Nigerian Official Disputes Shell Executive's Comments on Refining Capacity

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Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Sugar Land, Texas)--Nigeria's Minister of Petroleum Resources, Dyane Alison-Madueke, said that recent comments made by a Royal Dutch Shell plc (NYSE:RDS.A) (The Hague, Netherlands) executive on a global glut in oil-refining capacity were made from a global perspective and did not represent the position of Nigeria, where the minister said more refineries are needed. The Shell executive said that the glut had made new refinery-building projects non-viable and that the company would not be investing in Nigeria.

For related information, see March 7, 2012, article - Shell Exec Warns Nigeria Against Refinery Building Amid Surplus Capacity.

The Shell executive was talking in a global context because of the downturn in the economy, the minister said. Refineries all over the world were operating at a very slight profit margin at the time. It should not be assumed that Nigeria would fail to ensure that its existing refineries would be brought up to at least the globally accepted 89-90% capacity utilization range. "Because whether we like it or not, we must improve and maintain continuous improvement in the ability to refine our own products and supply at least the higher quantum of refined products for the country's use," she said.

The minister ruled out the possibility of building refineries as a pre-condition in the allocation of acreages in the oil and gas sector of the nation's economy. The federal government would instead decide on the required number of refineries the country would need, given their viabilities.

It was not commercially viable to attach the condition that every license granted be attached to a refinery project, she said. "For instance, if you give 25 licenses, we cannot expect 25 refineries to be built," the minister said. "What we are trying to do is to rationally determine the commercial viability and the quantum of refineries that will be needed in the country over and beyond the traditional national refineries and to attract green field investment with private equity and the least government equity involved."

The federal government has given the National Refineries Special Task Force 60 working days to revamp the four refineries in the country but would not force producing companies in Nigeria to go into refining of petroleum products in order to meet local demand. The government also has stated that three proposed Greenfield refineries would be functional by 2017.

Among the task force's terms of reference is a high-level assessment of the Port Harcourt, Warri and Kaduna refineries and the review of all past reports and assessments, as well as the production of a diagnostic report, complete with a "Change Journey Map."

"I am of the firm opinion that based on our proven and potential reserves in the medium turn, Nigerians will like to see at least 10 medium- to large-scale refineries and smaller modular refineries that could be spread to all the zones of the federation," said Dr. Idika Kalu Idika, the task force chairman.

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