ONGC-Mittal Joint Venture to Build $4 Billion Refinery in Nigeria

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Researched by Industrial Info Resources (Sugar Land, Texas)--ONGC Mittal Energy Limited (OMEL) (Nicosia, Cyprus), a 51:49 joint venture between ONGC Videsh Limited (OVL) (New Delhi) and Mittal Investments Sarl (MIS) (Luxembourg), is planning to set up a refinery at an estimated cost of $4 billion and a capacity of about 192,000 barrels per day (BBL/d). Global energy firm Nexant Incorporated (San Francisco, California) has been chosen by the joint venture company to perform a feasibility study for the proposed refinery. The report is expected by the end of 2008. A steering committee consisting of OMEL and Nigerian National Petroleum Corporation (Abuja, Nigeria) has been formed to formulate the plan and other details of the project in addition to monitoring and tracking its progress.

OMEL and the Nigerian government had signed an agreement in November 2005 that would allow the exploration and production company to undertake exploration activities in return for investment in the country's infrastructure. OMEL had won three blocks -- OPL-285, OPL-279 and OPL-297 -- in 2006. According to the agreement, OMEL had committed to investing $6 billion in a 180,000-BBL/d greenfield refinery, a 2,000-megawatt power plant and a railway line running east to west across Nigeria. Instead of building a power plant and a railway line, the company has chosen to set up the refinery. French oil major Total S.A. (NYSE:TOT) (Paris, France) has a stake in the first two fields and drilling is slated to begin in OPL-285 by July 2009. The third block is currently under scrutiny for irregularities in securing rights for exploration.

Nigeria has a current installed refining capacity of 438,750 BBL/d, but output stands at 214,000 BBL/d. Consistent thefts of oil and gas, improper management, and fire and sabotage have crippled the nation's oil sector. Unable to meet domestic demand, the country imports petroleum products. There is an immediate need to boost Nigeria's domestic refining capacity. The Nigerian government has a vision to boost the production of crude oil to 4 million BBL/d by 2010 from the 2.4 million-BBL/d levels of 2006.

OVL, the overseas investment arm of Oil and Natural Gas Corporation Limited (BSE:500312) (New Delhi), and MIS, a majority stakeholder in global steel giant ArcelorMittal (NYSE:MT) (Luxembourg), had signed an agreement in July 2005 to explore and acquire oil and gas fields, refinery businesses and liquefied natural gas projects in 27 countries across Africa, central Asia and South America distributed over two phases. OVL currently has four oil exploration and production projects in operation in Sudan, Egypt, and Libya in Africa. All the projects are in collaboration with other companies such as China National Petroleum Corporation (CNPC) (Beijing, China). China, state-owned CNPC in particular, is actively involved in many oil and mineral projects in Sudan, Angola, Congo, Liberia, Congo, and Zambia by being a significant investor and player in Africa's economy. The emergence of China in the continent's industrial and infrastructure space is aimed at meeting the former's growing demand for raw materials, natural resources and oil, which are readily available in Africa.

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