Energy
NNPC GMD says recent oil price surge is cosmetic, driven by sentiments
The supply will overshoot the demand in a short time and we will likely slide to where we were in early March 2020.
For every Nigerian rejoicing over the recent oil price surge that it would boost the nation’s economy and affects lives of citizens, the Group Managing Director of Nigeria National Petroleum Corporation, Mele Kyari, has a word for you.
Contrary to the assumption of several critics that surge is largely driven by the increasing demand for the ‘Black Gold’, the NNPC boss argued that the prices are only driven by sentiments and not demand as speculated. Kyari disclosed this at a weekly programme tagged ‘Half-Time Talk’ organised by Gulf Intelligence, a United Arab Emirate based communication and research firm on Wednesday.
Kyari, who also represented Nigeria at the OPEC meeting held last weekend, explained that it is very obvious that the crude market would not achieve balancing earlier than 2021 and forecasts state that the world may still have over 79 million barrels excess supply by the end of the year.
What it means: He insisted that the market would not rebound until some people do certain things to hold on to the production of the commodity, as that is the only way to bring the supply down. According to him, the price shift witnessed in the last 10 days is indicative of the response to the cut and some development seen in the market.
READ MORE: Non-Performing loans hit 4-year low as Banks recover N496 billion
He said, “Everyone should know that it is not sustainable as long as the production level remained at the Pre-COVID range. The supply will overshoot the demand in a short time and we will likely slide back to where we were in early March 2020.
“The recent drive we have seen in the price of crude is largely driven by sentiments than demand because we have not seen the significant rise in the demand. There is no 100% conformity with the cut and that means that the volume is still there. The price jump appears cosmetic to me and if we don’t contain the supply, we could slide to the early March price level.”
On whether Nigeria has conformed to the cut agreement or not, Kyari disclosed that the nation has not fully conformed to the oil cut by the end of May but said it would be the end of June. On the reasons Nigeria could not conform, he said,
“The reasons are very different. Managing reservoirs in Nigeria is very different from other jurisdictions. You have to have a plan around the wells and if you pull them down at the same time, you may not be able to recover them. Looking at the last 10 days, we have gone below conformity, which we are still trying to manage. It is a gradual process to cut down by well and reservoirs levels. We know that the current numbers we are seeing today will take us to conformity by the end of June.”
He added that meeting the cut deadline would be easier for the nation, as her oversupply stands at a little less than 100,000 per barrel, which Kyari said is not really significant. He also assured that the nation does not need more cuts in July and August to balance up for May and June.
READ ALSO: Nigeria explains when it will fully comply with OPEC+ output cut
Meanwhile, OPEC+ after its weekend meeting agreed to extend the current output cut of 9.7 million barrels per day till June. The latest agreement by the 23 nation alliance is hinged on promises from Nigeria and the other non-compliant members to make up for their past disregard of their oil output quota.
It would be recalled that Nigeria’s Minister of State for Petroleum, Timipre Sylva, has stated earlier that the country implemented only about 52% of the designated output cut in May when it pumped 1.613 million barrels per day.
Nigeria had earlier reaffirmed its commitment to OPEC+ new deal on the extension of the first phase of output cut of 9.7 million barrels per day. They promised to continue to collaborate with other OPEC+ member countries to come up with measures that will help rebalance and stabilize the oil market.
Energy
Plan to overhaul Nigeria’s Power grid attracts investors – Siemens
The project is aimed at achieving 25,000 megawatts of electricity in the country by 2025.
German engineering giant, Siemens, said its multi-billion dollar deal to revamp Nigeria’s Power infrastructure has gained the interest of investors.
This was disclosed by the company’s Nigerian CEO, Onyeche Tifase, who also noted that Siemens aims to implement similar strategies it used in Egypt that saw electricity generation in the North African country grow by over 40%
The Backstory: Nairametrics reported last year that Nigeria had allocated the first N61 billion for its Electrification Road Map in partnership with Siemens AG. This followed a July 2019 agreement between both parties.
The Nigerian electrification project has three phases. The project is aimed at achieving 25,000 megawatts of electricity in the country by 2025.
In May, President Muhammadu Buhari directed the Ministries of Power, Finance, and the Bureau of Public Enterprise (BPE) to conclude the nation’s engagement with Siemens AG over the regular power supply.
Last month, Nigeria approved the sum of N8.64 billion as part of counterpart funding for the Presidential Power Initiative (PPI), which is also known as the Siemens Project. The PPI funding structure includes:
- 85% from a consortium of banks, guaranteed by the German government through credit insurance firm, Euler Hermes.
- 15 % of FG’s counterpart funding.
- 2–3 years moratorium.
- 10–12 years repayment, at concessionary interest rates.
Tifase said that the project would upgrade existing power substations and install distribution lines and transformers to Nigeria’s electrical grid, adding that the project has made potential foreign investors see investment opportunities in Africa’s largest economy.
“Our ability to deliver all the automation of distribution, transmission and generation has boosted investors’ confidence.
“Oil and gas companies that had stepped back because of a lack of benefits are reconsidering,” she said.
Nigeria losses 2% of its annual GDP to power failure. Siemens plans to upgrade Nigeria’s transmission capacity to 7,000 megawatts in the first phase of the project as the World Bank also approved a $750 million loan in June to finance efficient metering of Nigeria’s grid.
Apart from the World Bank, the project is also financed by German banks including Deutsche Bank and Commerz bank with supervision from the German government.
Energy
NNPC opens bid for repairs of pipelines and depots on a finance and operate basis
The project is expected to be operated on a public-private partnership basis.
The Nigerian National Petroleum Corporation (NNPC) declared open on Tuesday, August 11, bids by interested private investors to repair the pipelines and depots that are serving the refineries.
These pipelines, built almost 4 decades ago, are very critical in the successful movement of crude oil to the country’s 3 refinery complexes located in Port Harcourt, Kaduna and Warri, and the subsequent movement of the finished petroleum products to the consumers.
The pipelines, which according to NNPC are in dire need of comprehensive repairs, have experienced years of incessant theft and vandalism as well as ageing.
READ MORE: Refinery operations still loss-making: Capacity utilisation of the four refineries still 0%
This project is expected to be operated on a public-private partnership basis as the bidders are expected to finance and execute the project, then operate for an agreed number of years before transferring back to the NNPC. In other words, the bidders for the extensive repairs of these pipelines would have to finance them independently and operate for a defined period in order to recover their investment costs with throughput tariffs.
It must be noted that this model is similar to the one that had been in place by the state oil giant for the refineries. The NNPC had also announced plans to get private investors to invest in the repair of the 3 refineries on a repair and operate basis, as they do not want to be involved in the management of these refineries.
The NNPC Group Managing Director, Mele Kyari, had said that the ultimate plan for these refineries was to allow it to run on the LNG model, where the shareholders would be free to decide on the fate of these refineries going forward.
READ MORE: NNPC states why it failed to fix refineries, to build 200,000 capacity refinery
The refineries, which have only run sporadically, were shut down by NNPC earlier this year while awaiting repairs and upgrade. These 2 projects are expected to be handled separately according to information made available on Tuesday.
In addition, the new pipelines would need intrusion detection systems, as well as deep burial, to stop theft or vandalism. The deadline for the submission of these bids is due by September 18.
Commodities
Five oil majors reduce value of their assets by $50 billion in Q2
Energy demand at one point was down by more than 30% globally.
Five oil majors (including Exxon Mobil and British Petroleum) reduced the value of their assets by $50 billion in Q2, 2020. They also reduced their production rates as the COVID-19 pandemic caused a downward trend in energy demand.
What this means: The cut in asset valuations and reduction in crude oil production by these oil majors showed the depth of damage the COVID-19 pandemic caused on the global energy sector in Q2, 2020.
Energy demand at one point was down by more than 30% globally and still remains below pre-pandemic levels.
READ MORE: Respite for Nigeria as Exxon Mobil and Shell lose $1.8 billion arbitration award
Some of these conpanies’ executives said they took these austerity measures because they expect demand to continue to be on the downward trend in the meantime. This is in view of the fact that people around the world are traveling less, even as many global industries are not in full capacity. The pandemic has already killed more than 700,000 people.
Of those five oil majors, only Exxon Mobil (XOM.N) did not book sizeable impairments, Reuters reported. However, an ongoing re-evaluation of Exxon Mobil plans could lead to a reasonable amount of its assets being impaired, and signal the removal of 20% or 4.4 billion barrels of its oil and gas reserves.
READ ALSO: Oil prices drop to 21-year low as demand and storage crises persist
Oil major BP (BP.L) took a $17 billion hot. It said its plans in the coming years would be a focus on renewables and fewer fossils.
About two weeks ago, Nairametrics reported how Exxon Mobil and Chevron posted their worst losses in modern history, as the COVID-19 pandemic and a glut in crude oil reduced the demand for energy products in the second quarter of 2020.
COVID-19: Russia produces first batch of its newly approved vaccine
Gold prices suffers its worst week plunge since March
Heineken scoops more Nigerian Breweries shares in insider disclosure
Lagos announces additional tax incentives for businesses, individuals
Jumia sees competition from startups in growing African e-commerce market
COVID-19 Update in Nigeria
MTN, CADBURY, UNILEVER record losses, ASI down by 0.15%
Investors cashing in big time, as 95% BTC wallets are currently in profit
GUINNESS, NB, SEPLAT, AIRTEL, UNILEVER record impressive gains, investors gain N82.46 billion WoW
Jumia sees competition from startups in growing African e-commerce market
