The Nigerian National Petroleum Corporation (NNPC) is excited that its Direct Sale, Direct Purchase (DSDP) initiative is turning into a good fortune that has befallen it.
The DSDP was initiated to ensure full recovery of crude oil sales value and delivery of 100 per cent federation revenue from domestic crude allocation which is 445,000 barrels per day in place of the previous offshore processing and crude swap arrangements which resulted in huge losses.
According to the Corporation’s report, the DSDP main contract which started in April, 2016 has so far recorded average monthly savings of $53 million despite the challenges of low oil prices and reduced crude oil and gas production caused by militant attacks on oil and gas assets.
The new contract has indicated a total savings of $336,379,854.98 between February and July 2016.
On refinery performance, the NNPC said its refineries in Kaduna, Warri and Port Harcourt had a good outing in July with a surplus posting of N0.78 billion.
It explained in the report: “The combined value of output by the three refineries (at import parity price) for the month of July 2016 amounted to N20.09 billion while the associated crude plus freight cost was N19.31 billion, giving a surplus of N0.78 billion after considering overhead of N7.38 billion.
“Despite these challenges (irregular crude supply and impact of pipeline vandalism) the domestic refineries have a consolidated positive cash flow for the month under review due to favorable products price variance and ongoing restoration of the refineries”.
The report indicated that Total crude processed by the three local Refineries for the month was 126,756 metric tons (MT) (929,275 barrels) and intermediate of 40,640MT (297,972bbls) which translates to a combined yield efficiency of 77.82 per cent compared to crude processed in June 2016 of 225,770MT (1,655,346bbls) with a combined yield efficiency of 80.39 per cent.
“For the month of July 2016, the three refineries produced 139,2841MT of finished petroleum products out of 126,756MT of crude processed and intermediate of 40,640MT at a combined capacity utilisation of 6.74 per cent compared to 12.40 per cent combined capacity utilisation achieved in the month of June 2016,” it added.
On the other hand, the NNPC noted that militancy in the Niger Delta region impacted negatively on some of its operations as it recorded yet another loss worth N24.18 billion.
It, however, said the July operational loss was some figures below what it recorded in June. The corporation in June reported a trading deficit of N26.51 billion.
The NNPC added that the turbulence in the country’s oil and gas sector had grossly impacted its activities in the month.
“The degree of turbulence in the nation’s oil and gas sector due to renewed militancy has grossly impacted on oil and gas production with its attendant consequences for the economy. In July 2016, operations, about 311 vandalised points were recorded.
“This 12th publication of NNPC monthly financial and operations report indicates a trading deficit of N24.18 billion in July 2016 as against N26.51 billion deficit reported in June, 2016, the net cash flow improved by 8.77 per cent or N2.32 billion in July 2016,” said the report which was released in Abuja.
The NNPC, however, said, “This improvement was largely due to increase in revenue stream from NPDC and PPMC, despite the upsurge in upstream and downstream vandalised points.”
The report also stated that its subsidiary, the Nigerian Petroleum Development Company (NPDC) could not take in a substantial portion of its crude oil sales for the month estimated to be in excess of N27 billion due to a subsisting force majeure declared by Shell Petroleum Development Company (SPDC) as a result of the vandalised 48-inch Forcados export line.
Meanwhile, as OPEC gets set to meet in Algiers next week, the oil market has urged the cartel to consider what could be the outcome should it fail to strike a deal.
More than 800,000 barrels a day of additional crude is pouring into the global market this month as Russia pumps at an all-time high while Libya and Nigeria restore disrupted supplies.
According to Bloomberg, that would imply a tripling of the supply surplus, estimated currently at about 400,000 barrels a day by the International Energy Agency.
“We are overproducing and we’re not going to draw down inventories like we thought we would. We’re still building crude inventories and that’s a problem”, said Chris Bake, a senior executive at Vitol Group, the biggest independent crude trader.
The global oil oversupply will persist into 2017 as members of the Organization of Petroleum Exporting Countries such as Saudi Arabia pump near record levels, others such as Iran and Iraq bolster capacity and production outside the group weathers the price slump, according to the IEA.
Prices may struggle to hold above $40 a barrel unless OPEC acts, Citigroup Inc. predicts.
Crude is stuck at less than half the level it averaged at the start of the decade, straining the finances of producers around the world. Oil rallied last month on speculation OPEC and Russia might revive a pact to cap production, though prices have since cooled.
While OPEC officials have been meeting from Vienna to Paris to Moscow in attempts to reach consensus, there’s scepticism a deal will be possible.
All but two of 23 analysts surveyed by Bloomberg this week predicted there won’t be an agreement in Algiers on Sept. 28.
The volatility in supply created by the unexpected return of exports from Libya and Nigeria makes it harder to settle on any plan for stabilizing the market, Ed Morse, New York-based head of commodities research at Citigroup, said by phone.
“There’s just too much oil in the market,” said Morse. “It’s very difficult to come to the conclusion that a freeze would be credible or doable when you’ve got the combination of what’s happening in Libya and Nigeria. It makes a shambles of any extrapolation of balances.”
Libya’s output has climbed to 390,000 barrels a day after a halt in fighting between rival armed factions, National Oil Corp. Chairman Mustafa Sanalla said on Sept. 22.
That’s 50 percent higher than the monthly average for August estimated by Bloomberg.
Meanwhile, Nigeria has revived output to 1.75 million barrels a day following a ceasefire deal with militants in the Niger Delta region, Minister of State for Petroleum Resources Emmanuel Kachikwu said on Sept. 19.
That compares with 1.44 million last month, near the lowest in more than two decades, according to data compiled by Bloomberg.
Russia pushed output to a new record 11.09 million barrels a day in September, Energy Ministry data show. While President Vladimir Putin said on Sept. 2 that producers can overcome the tensions that have so far prevented an agreement, there are doubts over the practicalities of Russia’s involvement.
“No Russian contribution to a freeze is believable” as the government doesn’t have enough control over companies like Rosneft PJSC to prevent them from boosting supply, Citigroup’s Morse said.
OPEC’s last attempt at a deal with Russia collapsed in Doha on April 17 when Saudi Arabia’s influential Deputy Crown Prince Mohammed bin Salman insisted at the last minute that Iran had to participate in a freeze.
Iran refused as it was just starting to revive exports following the end of international sanctions.
Now that Iran has returned to pre-sanctions production capacity, “the odds are in favor” of some basic agreement, said Helima Croft, chief commodities strategist at RBC Capital Markets LLC in New York.
Saudi Arabia may also have a stronger incentive to cooperate as the global surplus lingers and low oil prices take a toll on its finances, according to Bassam Fattouh, director of the Oxford Institute for Energy Studies.