INTERVIEW: We Will Get Two Of Nigeria’s Refineries Working By First Half Of This Year—NNPC GCEO, Kyari

The Group Chief Executive Officer of the Nigerian National Petroleum Company Ltd, Mr. Mele Kyari in this interview by GI Consultancy Intelligence spoke on the 2023 outlook for the energy sector, crude oil production in Nigeria and how the National Oil Company is winning the war against crude oil theft and pipeline vandalism. THE WHISTLER brings you Excerpts from the interview…

Where does things stand in the production projection in 2023 and is the challenges of pipeline vandalism, theft is coming under control?

It is very clear from all market analysis that there is a shortage of supplies globally. Nobody is doing much to close those gaps and that is why in the last ten years, there was massive underdevelopment in our sector for very many reasons. Some for economic reason and most importantly associated with energy transition conversation and this was further complicated by the Covid-19 pandemic where investment came very low for people to put their money in this business and we are still seeing the impact of that.

And definitely, for OPEC and global oil industry, and we know for sure that efforts are ongoing to bring back money to the capital, despite all the restrictions that we have seen around the financial sector. Definitely, if you wish to bring back production tomorrow, you cannot do it because that is not how it works.

When you bring money to this industry, we know that there is a gestation period probably 24 months minimum. And at the best of intention, you can’t recover production immediately. Now, minding all the geo-political issues, the war in Ukraine associated to the issues, the net production is declining and companies are making efforts to bring back that production.

In our case, we have different challenge other than just lack of investments in the last 45 years. We have security challenges that became very manifest early in 2022 and of course, we took definite steps to bring back production, and it is paying up. For instance, around July, our net crude oil exclusive condensed sales, came down to over a million barrel and it is the lowest in the history of our economy. And that have been restored because we took various steps to control the issues of pipelines insecurity.

For us, we see a trajectory of restoring production including condensed sectors and within the year, and definitely we believe that we can hit our target of 2.2 million barrels per day but our target is 1.8 million barrels per day but we know that 2.2 is practical.

For us, it is a moving target in a sense that with the best of effort, it is achievable. The OPEC basket among oil production except for few jurisdictions, investment today will not translate production tomorrow.

In 2022 because of drop in production, you could not generate enough revenue, what is the projection going forward giving your Forex reserve, has the fuel system in your country improve?

We did make a difference, remember that subsidy on fuel is a government decision all over the world and many countries do them in different ways. And yes, we have a direct network of value in the pump price of petroleum in our country.

Wherever you have subsidy in anywhere in the world, you do have to manage arbitrage across your borders to your supply chain. For us, NNPC has become a complete private company, governmentally owned, but it is operating like other companies, for example shell, chevron. And our relationship with government today in terms of fuel is on a commercial basis and there is a service level of agreement between us and the government to supply fuel and sell it at the price that the policy decision the government has asked us to do.

It is not a problem for us as a corporate company, it is a value for us and we are delivering products to the country. And we have the sufficient cash flow to supporting this. There is relationship between us and the government and we do not see any challenge minding the fact that almost 100 percent import of our petroleum product are required because of the very fact that we have decided to restore all our four refineries in one sweep and that is the right thing to do and we have a very clear commercial decision to do this.

We know that producing locally brings you close to supply and that remove the case of energy security. Other than that, the key impact is actually threat issues that you have to manage. We are very comfortable in what we are doing now, we do not see any danger in supply to our country and we are meeting all the needs necessary, and we do not have any issues with our suppliers.

So, I don’t see any other challenge moving forward but the subsidy remains the decision of the government.

With all the steps so far taken by the NNPC to boost production, where is the country in terms of oil production in January 2023?

By end of December, we did 1.519 million barrels per day which is not far from 1.8 MBPD, and I have a project that I have a clear line of sight which I am sure of when they can come onboard in 2023. Some construction works on some of our pipelines, we are looking beyond that, and hoping we can escalate that.

In October last year, OPEC took a decision to cut production. Do you think it was a good one in hindsight three months later? Secondly, do you expect this conversation on baseline to happen anytime soon?

First of all, when the production cut was announced in October last year based on the data available that time, it was probably a reaction that was informed by the moment. In today’s context, I am sure it is necessary to sustain such supply. Coming back to Nigeria, we are already selling crude oil in the market, every production we do here today, because we are processing very little part except in a few modular refineries. This means that Nigeria is contributing to the market, in terms of supply of crude oil in the market. Not 100 per cent of that production when is converted to product comes back to the country. Nigeria is contributing despite the fact that our crude oil is 1.5 million barrels per day. When we get back our refineries combine its capacity of 450,000 to 500,000 barrel per day, and the Dangote refineries which we believe will come up on streams by the mid of the year. So, national capacity will be somewhere around 1.1 million barrels per day so you still have a net difference that has to go into the market. When we do this, we exceed our local requirement, we may not be supplying crude oil into the market, literally we are also delivering products into the market. Because there is a reversal of slow sales and that is what is going to happen otherwise net national consumption will not be 1.1million barrels per day.

How is OPEC viewing the change of flow from Russia in terms of its Asian market as a secure demand center, does it give any threat from that?

I do not see any threat, because the production level remains the same, and the market has not rejected production from OPEC member countries, it is really a change of flows. That is really what has happened, because whenever you have political dislocation, just like this Russia-Ukraine crisis, it did have effect of how much was able to leave Russia. But many countries have done marginal increases and because the price is financially high, consumers have also reduced their demands.

So. there is some kind of balancing that has happened naturally due to the factors of demand. This is very obvious and we have not seen any rejection, significant cargos hanging, that means that flow has change into Europe and great bonds are coming to Europe also.

Countries in the Middle-East have not loss their market despite you see flow from Russia into China and India, no significant change has been seen due to this equation.

What is your projection going forward in the demand and supply for 2023, what will be the biggest factor?

One thing is obvious in the market now, you cannot see this level of gallop in prices, in the history of industry, when you see month to month change in prices that are unprecedented, you see losses of $10 in a week and that is abnormal in this market and we haven’t seen this. Therefore, the whole balance of demand and supply, in reality have not been played out. This means that the line around production is limited, and the ability to bring oil production is also limited by various methods of financing.

Therefore, I do not see significant recovery of supply within the next one to two years, this means that you are going to live with this range of prices for a while to come.

Because demand will collapse, because countries are coming back, China is recovering from Covid-19 and some of Saharan African countries are growing, economies are growing very fast against all odds, this means more consumption, within the next one to two years there won’t be any fall in demand. Once demand does not fall and you are not able to bring in new production, it means that you will live with whatever price you see today

What stress are you seeing on the African country in that front, do you think that developing countries can live with $80 oil price?

It is very difficult to predict that, but of course, what happened is that when prices get too high, your demand goes down and it’s very natural. And countries will come in with other approaches to find energy sources and that is very correct. As you may be aware, in subsequent Sub-Saharan Africa, our key fuel for transportation which is petroleum and their infrastructures for railways are very underdeveloped.

Therefore, you are largely on internal conversion agent vehicle for transportation. And you are almost left with no option to probably cut in the frequency of their travel. But ultimately, demand and supply will come into play and all that. And countries will have to live with it. I know a lot of countries having these issues of ability to even import petroleum product going forward and I’m sure we are also aware of this.

Some of the conversation and engagement OPEC has put forward is that there is a need to balance of prices Whenever you have extreme issues around supply, then you just live around the $75 to $80. And of course, this is a key challenge to many African Countries.

You mentioned refineries that are coming up to full function this year, is there any update on that when those will be fully functioning?

Yes, by first half of this year, we will get two of our refineries to start, and the third one will be able to come back by half of next year.