After decades of operating in Nigeria exploiting crude oil from its soil, two giant international oil companies, Royal Dutch Shell and ExxonMobil, which own refineries in other parts of the world but have failed to build any in Nigeria, now want to take part in the country’s lucrative oil swap contract arrangement.
The two oil giants’ sudden interest is coming in the wake of a lucrative deal penned between Nigeria’s state oil company, Nigerian National Petroleum Corporation (NNPC) and British Petroleum (BP) that was announced last week. Analysts say both Shell and ExxonMobil were taken by surprise that BP, which has no direct crude oil exploration interest in Nigeria was able to secure the deal when they could have jumped into the fray much earlier.
Bello Rabiu, NNPC’s chief operating officer for upstream said that “Shell and ExxonMobil exited the downstream sector in Nigeria a couple of years ago but they are coming back for this particular arrangement, because it’s an opportunity for them to get crude and sell their products to the refineries.”
Nigeria still imports about 70 percent of its fuel needs, mainly petrol, via swap contracts because its existing refineries operate well below capacity utilization, less than 30 percent and as a result, billions of dollars are spent annually on the importation of refined products into the country. According to the Central Bank of Nigeria (CBN), $36.371 billion was spent on the importation of petroleum products from 2013 to 2017.
However, Rabiu said NNPC hoped in 2019 to emulate savings of around $1 billion seen in 2016 with its crude-for-product swaps, which he said would likely end once the country revamps its refineries.
“If our refineries are back, which we want in the next 18 months, this thing will stop. So, all these things are just stop-gap measures, but the key issue is that we wanted to import at the least cost before our refineries come back onstream,” he said.
NNPC is in the final stages of talks with consortiums including top traders, energy majors and oil services companies to revamp the long-neglected oil refineries in an effort to reduce its reliance on imported fuel.
“It is on track and I believe if we don’t sign a final deal (on the project to upgrade refineries) this month of November we will surely sign in December,” Rabiu said.
NNPC has also extended the existing contracts to June 2019 but several trading sources in the consortiums that include trading houses Vitol, Trafigura, Mercuria and Total and most recently BP said they had requested new price terms.
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