Petroleum Refining: Why Super Majors ‘shunNigeria

Nigeria grew to become a high drawer when she joined the league of crude oil exporters in 1958. With that achievement, Shell d’Arcy, the company that first struck oil, took significant transfer to construct the first Port Harcourt refinery in 1965. After that quantum leap why has not one of the International Oil Corporations (IOCs) otherwise often called super majors together with Shell obtained concerned in constructing another refinery in Nigeria? To unravel what went improper on issues of petroleum refining, importation, subsidy and the attendant inefficiencies, we mustn’t pass over the IOCs lengthy absence in this side of the Nigerian downstream petroleum sector. World PETROLEUM POLITICS.

Find rationalization on find out how to refine domestically, we should be guided by this axiom; that the very best answers are found in asking the most effective questions. Why are the super majors not investing in the Nigerian downstream sector even after they achieve this in non-oil producing client nations? The petroleum trade is divided into two major classes videlicet the Nationwide Oil Corporations (NOCs) and the International Oil Corporations. It’s also segmented into upstream, downstream, pipeline, marine, as well as service and supply. The Upstream is the searching for potential underground and underwater oil and gas fields, drilling of wells and recovering crude oil and, or natural gasoline to the surface. The downstream sector is made up of the processing plants called refineries and sometimes petrochemical plants, distribution and marketing of byproducts.

Our discourse right here is the absence of super majors within the downstream especially because it relates to refining. National Oil Firms and Super Majors Nationwide Oil Companies: They’re petroleum corporations nationally owned and operated by governments. More than half of the world’s reserves are controlled by NOCs. Most world oil provides are from the National Oil Corporations. The development of NOCs in nations with large oil reserves was a struggle to regulate petroleum assets. The highest 10 NOCs in the world are: Saudi Aramco (Saudi Arabia), National Iranian Oil Firm (Iran), Qatar Petroleum (Qatar), Iraq Nationwide Oil Firm (Iraq), Petroleos de Venezuela (Venezuela), Abu Dhabi Nationwide Oil Firm (UAE), Kuwait Petroleum Corporation (Kuwait), Nigerian Nationwide Petroleum Company (Nigeria), Libya Nationwide Oil Company (Libya), and Sonatrach (Algeria). (Courtesy: Petroleum UK). These NOCs belong to OPEC. There are additionally NOCs which can be non – OPEC. Worldwide Oil Companies: They’re publicly owned petroleum firms not operated by governments. The six largest publicly traded IOCs on the earth a.k.a. tremendous majors are ExxonMobil (Texas, USA), Royal Dutch Shell (The Hague, Netherlands), BP/Amoco (London, UK) Total SA (Paris, France), Chevron (California, USA) and ConocoPhillips (Texas, USA). Market and Value Management We should underscore the point that a cold conflict between the NOCs and the IOCs existed over time. While NOCs management the reserve size of the trade, IOCs tend to regulate both reserve size and the market utilizing technology and experience to manipulate and dominate. NOCs control about 88 percent of the oil reserves while the IOCs management only 6 percent of the reserves. It should however be famous that NOCs perceived management of the reserve size doesn’t translate to giant revenues. Worldwide Oil companies management the price of oil paid to petroleum producing nations.

It was in response to imbalances in the bargaining energy of IOCs that OPEC was based in 1960. OPEC encouraged its members to place extra pressure on Oil Firms to supply more concessions and likewise for NOCs to plot better technique of extracting and refining with a view to cut back reliance on IOCs. Tremendous Majors Subsidy Many governments don’t function nationally owned oil corporations. These governments grant publicly owned petroleum companies subsidies. The reason is that oil is of strategic importance to a nation’s safety. These subsidies are additionally granted by governments not to drive firms overseas. The concern is that residence nations will turn out to be even more dependent than they already are on international nations for oil. So for those governments their oil companies are protected by way of subsidies at home. The United States government for example provides massive subsidies to publicly owned oil firms a tax fee of 9 p.c, properly below the standard 25 percent corporate charge.

NIGERIA AND THE Super MAJORS

Shell struck oil at Oloibiri in current day Bayelsa State on Sunday 15th January 1956 after about half a century of petroleum prospecting within the Niger Delta. The corporate extracted and exported crude and refined abroad. In 1965, Shell constructed the 38,000 barrels per day capacity refinery in Port Harcourt. It was expanded to 60,000 barrels per day after the Nigerian civil war. Nationalisation of Downstream Property and Consequences In 1971, Nigeria was to hitch the Organisation of Petroleum Exporting Nations (OPEC). A requirement was that a rustic should have a fifty one % stake within the industry.

The then military authorities of General Yakubu Gowon promulgated the indigenization decree to extend the participation of Nigerians in businesses dominated by foreigners. With that legislation by fiat, the Nigerian Nationwide Oil Corporation (NNOC) was formed as the Nationwide Oil Firm. The Shell Refinery was then nationalized. One is undecided whether there was a purchase out of the nationalised Shell refinery. That was an albatross round Nigeria’s neck and dimmed the spirit of international oil companies to further spend money on refineries. Before indigenization the Federal Government had limited involvement in the oil trade; just taxes and royalties have been paid by the oil corporations.

Nationalisation might have generated giant amounts of revenue and know-how for Nigeria but the country paid dearly for it. The Nigerian state constructed three more refineries in Warri (1978), Kaduna (1980) and the 2nd Port Harcourt (1989). The Eleme Petrochemical Advanced (1990) now privatised completes the listing. By 1979, the federal government of then Basic Olusegun Obasanjo merged the NNOC and the Ministry of Petroleum Assets to kind what’s now the NNPC to achieve more energy over the allocation and concessions through the NNOC. The NNPC then acquired about 60 percent participation within the oil business; a regime that remains to be operational as we speak. Once more, the Obasanjo administration in 1978 nationalized Shell and BP downstream services as a result of their house authorities help for the defunct apartheid regime in South Africa. Shell was changed to National and BP became AP. That once more may have put the dying knell on IOCs downstream investments in Nigeria. Expertise to explore and develop crude makes IOCs nearly indispensable in Nigeria. If not how can we clarify their heavy investment within the downstream sector in countries which can be net oil importers, and worse nonetheless in non-oil producing consumer nations. Exxon Mobil Company of the United States, the biggest refiner on the earth has no refinery in Nigeria. It owns the ExxonMobil Refining & Provide Firm in Singapore with a refining capability of 605,000 barrels per day capability. That refinery is the 5th largest on the earth. Its refining capacity is higher than our four refineries mixed capability of 445,000 barrels per day. Additionally, Shell the most important player in Nigeria, owns the Shell Eastern Petroleum (Pte) Ltd Singapore with a refining capacity of 462,000 barrels per day. It’s the thirteenth largest in international ranking (Courtesy: OGJ). Possible Options With the legal and regulatory frameworks of decrees, company entities couldn’t enforce their rights.

It turned expedient for international oil companies to operate only within the upstream sector as it’s at this time. Petroleum Industry Bill: The bill to provide for the institution of legal, fiscal and regulatory framework for the Petroleum industry in Nigeria and different related matters otherwise recognized because the Petroleum Business Invoice (PIB) is a approach to go. That bill proposed the establishment of a progressive fiscal framework that encourages additional funding within the industry while optimizing revenues accruing to authorities. The bill additionally proposed a Downstream Petroleum Regulatory Company. It makes the Agency a body corporate with perpetual succession. It means the Company can sue and be sued. CONCLUSION One believes that Nigeria’s nationalisation even when it elevated the revenue base to the nation brought about an issue in that the Worldwide oil firms had been compelled out of the downstream sector. As a solution, we may renegotiate with these oil companies as they’ve the expertise and experience to dominate the upstream and downstream sectors for now. We may tinker and reform our fiscal, legal and regulatory frameworks to accommodate the partnerships we longingly desire with IOCs in the development of refineries.

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