Indian Oil may upgrade Nigerian refineries in lieu of crude

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New Delhi | Published: December 23, 2014 1:02:49 AM

Investment to be directly proportional to oil equity

India’s biggest refining and oil marketing company, Indian Oil Corporation (IOC), may consider taking up modernisation of existing refineries in Nigeria subject to allocation of equivalent oil equity in producing blocks with substantial recoverable reserves in its favour. As Nigeria is a major oil producer and India’s oil security is on priority, it would be a win-win for both the nations.

“The quantum of investment would be in direct proportion to the oil equity. Moreover, investment in the refining sector will be made out of the revenues generated from the oil equity in producing blocks and also when a favorable business atmosphere comes back to Nigeria along with attractive government policy matters,” an official privy to the development told FE.

Nigerian National Petroleum Corporation (NNPC) has four refineries, two in Port Harcourt (PHRC) and one each in Kaduna (KRPC) and Warri (WRPC). The refineries have a combined installed capacity of 445,000 barrels-per-day (bpd). As a result of poor maintenance, theft and fire, none of these refineries have ever been fully operational. In recent years, these refineries have often operated at their lowest levels of just 30% of capacity. New refineries have been planned for several years now, but lack of financing has caused several delays.

When contacted, an IOC spokesperson denied any immediate discussion around developing the downstream sector in Nigeria, but said that since the African country was hydrocarbon-rich, “based on the techno commercial viability, developing downstream proposals could be considered subject to allocation of producing or developed oil blocks having substantial hydrocarbon potential”.

“However, as and when IOC receives any specific proposal from the authorities concerned in this regard, it will look into the same from the business perspective with mutually beneficial terms and conditions. Consultancy service in the area of refining is one of IOC’s core competencies,” the spokesperson said.

Currently, the PSU refiner buys crude from Nigeria. Although IOC seeks larger supplies of Nigerian crude on term contracts, nearly 90% imports are spot market deals. Nigerian crude is preferred under the low-sulphur category for IOC refineries. In 2013-14, the company imported about 8.5 million tonne of Nigerian crudes.

In 2008-09, the term contract volume was increased from 2 to 3 million tonne. Despite IOC seeking higher term volume from NNPC, supplies fell by nearly half over June 2014-May 2015. In addition, in many cases, NNPC supplied only 50% of the contractual volume.

To enhance upstream integration, IOC forayed into Nigeria in 2006 by acquiring a 25% share in Suntera Nigeria 205, which holds 70% interest in the onshore block OML 142. The other shareholders of SN205 are Suntera Resources Holdings (50%) and India’s Oil India (25%). The remaining 30% PI in OML 142 is held by Summit Oil, a Nigerian player, the operator of the block. SN205 is the technical operator of the block and carries out all operations.

IOC’s Servo has already entered the Nigerian market. In 2013-14, the company sold about 518 million tonne of finished SERVO grade lubricants in the country. In 2015, IOC targets to ramp up marketing of brand lubricants in Nigeria.

A win-win

How IOC can help NNPC

*  Technical assistance on refinery upgrades
*  Assistance on turnaround management, plant rehabilitation
*  Specific tailor-made training for operators, engineers
*  Upgrades to aviation fuel supply systems at airports
What IOC gains
*  Allocation of crude supply under term contracts
*  Exports of SERVO grade lube oil to Nigeria
*  Market-finished products through NNPC, in packed or bulk
*  Supply of base oil to NNPC for blending
*  Sourcing gas for upcoming LNG terminal at Ennore

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