W’Bank: Oil Prices to Average $65 Per Barrel in 2018

Ejiofor Alike and Obinna Chima

The World Bank Thursday projected that oil prices would average $65 a barrel in 2018, up from an average of $53 a barrel in 2017.

Meanwhile, OPAC Refinery in Kwale, Delta State, will come on stream in the third quarter of 2018 as the Department of Petroleum Resources (DPR) has granted it requisite approvals — Approval to Relocate Plant (ARP) and Approval to Construct (ATC) plant — in line with the regulatory agencies’ effective regulatory process and in alignment with federal government’s aspiration to stimulate economic growth.

The DPR granted 18 refinery licences in 2004, which later grew to 25.

The prediction was hinged on strong demand from consumers and restraint by oil producers, while metals prices were expected to rise nine per cent this year, also due to a pickup in demand and supply constraints.

The multilateral institution gave the prediction in a statement Thursday.

Oil prices closed at $74.5 a barrel Thursday.

According to the Bank’s April Commodity Markets Outlook, prices for energy commodities – which include oil, natural gas, and coal — were forecast to jump 20 per cent in 2018, a 16 per cent point upward revision from October’s outlook.

The metals index was expected to rise as a nine per cent drop in iron ore prices was offset by increases in all base metals prices, led by nickel, which is forecast to rise 30 per cent.

Agricultural commodities, including food commodities and raw materials, were anticipated to see a price rise of over two per cent this year on diminished planting prospects. Weather disruptions are expected to be minimal.

“Accelerating global growth and rising demand are important factors behind broad-based price increases for most commodities and the forecast of higher commodities prices ahead,” World Bank Senior Director for Development Economics and acting Chief Economist, Shantayanan said.

Devarajan  added: “At the same time, policy actions currently under discussion add uncertainty to the outlook.”

In addition, oil prices were expected to average $65 a barrel over 2019 as well.

According to the Bank, although prices were projected to decline from April 2018 levels, they should be supported by continued production restraint by OPEC and non-OPEC producers and strong demand.

“Upside risks to the forecast include constraints to U.S. shale oil output, geopolitical risks in several producing countries, and concerns the United States may not waive sanctions against Iran.

“Downside risks include weaker compliance with the oil producers’ agreement to restrain output or outright termination of the accord, rising output from Libya and Nigeria, and a quicker-than-expected rise in shale oil output,” it added.

“Oil prices have more than doubled since bottoming in early 2016, as the large overhang of inventories has been reduced significantly,” the  Senior Economist and lead author of the Commodity Markets Outlook, John Baffes said.

Baffes added: “Strong oil demand and greater compliance by the OPEC and non-OPEC producers with their agreed output pledges helped tip the market into deficit.”

However, upside risks to the metals price forecast included more robust global demand than expected.

Supply could be held back by slow incorporation of new capacity, trade sanctions against metals exporters, and policy actions in China, it stated, noting that downside risks included slower-than-expected growth in major emerging markets, the restart of idle capacity, and an easing of pollution-related policies in China.

Precious metals were also expected to climb three per cent this year in anticipation of U.S. interest rate increases and higher inflation expectations.

Grains and oils and meal prices were expected to rise in 2018, mostly due to lower planting intentions.

“Oil exporters with flexible currency regimes, relatively large fiscal buffers, and more diversified economies have fared better than others since the oil price collapse.

“However, most oil exporters still face significant fiscal challenges in the face of revenue prospects that have weakened since 2014,” the Director of World Bank’s Development Economics Prospects Group Ayhan Kose said.

OPAC Refinery to Commence Operations in Q3 2018

OPAC Refinery in Kwale, Delta State, will come on stream in the third quarter of 2018 as the DPR has granted it requisite approvals — Approval to Relocate Plant (ARP) and Approval to Construct (ATC) plant — in line with the regulatory agencies’ effective regulatory process and in alignment with federal government’s aspiration to stimulate economic growth.

The DPR granted 18 refinery licences in 2004, which later grew to 25.

Investigation revealed that three refineries are billed to construct conventional stick-build plants and the remaining 22 as modular units.

Of all the licensed companies, the Dangote Oil Refinery Company (DORC) Limited, a 500,000 barrels per stream day (BPSD) refinery, has reached the stage of detailed engineering design of the units and procurement of long-lead items.

According to a statement by the DPR, when completed, OPAC refinery will process 7,000 bpsd of crude oil, equivalent to 350,000 tonnes of crude oil yearly from the nearby Pillar Oil facility in Kwale, Delta State.

Pillar Oil operates the Umuseti/Igbuku field complex, which has two proven oil and gas fields — Umuseti and Igbuku — and four identified satellite prospects  – Umuseti-North East, Umuseti-East, Igbuku-West and Igbuku-North.

The main products from the OPAC refinery shall include: naphtha, kerosene, diesel and fuel oil fractions.

“The refinery facility includes storage depot for the crude oil and finished products and loading terminal, while the modular straight run refinery consists of the following modules: Oil Refining Unit CRU-350; heating furnaces; pumping stations; water cooling system; separation and preparation tanks; storage depot; control room with electrical panel; utilities supply and office facilities including laboratory; truck loading station,” the statement said.

From a total of 105 applications treated in 2002, 21 companies were granted licence to establish (LTE) petroleum refineries.

The LTE had a validity of 18 months.

In line with the refinery guidelines, evaluation of the extent of engineering design work done in 2004, 17 companies of those previously granted LTE were granted approval to construct (ATC) refineries, with a validity of 24 months.

Following the unsuccessful execution of their projects and expiry of the ATC granted, with no appreciable progress achieved, all the licences were cancelled in 2007.

The statutory framework for licensing of private refineries was reviewed and a new guiding document “Guidelines for the Establishment of Hydrocarbon Processing Plants in Nigeria” was approved by the then president, who was doubling as the Minister of Petroleum Resources.