Adewale Sanyaolu
The Federal Government’s failure to turn around its ailing refineries has caused an 18 per cent decline in production capacity.
The abysmal performance of the refineries is contained in the latest monthly financial report (April edition) released by the NNPC.
The report indicated that Premium Motor Spirit (PMS) popularly called petrol and Dual Purpose Kerosene (DPK) production by the domestic refineries in April 2018 dropped to 125.86 million litres compared to 153.37 million litres in March 2018.
In all, the three refineries produced 252,843 metric tonnes (MT) of finished Petroleum Products and 177,976 MT of intermediate products out of the 127,476 MT of crude processed at a combined capacity utilization of 7.00 per cent, compared to 14.41 per cent combined capacity utilisation achieved in the month of April 2018.
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The decline in operational performance, according to NNPC, is attributable to the downturn in Kaduna Refining and Petrochemical Company (KRPC) during the month, which said the ongoing revamping of the refineries will enhance capacity utilisation once completed.
On refinery economics for the month under review, the report showed that the corporation has been adopting a merchant plant refineries business model since January 2017.
The model, the report stated, takes cognizance of the products worth and crude costs, stating that, the combined value of output by the three refineries (at import parity price) for the month of April 2018 amounted to N33.74 billion, while the associated crude plus freight costs and operational expenses were N20.30 billion and N12.52 billion respectively, resulting in an operating surplus of N0.93 billion
Meanwhile, Shell’s Chief Executive, Ben Van Beurden , has said brent crude at $80 a barrel is not an “unreasonable” price of oil, as it will support investment in oil and gas infrastructure after the downturn.
“We should be able to balance the market at that sort of oil price level, but of course bringing on new production is not a short-term event,” van Beurden said, noting that it takes years for the industry to bring new production online.
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The top executive at Shell said that the oil market is “a little bit tight,” adding that he thinks the industry needs “slightly elevated prices to bring new supply on, which is going to be the main challenge.”
Shell has been working to reduce the cost of its offshore projects, its chief executive told CNBC. The company is building a portfolio of projects that can break even at $40 per barrel, he noted.
Earlier this year, Shell, a major player in the U.S. Gulf of Mexico, said that it had started early production at a deepwater subsea development in the U.S. Gulf of Mexico, a year ahead of schedule and at a forward-looking, break-even price of less than $30 per barrel of oil.