refinery (MIDOR) was completed in 2002 in the Amiriyah Free Zone, Alexandria. It has a capacity of 100,000 b/d, and has a 35,000 b/d Hydrocracker, a 22,800 b/d Coker, and a 10,700 b/d Isomerisation unit. This is the only privately owned refinery in Egypt. It was originally a joint Egyptian/Israeli venture, but the Israeli shareholders sold out to the Egyptian National Bank in 2001.

Algeria is another major refining centre with 4 refineries.

• Algiers refinery, built in 1964, has a capacity of 60,000 b/d. It was built by CFP/Total to supply the main market. It has no cracking capacity, and no special units.

• Arzew refinery, built in 1973, has a capacity of 60,000 b/d. It was built by Sonatrach as an export refinery. It has no cracking facilities, but has Lube Baseoil (1984 built), and Bitumen units.

• Skikda refinery, built in 1980 (expanded in 1993), has a capacity of 300,000 b/d. It was built by Sonatrach as an export refinery and petrochemical complex. It has no cracking facilities, but has an Aromatics unit (BTX) and a Bitumen plant.

• Hassi Messaoud, a small refinery in southern Algeria, built in 1960, and expanded in 1979, has a capacity of 30,000 b/d.

The 6,000 b/d refinery in In Amenas was shutdown in 1986.

Many African refineries have been forced to close a result of low worldwide refining margins, small local markets, high operating cost (due to small size), and poor yields. Following the World Bank/IMF insistence on market liberalization in the early 1980’s, many of the remaining refineries have faced significant challenges.

AFRICAN REFINERIES