Nigeria and China have signed a tentative deal to build three oil refineries in the West African state at a cost of $23 billion to boost badly needed gasoline supply in Nigeria and position China for more access to the country's coveted high-quality oil reserves.
Nigeria and China have signed a tentative deal to build three oil
refineries in the West African state at a cost of $23 billion to boost badly
needed gasoline supply in Nigeria and position China for more access to the
country's coveted high-quality oil reserves.
"This is a deal we need for
Nigeria
to
cut our reliance on imports," said a senior Nigerian oil official.
He said the Chinese commitment to build refineries in Nigeria--which has spent
billions of dollars annually for years importing gasoline due to rickety
refineries at home--would also help put China "in the running" for
getting additional access to oil acreage in Nigeria, one of Africa's biggest
crude producers and exporters.
"This is business but it builds goodwill in addition," the official
said, adding there were still details to be settled before a final deal is
concluded.
Nigeria
has
seen other efforts in recent years to build refineries with foreign assistance
fail to materialize.
Still, the Nigeria government's provisional deal represents a bragging right of
sorts vis a vis U.S. and European oil companies, which have long turned a deaf
ear to Nigerian government calls to operate refineries in the country because
of the poor financial returns.
Nigerian gasoline and diesel prices are highly subsidized. This government
benefit is one of the few that Nigerians, most of whom live in poverty, have
seen over the years from their country's big crude reserves.
But the fuel subsidies mean
Nigeria
's
refineries operate at little or no profit, a primary factor that has hurt new
investment and upkeep at existing facilities. The subsidies have also
encouraged a thriving black market for Nigerian gasoline and other fuel
products in neighboring states like
Benin
that
has helped cause shortages in
Nigeria
.
Various Western companies, such as Exxon Mobil Corp. (XOM), refused to include
funding for refineries as part of negotiations several months ago to re-sign
expiring oil drilling leases in
Nigeria
, and
still managed to keep those licenses, according to several people close to the
matter.
But
Nigeria
's
tough refining economics are an opportunity for the Chinese government, which
is bent on procuring its state oil companies access to new oil reserves to fuel
the country's speedy economic growth.
Nigeria
is
looking to offer offshore oil fields to foreign companies but hasn't yet
announced a date for any new licensing rounds.
Funding for the three refineries, each slated to pump 250,000 barrels a day of
refined products, is expected to come from the China Export & Credit
Insurance Corp. and a group of Chinese banks. The Nigerian official said he
didn't have details on what sort of returns Chinese banks might see from their
funding.
It's unclear if
Nigeria
would
permit any gasoline or other fuel products from the three planned refineries to
be exported after they satisfy domestic demand, something the country permits
with its natural gas.
Nigeria
's
mostly low-sulphur crude oil is exported largely to the
U.S.
and
Europe
, where
it is processed relatively easily and cheaply into gasoline.
Officials from China State Construction Engineering Corp. and Cnooc Ltd. (CEO),
the Chinese state offshore oil company, weren't immediately available for
comment, while China National Petroleum Corp,
China
's
largest oil company by assets, said it had no information on the Nigerian
government's announcement.
The deal also envisages Chinese help in constructing a petrochemicals facility,
which could help
Nigeria
convert some of its big proven natural gas reserves, among the biggest in the
world, into high-value products such as plastics for export.
China
currently has limited drilling rights in
Nigeria
,
something it is trying to change in order to reduce its dependence on oil from
Angola
,
China
's top
supplier.
China
imported just 28,000 barrels a day of Nigerian crude last year, a drop in the
bucket compared with
China
's
total oil imports of 4.77 million barrels a day in 2009, according to China
Customs data.
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