Mele Kyari, Group managing director of Nigerian National Petroleum Corporation and OPEC National Representative during a halftime talk on Wednesday with Gulf intelligence said that the Jump in oil prices is “cosmetic to me” when asked about the dramatic recovery of oil prices.
Mele Kyari said, “It is very obvious that market has not achieved balancing, and it is not likely to do so before the end of the year and not very soon even in 2021. Everyone agrees that we can have an over-supply of up to 7 million per day even by the end of the year.”
“That means that this market will not rebalance, until we do some certain things to make sure we pull down the production and supply naturally come down with that.”
And it is very understandable for OPEC+ to extend the cuts agreed during the last month and to make sure that at the end of the year we can bring down that number of over supply from the forecast of 7 to 9 million barrels per day to something lower than that. “So that prices can rebalance.”
Kyari continued that “the temporary shift in prices that we have seen recently in the last couple of days, in the last 10 days to be specific is indicative of some response to the cut and some response to the increased demand that we have seen in the market.”
“But that everybody also agrees is not sustainable as long as the production level remain at that pre-covid and that the cuts are not implemented and so we expect that this supply will over shoot demand, and will probably slide down to the prices we saw in early March.”
The oil prices have recovered quite dramatically in the last 6 weeks certainly is there a danger that they climbed too fast too high that will attract some of that more higher cuts of production back to the market?. .
“My thoughts are that is actually more driven by sentiment than by demand because we haven’t seen that significant rise in demand. And of course, even the cuts as you are aware, there are many failures in achieving 100% conformity in the cuts.”
Which means that the volume that are supposed to get out of that market are still there and therefore the price rise that we saw, that significant jump appears very very cosmetic to me.” And I see that if we don’t contain the supply, we could still slide back to the early March price.”
While responding to a question about Nigeria being identified as one of the countries that have not achieved full compliance to the OPEC+ agreement. Kyari said that, “we have not achieved conformity by the end of May but Nigeria will achieve conformity at the end of June.”
For the last ten days Nigeria has been producing below conformity level. We are fully committed to conforming with the agreement. The shutdown Nigeria is experiencing today will help in ensuring conformity by the mid July he said.
When asked about how covid-19 has impacted Nigeria industry. Kyari said Nigeria was better prepared than others around the world. That the pipelines and rigs were operating with little or no interruptions. Apart from OPEC+ intervention, Nigeria actually experienced rise in production.
“For us as an industry the only thing we lost is price. Otherwise in terms efficiency and in terms of getting things done quickly and efficiently, I think Covid has actually become a very very good thing for us.”
When asked his achievements since September 2019 and his efforts for Nigeria to be capable of refining more products. He said that “Nigeria is the largest consumer of finished products, gasoline, fuel oil and everything you can think of. We are actually the market in West Africa. 70% of gasoline consumption in West African is actually done in Nigeria.”
“Therefore, it is the largest market available due to the size of our economy. For us is an opportunity to ensure that we become the supplier for West Africa. But you can’t do that except if you are able to refine and you cannot refine except if refineries are in place.”
“A lot of interventions are going on. One is the Dangote refinery with 650,000 barrels per day capacity which will come on stream at the end of 2021 or maybe early 2022.
“Secondly a combination of four refineries with total capacity of 445,000 barrels per day capacity, all of them are on shut down today for a very clear reason and it was a very informed decision. We shut them down so that we can have them fixed properly. We are rehabilitating them.”
“We are getting the best of class to make sure that they work, and our plan is to make sure that these come on stream latest by the end of 2022 or probably early 2023.”
“Third level of intervention we are doing is creating some splitter units condensate refinery, with total capacity plan of about 200,000 barrels per day. And that will also come on stream by 2022 because putting up a splitter plant is much quicker, much easier, much cheaper.”
“It also gives you all the right products you need as quickly as it is possible. So when we have a combination of 200,00 barrels per day condensate refinery, 445,000 barrels per day overall capacity put back in place and you have 650,000 barrels per day Dangote refinery within 3 years, what you will see will be monumental shift in the demand and supply direction.”
“Actually we are seeing a possibility of a reverse flow into Europe because many of the refineries in Europe as you are aware are being shut down permanently and therefore there may be requirement to provide wide product into Europe due to the shutdown.”
Of course, African market will become the market for Nigeria. This is our target, this is realizable and every step is being taken to make sure that we put this on the table.
On the question whether Nigeria would reconsider its position with OPEC if it is no longer the major exporter of oil. Kyari said that OPEC will not become a hindrance to Nigeria’s plan to expand its capacity.
Because you are in OPEC does not mean you will remain where you are for the next 20 years. He said. OPEC recognizes countries’ right to grow their production, grow their capacity and become economically independent.
“We are in discussion with OPEC and they recognize the effort we are making.” Creating a balance between supply and demand is in the best interest of the world and I don’t see OPEC becoming a hindrance to our plan.
On the issue of declining Capital investment into the refinery due to climate change and economic viability. Kyari said “we were oversubscribed when we looked for investors for one of our refineries”. It may be a global challenge, but for us we don’t experience disinterest locally.
Nigeria daily consumption of PMS is about 52 to 60 million liters per day and the country is on a growth line. We have a lot of informal economy that is not documented. So, the consumption per day may be higher.
The four refineries can make about 18 million liters of gasoline per day, the 200,000 splitter refineries will make about 10 million per day, and we need Dangote refinery to meet local consumption. We don’t need global market for our gasoline because it will be consumed locally. So, don’t we don’t have problem of facing global challenges.
While talking about cost of production and the future of oil, he said that “only companies that will survive are those who can produce at very low cost. Because if your prices are not cheap, no one will buy from you. Secondly efficiency is important. We have to be more efficient and more cost effective.”
In his response to the question on whether the peak for demand of oil is behind us rather than in front of us, he said no, population are growing and expanding, especially in sub-Saharan Africa. India and China are relaxing birth control, thus continuous population growth will result in increase in oil demand. “I think the peak will come at about 20 years from now.”
I think we will get back to pre covid-19 demand at the end of 2021, that is 100 million barrels per day demand pre covid-19. Demand will improve because people will realize that they need to get out of their house to do their work.
If you can produce cheap and you can be flexible with your customers and give discounts, thus you can ride with wherever the market goes. The ability to produce cheap oil will surely bring down the value of oil.
On the issue the strong words from Saudi and Russia about conformity in last OPEC+ meeting, he said “I think some countries are more effective than others in getting to conformity. When countries make cuts without others complying, it is understandable that they will get angry.” But am sure that there will be full compliance by mid of July.
How many barrels a day cut will Nigeria need to catch up the compliance as OPEC expects them to catch up by September? So how many barrels will Nigerian need to cut per day from mid July in order to get compliance level by the end of September? Kyari said “We will be cutting 45,000 barrel per day additional until we reach compliance.”