Shell Exec Warns Nigeria Against Refinery Building Amid Surplus Capacity

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Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Sugar Land, Texas)--After paying a farewell visit to Nigerian President Goodluck Jonathan, Malcolm Brinded, the outgoing executive director of Shell Petroleum Development Company (SPDC), grabbed the industry's attention by saying to correspondents at Abuja's State House that Shell could not build a refinery in Nigeria because there are surplus refineries around the world. Brinded is also the executive in charge of the Upstream International unit of Royal Dutch Shell plc (NYSE:RDS.A) (The Hague, Netherlands).

Rather than build new refineries, the company is divesting from those in which it has an interest. In the downstream segment, the company no longer owns refineries in the United Kingdom. "One has to look very closely at whether building new refineries is a good investment for anyone--not just Shell, but for countries involved," Brinded said.

Many refineries around the world were running at a loss because of the general surplus of refinery capacity. This means that an oil company can get refined products back, having to pay very little for the oil to be refined, he said.

Brinded also said that building refineries was no longer profitable, a fact that informed Shell's decision to invest in the gas sector. The company will continue to invest in the development of the gas sector in Nigeria.

"Nigeria has huge resources of gas that have yet to be unlocked--and the potential to add to that gas, not only in power but in other ways in the country," he said. He added that there were many opportunities for Shell in Nigeria with greater potential than refining.

As Nigeria, a leading oil-producing and -exporting country, is chronically short of refined gasoline and oil products to serve its own economy and population, the comments from the outgoing Shell executive must have caused some head scratching and disbelief in State House, as it would in other African countries that are mulling over major refining projects as a means to cut their fuel import bills. One group who might be totally supportive of Brinded's views would be the "big men" who are in the grey market import/export business for kerosene, oil products and diesel generators.

For related information, see February 17, 2012, article - Nigeria's Modular Refineries Proposed to Help Reduced Refined Products Import, and January 17, 2012, article - Chiyoda Stalls on Nigerian refinery Maintenance; Government Cuts Petrol Price.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.