Nigeria awards new crude for product swap deals to four refiners - CNBC Africa

Nigeria awards new crude for product swap deals to four refiners

Western Africa

by Reuters 0

Nigeria awards new crude for product swap deals to four refiners. Photo: Wikipedia

Nigerian state oil firm NNPC will award new crude for oil products swap agreements to Total, Varo Energy, Cepsa and ENI, the head of its crude marketing unit said on Friday.

Despite exporting some 2 million barrels per day (bpd) of crude oil, Nigeria is almost wholly reliant on imported gasoline, kerosene and other petroleum products.

The deals, which are expected to begin in February, differ from the former "offshore processing" agreements as they are directly with refineries who can use the crude to produce the oil products the country needs, NNPC's Mele Kyari told reporters.

NNPC's head of corporate planning, Bello Rabiu, said there was no need to budget money for fuel subsidies in 2016, as the country can reduce the cost of imported fuel below the current retail price.

"In the next 12 months, the price of oil will definitely not be high...securing the pipeline systems, removing the corrupt issues and ensuring that we pay only for what we consume...if we can get all these stages done...that will eliminate any call for subsidy in the next few months," Rabiu said.

NNPC cancelled the initial bidding process for crude swap agreements in November, deciding to pick 14 refiners that could process the oil themselves in order to eliminate middlemen.

Varo Energy is a joint venture refining company between global oil trader Vitol and private equity firm Carlyle Group. Cepsa, ENI and Total are all integrated oil companies with refineries in Europe.

NNPC reached interim swap agreements in September with its trading subsidiary Duke Oil and NNPC joint-venture companies Calson, which is with Vitol, and Napoil, which is with commodities trader Trafigura.

These could be extended as NNPC works to finalise the details of the new swaps.

FUEL SHORTAGES

Nigeria's four ageing oil refineries produced nothing in October, despite a goal from the company to produce 30 percent of its own gasoline in 2016.

In addition to the swap arrangement, it also relies on an import subsidy scheme that is itself expensive.

But Nigeria has struggled to make timely subsidy payments to traders due to the sharp drop in crude oil prices that have hammered its revenue, resulting in regular fuel shortages, including for much of the past month.

Rabiu said NNPC would create a new framework for fuel imports that could reduce the cost of delivering gasoline to stations by 10-15 naira per litre, which would bring gasoline below the price cap of 87 naira per litre and eliminate the need to pay subsidies.

"We don't know even what the country consumes...what we have seen, based on figures that were sent to the National Assembly, we consume 50-55 million litres per day. But many people don't believe that's correct," Rabiu said, putting the figure at between 35-40 million litres per day based on monitoring of truck flows.

He added that a vital points in the product pipelines network would also reduce the expensive use of trucks and that the pipeline out of Atlas Cove in Lagos had recently restarted.

Refineries were also expected to re-start and will add some gasoline to the market, starting with Kaduna, which is expected to start ramping up on Saturday and add 1-2 million litres per day of gasoline.

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