Crude supply to refineries by ships increases cost, says Alison-Madueke

The Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, has explained that the option of transporting crude oil to the refineries by vessels due to vandalism of pipelines has increased the cost of refining the product by $7 per barrel.

This is coming as the Chief Executive Officer of Seplat Petroleum Development Company Plc, Austin Avuru, has raised concern on the high rate of alarm being raised by some operators over crude oil theft.

Speaking on Tuesday in Lagos at the 38th Annual International Conference and Exhibition of the Society of Petroleum Engineers (SPE), Alison-Madueke described theft-related vandalism as the most prominent challenge that is negatively impacting Nigeria’s oil industry.

She said due to vandalism, crude oil supply to the refineries through pipelines had been affected, resulting to the option of crude transportation by ships, thereby increasing the operating cost of refining by additional $7 per barrel.

The minister, who was represented by the Deputy Director of the Department of Petroleum Resources (DPR), Emmanuel Bekee, said theft-related vandalism had “metamorphosed to the current trend and scale from community agitation for resource control, pipeline sabotage to attract contracts for remediation, militant activism and theft of condensate and refined products.

“Due to theft-related vandalism, crude oil supply to our refineries remains constrained, thus affecting uptime and volume. In order to mitigate this anomaly, the option of crude transportation by marine vessel has been deployed thereby increasing the operating cost of refining by an additional sum of $7 per barrel,” she said.

Alison-Madueke also said that the Federal Government is set to grow natural gas production to eight billion cubic feet per day as well as sustain crude oil and condensate production at 2.388 million barrels per day.

She said that supply to the domestic market has been increased in order to reduce gas flaring.

“As part of our strategy to reduce gas flare, supply to the domestic market grew to an all time high of 1,500 million cubic feet per day, of which about 70 per cent was deployed to the power sector and the balance in support of the manufacturing sector such as cement. This ultimately reduced our average gas flare to less than 12 per cent,” she said.

According to the minister: “As part of our resilient effort to boost infrastructure development for gas supply, we have completed and commissioned 150 kilometres of pipeline Escravos?Lagos expansion project and the remaining 250 kilometres section is in advanced stage of completion.

“Work has also commenced on the 120-kilometre East?West OB3 gas pipeline, intended to boost gas supply to the power industry.

“We are continuing with the pilot compressed gas project in Benin with 2,500 cars, mostly taxis, now running on natural gas and many more being converted daily.”

She explained that the government wants to consolidate on the gas supply expansion with an additional 500 million cubic feet per day to support about 2,000 mega-watts of power generation, while continuing with the Ogidigben Gas Industrial Park designed to host fertiliser, petrochemical and methanol plants in Delta State.

“It is common knowledge that the oil and gas industry has been plagued with a plethora of challenges that have negatively impacted on our ability to meet national crude oil production target, loss of revenue to investors, environmental degradation and sometimes loss of lives. The most prominent among these is theft related vandalism leading to significant production deferments, theft and decline in revenue to the investors,” she added.

Also speaking, Avuru raised concern on the increasing claims of crude oil theft and vandalism by some operators.

According to him, Platform Petroleum with its 48 kilometres pipeline recorded only 0.5 per cent theft between January and June this year, pointing out that the theft rate has dropped to zero since July this year.

Avuru further stated that Platform Petroleum has not recorded any single point of vandalism on its pipelines since July. He also disclosed that the rate of theft from Seplat Petroleum pipelines is also not quite alarming.

“So, where are others getting the theft rate of 22 per cent? Is it not in the same Niger Delta?,” he queried.

He predicted that Nigerian independent companies would account for 50 per cent of domestic gas by 2018.

The Seplat boss said with the ongoing divestments of onshore assets by International Oil Companies (IOCs), Nigerian independents are increasingly being positioned to take control of such assets, while the operations of the IOCs would revolve around only offshore assets.

He noted that indigenous operators are already dominating the downstream sector, pointing out that only Total and Mobil are the only IOCs still operating in the downstream.

“By 2018, 50 per cent of domestic gas production to power the economy will come from Nigerian independents. The entire refining space will be with independents. If Dangote is able to build his refinery, a couple of other refineries will follow; either greenfield projects or through privatisation of existing refineries. By 2020, Nigeria’s refining capacity will reach 700,000 barrels per day,” he said.

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