Following the sudden but sustained drop in the price of crude oil in the international market resulting from the collapse in demand due mainly to the coronavirus pandemic, coupled with lack of storage capacity to take up excess supply on the part of most of the major buyers around the world which then cannot be sold on at a profitable price, Mr Oyarekhua, the Chairman of OPAC Refineries, has called for more investment in local refining as a way out of the economic conundrum and to ensure that the country remains resilient post-COVID-19 and beyond.
He said that by encouraging and increasing local refining, Nigeria saves itself the embarrassing situation of chasing crude buyers around the world, and can also eliminate the importation of premium motor spirit (PMS) and other refined products thereby making it possible that the country cuts its foreign exchange exposure.
“We can save a lot of foreign exchange which will be utilized to fund other important sectors of the economy, which will mean that, as a country, we will not be heavily exposed to the international crude or currency politics.
More investment is needed to increase our local refining capacity and the government should provide specific ‘Target Framework’ to further support and encourage local investors in this sector so as to ensure that we produce enough for our local consumption and even for export to earn more foreign currencies while creating jobs,” Mr. Oyarekhua has said.
It would be recalled that, following the outbreak of the COVID-19 pandemic, the world economy had gone into a downturn resulting from the shutdown of economic activities leading to reduced or near absent demand for crude oil. The resultant effect was the drastic fall in the price of crude to nearly USD10 in the international market.
On the back of the crisis occasioned by the pandemic, was the collapse of dialogue between OPEC and Russia over the proposed oil production cut leading to a Russia-Saudi Arabia oil price war in March. Russia’s refusal to reduce oil production to keep prices for oil at a moderate level led to a brutal collapse of prices. This disagreement further plunged the price of oil to a crumpling level of 65% quarterly fall with US oil prices falling at about 34%, Crude Oil fell by 24% and Brent at 24% decline.
Reacting to this development and the anticipated future crisis, Mr. Oyarekhua stated that government increasing and doubling support for local refineries will further reduce the hardship faced by some of the players in the downstream sector of the oil industry whilst ensuring that Nigeria can achieve better consumer-friendly pricing for PMS and other finished products which can be produced locally, he made the argument that, “as a nation, we must boost the capacity of our local refineries and scale the modular refineries to meet the challenges of the future and to also sustain the gains we have made in the oil and gas industry”.
In addressing the question of how his company has been able to manage the impact of the Covid-19 pandemic, Mr. Oyarekhua said “where we operate in Nigeria, we have been in full lockdown for the past five weeks.
The lockdown was relaxed a bit this week, although we still advised our staff to remain at home. We do the best we can from home to look after our business, but the situation is not optimal. Of course, this delayed the test round for the OPAC [Omsa Pillar Astex Company] modular refinery, which was scheduled for the end of March”.
“We are waiting to see what measures the country is putting in place to ameliorate the current challenges and to see if those measures fit into our business model and allow us to schedule a new test round for the refinery. On the other hand, some other important parts of the refinery that were also meant to be integrated got delayed because the related expatriate could not travel to Nigeria here due to port and airport closures.”
“As of today, the modular refinery is about 98% complete. We have some of our technical staff living at the refinery in isolation and doing some work, but the automation and control system will need ex-pat input to be integrated, so that could not be done yet. If the situation normalizes, we should be able to complete the installation of the refinery in no time”.
On how Nigeria can survive Post-COVID-19, he noted that Nigeria is a very resilient country and would most likely come out of the crisis strong, “…but we will have challenges. However, these challenges should be used as stepping stones to make us better and greater than we are today”.
Asked how the government can best support local refining of crude by private investors who already own refineries, Mr. Oyarekhua maintained that the government has a major role to play, first by ensuring the protection of the private refineries as that will enable the refineries to improve productivity, noting that by doing so, local refineries will have enhanced capacity to meet existing local consumption demands and for optimal performance.
Secondly, he said, the government ought to support already installed refineries with the supply of crude oil as well as provide the interface for sale of crude in local currency (Naira) to modular refineries which will eliminate over-dependence on foreign currency (USD) for purchase of crude to be refined locally and sold locally in Naira. By encouraging the purchase of crude oil in naira by modular refinery owners instead of US dollar, this will create a seamless process that exempts unnecessary complications of hedging against currency exchange.
To maximize the benefits of the existing potential of the industry, Mr. Oyarekhua asked the government to continuously engage some of the frontline players that have installed modular refinery with physical evidence of performance on ground.
This will enable government to understand their challenges better and, by so doing, provide the necessary interventions to support the growth of these local refineries since doing so will help the country survive and mitigate the anticipated economic recession projected globally.