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Algeria in talks with Nigeria, Angola over oil price slump

By on March 19, 2015

As OIL PRICES head south with rising inventories in the US, Algeria’s Energy Minister Youcef Yousfi has opened up discussions on possible responses to the continued decline in OIL PRICES with fellow Organisation of the Petroleum Exporting Countries (OPEC) members Angola and Nigeria, according to Algeria’s state news agency APS.

Already, low OIL PRICES, the Minister of Petroleum Resources, Mrs Diezani Alison-Madueke, also warned on Tuesday, might derail Nigeria’s production and reserves targets of four million barrels per day and 40 billion barrels, respectively, by 2020.

Fears of a mounting oil glut amid resilient US oil production and brimming inventories have driven OIL PRICES down in recent days–after they were already halved since last June.

Yousfi met his Angolan counterpart, José Maria Botelho de Vasconcelos, and Nigeria’s ambassador to Algeria Haruna Ginsau “to consider the possibilities to consolidate cohesion between the exporting countries so as to find a joint solution to this situation” of lower OIL PRICES, the agency said late Monday, without providing details.

The three countries, which need oil prices to be much higher than current levels to cover their spending, were part of a group that advocated a reduction in production at the last meeting of the OPEC in November.

But another group led by OPEC swing producer Saudi Arabia convinced them to maintain the organisation’s output to protect their market share.

But as Nigeria and other OPEC producers discuss strategies that could help shore up their countries’ revenues, the Dangote Group, controlled by Africa’s richest man, may list an oil refinery that it is building in the Lagos Free Trade Zone (LFTZ) once it becomes profitable, reported Bloomberg.

Development of the facility, which will be able to process 500,000 barrels of crude a day, should start in a few weeks, Dangote Group Stakeholder Relations Director, Mansur Ahmed, said in a speech read on behalf of group president, Aliko Dangote, at a conference in Cape Town, South Africa.

The plant will be situated in the commercial hub of Lagos, and the company sees opportunities to export fuel, he said.

While Nigeria is Africa’s top producer of crude oil, it relies on imports to meet more than 70 per cent of its needs. Four state refineries with a combined capacity of 445,000 barrels a day are operating at a fraction of that because of poor maintenance and ageing equipment.

In September 2013, Dangote said it had agreed on a $3.3 billion loan with 12 Nigerian and foreign lenders to build the refinery as well as a petrochemical and fertiliser complex costing a total of $9 billion.

At the time, the facility in Africa’s biggest economy was expected to have capacity of 400,000 barrels a day. The plant is expected to come on-stream in late 2017 or the first half of 2018, the company said in November.

Dangote will use equity and debt to pay for the refinery, Mansur said.
The company plans two sub-sea pipelines that will deliver crude to the facility.

The group owns Dangote Cement Plc, the country’s biggest company by market value, Dangote Sugar Refinery Plc, Dangote Industries Ltd. and Dangote Oil Services Ltd.

Aliko Dangote is worth $12.9 billion, according to the Bloomberg Billionaires Index.

Meanwhile, the Minister of Petroleum Resources has stated that lower oil prices might derail Nigeria’s production and reserves targets of four million barrels per day and 40 billion barrels respectively, by 2020.

This came as the Vice-President of Shell Upstream International, Mr. Markus Droll, called for a more effective counter-strategy against oil theft and sabotage, saying that the level of crude oil theft and pipeline sabotage witnessed in Nigeria is not witnessed in any lawful environment.

Speaking yesterday at the ongoing 2015 Nigeria Oil and Gas Conference in Abuja, the minister challenged oil and gas industry operators to revise funding for projects in order to meet these targets.

According to her, this calls for radical changes in the cost environment, improved contracts in project management and innovative financing mechanisms.

The minister noted that most analysts had advised that as an oil producer, Nigeria should brace up for an extended period of lower prices and increased price volatility.

She said the resulting effects are that companies are slashing capital spending in 2015 in response to this dramatic collapse in oil prices.

Citing statistics by Wood Mackenzie, the minister stated that relative to 2014, a total of $120 billion, about 24 per cent, had been cut from the 2015 upstream budgets of some 116 companies, adding that this could go up to as much as 40 per cent.

“However, in the event of a moderate oil price recovery, we would still require innovative funding and greater private sector involvement across the hydrocarbon value chain.

“Nevertheless, at high oil prices, we must maintain prudent and an incentive-based fiscal environment that will prevent the return of high cost of production currently experienced in our industry today,” she said.

She said the passage of the Petroleum Industry Bill (PIB) would remain critical, adding that the government was committed to ensuring clear and transparent fiscal rules of general application with appropriate incentives to investors and commensurate economic returns for the country.

According to her, Nigeria’s commitment to fiscal stability in its oil and gas sector remained unflinching especially as “our historical antecedents clearly demonstrate this”.

“The current market reality of low oil prices presents an opportunity for us to improve efficiency in our operations and as we deliberate on this and other issues in this year’s conference, I will like to assure you of Nigeria’s commitment to a vibrant oil and gas industry,” she said.

Also speaking, Droll stated that many of the challenges he had highlighted in last year’s conference were still prevalent in Nigeria.

He said the Nigerian oil and gas industry needed better funding and better security for workers, adding that oil theft and sabotage had become a bigger problem compared to a year ago.

Droll said Shell routinely replaced damaged pipelines and also repaired theft points in 2014, stressing that this was a problem that is unique to Nigeria, with no other operating environment even coming close.

“Oil theft remains a complex issue that will require sustained, multi-stakeholder measures on a number of fronts to arrest and ultimately reverse.
“I have always been of the view that together as an industry with support from government, we can succeed in turning this problem around.

“Nigerian oil and gas industry personnel are working hard, and at the same time managing considerable risks, in order to play their part in the continued development of this country.

“As an industry, we must ensure better security. This remains a concern for many of us on a daily basis. Over the years, the industry has learned and adapted well to security threats, but we have done so at great costs.

“This is not sustainable, as both our development and operating costs are higher than in many other operating environments globally, due to security threats,” Droll said.

Droll also stated that fiscal stability and predictability were crucial as government revenues should be forecast reliably, adding that investors in Nigeria faced very tough conditions.

He said Shell was concerned about what impact much lower oil prices would have on 2015 funding.

According to him, the industry needs better funding for capital projects and to clear pending payments and expenditure.

 

[ThisDay]