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Market Watch Nigerian Oil Crisis: Ongoing Problems in the Niger Delta Offer Investment Opportunities
Market Watch Nigerian Oil Crisis: Ongoing Problems in the Niger Delta Offer Investment Opportunities 
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| Nigerian Oil Crisis: Ongoing Problems in the Niger Delta Offer Investment Opportunities |
| Friday, 24 August 2007 | ||||||||
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It is now very unlikely the NNPC will meet its own target. And the NNPC’s problems don’t end there. Nigeria is experiencing a huge refining problem as well. Two refineries, Wari and Kaduna, are completely closed. A third is running at only 38%. Currently, there are only four refineries in Nigeria. But a slew of applications has just hit Nigeria’s Department for Natural Resources. Twenty-six independent companies have applied to build refineries. The NNPC is already in talks with the majors: Exxon Mobil (XOM:NYSE), Chevron (CVX:NYSE), Total S.A. (TOT:NYSE) and Agip, a subsidiary of Eni SpA (E:NYSE).On the table are two refineries with a 200,000 barrel-per-day (bpd) capacity. It is unclear whether these majors have had to pay the deposit those other 26 companies are being forced to pay. The Department for Natural Resources has imposed a $1 million deposit for every 10,000 bpd capacity for proposed refineries. In other words, those 200,000 bpd refineries would cost $20 million a piece -- a small security deposit for these majors, but still… The companies are promised their deposits back within 18 months of when the proposed refineries are built. There is a caveat that might hold some companies back, even in the best of conditions, and the Niger Delta is far from being in the best of conditions: The companies must complete the refineries on schedule. The country’s existing refineries have been plagued by corruption, violence and a lack of regulation. In fact, the government has failed to refine even 50% of production. So there are a lot of obstacles for new refineries to overcome just to stay up and running, let alone get their deposits back. In spite of all this turmoil and possible impediments, companies really have been clamoring for business in Nigeria. The OPEC producer is Africa’s top producer and exporter. The U.S. gets 15% of its oil imports from West Africa, and that means a significant portion comes from Nigeria.It’s no wonder that all our major oil producers have staked claims off Nigeria’s oil-rich coastline. Even with 25% of its oil production shut in due to violence and terrorism, companies worldwide are signing up to compete for concessions. In the U.S., you’ll recognize names like Exxon Mobil, ConocoPhillips (COP:NYSE), Hess Corp. (HES:NYSE) and Kerr-McGee (KMG:NYSE). But producers are just the tip of the iceberg. You’ve got service companies, pipeline companies, offshore drillers, and on and on… And this isn’t just a U.S. party. Like I said before, companies worldwide are getting their hands dirty in Nigeria. From African nations, like South Africa and new OPEC member Angola; to Asian nations, like South Korea and Malaysia; to more than a dozen European countries. The international appetite for Nigerian oil has not been diminished. And now that Nigeria is calling for an overhaul of its refinery industry, the number of new proposals is growing. This offers some great investment opportunities. Besides the majors I’ve already mentioned, keep in mind some smaller services companies. Particularly if they provide parts. One of the main reasons for Nigeria’s refinery problems has been lack of maintenance.Of course the main problem behind that was when the government in 1994 decided to cut NNPC’s take from the domestic sales price of refined products. What resulted was a crash for refiners who responded by halting maintenance.
The long and short of it? Companies that provide parts and/or maintenance services will benefit handsomely from the expansion in Nigeria’s refinery sector. S.R. Nunnally Editor, Commodities & Resources Report Taipan Financial News Source : TFN
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