China Set for Nigeria Oil When Output Restored

Source: www.gulfoilandgas.com 11/6/2006, Location: Africa

China will head the queue for more crude oil imports from Nigeria if output from Africa's biggest producer swells in line with hopes to 4 million barrels a day within two years, said Nigerian oil minister Edmund Daukoru.

Nigeria has been turning down buyers for its crude after attacks by militants on oil installations in the Niger Delta caused at least 500,000 b/d of production to be shut in at any given time since February.

In the latest development, the U.S. Embassy in Nigeria warned last Friday that within days, a militant group may attack up to 20 oil facilities in the country.

China's imports of Nigerian crude have fallen sharply this year in spite of Beijing's efforts to court the West African country, which it sees as playing a key role in guaranteeing its energy security by reducing its need to buy oil from the Middle East.

Customs data shows that Nigeria supplied 75% less crude to China in the first nine months of this year compared with the same period of 2005. A total of 311,130 metric tons of Nigerian oil was imported by China between January and September, or 2.28 million barrels.

In an interview on the sidelines of the China-Africa summit in Beijing, Daukoru said oil exports to China would return to growth if the militant attacks in the Niger Delta region could be halted.

"We should have about 3 million b/d if not for the Niger Delta problem, and we are then set right on course to hit 4 million b/d, I believe, in the next two years," said Daukoru, who is also president of the Organization of Petroleum Exporting Countries.

"A lot of the customers that we have been turning back could start to have long-term supply agreements, and the Chinese could be preferred customers in that regard."

Nigerian crude is a high-quality, light low sulfur grade referred to as sweet, which is highly prized by oil consuming nations because of its high gasoline content and relatively cheap processing costs.

In August, state-owned Nigerian National Petroleum Corp. signed an agreement with China Petrochemical Corp., or Sinopec Group, to double its crude oil exports to 100,000 b/d. The year-long agreement took effect from October.

NNPC also renewed its crude oil export agreement with China National Petroleum Corp. (CNPC.YY), China's largest oil producer by output, for shipments of 30,000 b/d.

The crude export deals have been accompanied by increasing acquisition activity by Chinese firms in Nigeria.

CNOOC Ltd. (CEO) agreed in January to pay $2.27 billion, plus $424 million in expenses, to South Atlantic Petroleum Ltd. for a 45% working interest in the OML 130 offshore oil mining license, which mainly covers Nigeria's undeveloped Akpo field. Two months later, CNOOC Ltd. - China's largest offshore oil producer by output - bought a 35% working interest in a license to explore for oil offshore Nigeria for $60 million.CNOOC Ltd. is also set to be awarded the right of first refusal on four blocks in a forthcoming bid round in return for an investment package financed by a $2.5 billion loan from China Exim Bank.

"The oil part and the financial obligations are about to be tied in one document," said Daukoru, explaining why the deal was not done in time for President Olusegun Obasanjo's visit to Beijing.

Negotiations had hit snags over interest payments that must be shared between CNOOC and the Nigerian government on the Exim Bank loan, sources close to the situation told Dow Jones Newswires earlier.

CNPC has also targeted Nigeria, winning four exploration blocks for $16 million in a mini-bid round in May at the same time as agreeing to invest $2 billion in the Kaduna refinery in northern Nigeria.

A 14-strong delegation from CNPC left Beijing Sunday for Nigeria to evaluate new exploration blocks being offered in a bid round to begin by the end of this year.

Up to 60 blocks are being made available by the Nigerian government to foreign investors, and CNPC has indicated that it will consider possible downstream investments, including building a new refinery and housing construction.


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