Oil Reserves in the pipeline

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By Wezi Tjaronda WINDHOEK Plans are afoot for the country to establish strategic oil reserves for 60 days, National Petroleum Corporation of Namibia (Namcor’s) Managing Director, Joe Vatanavi Mazeingo says. Last year, Namcor conducted a study on the possibility of the country having strategic oil reserves for petrol and diesel, said Mazeingo, after which it found that such a project was costly. So it is looking into partnering local oil companies for the venture. “We are talking to local industries to help us establish these reserves for emergency cases,” he said. Botswana also has strategic oil reserves, a project that was sponsored by that country’s government. The preferred location for the reserves, which will be either underground or above, according to Mazeingo, is Windhoek, which is centrally placed to enable transportation to the rest of the country. This comes months after Namibia experienced fuel disruptions last December due to the temporary shutdown of some South African oil refineries in preparation for the phasing out of leaded petrol. Because of the situation, some local petroleum companies had to strategically ration fuel at some outlying filling stations, as fuel in the country at that time was not sufficient for business to operate normally. Although all the refineries in South Africa, especially in the Western Cape province were operational, the monthly shipment supplies of petroleum to Namibia were affected following the postponement of delivery schedules. This situation caused panic, as some motorists were observed filling up at service stations and taking home extra petrol in plastic containers. Meanwhile, Namibia will know by September this year whether or not it can go ahead with a full feasibility study into the establishment of an oil refinery in the country. At the moment, Namibia’s oil company, Namcor in conjunction with the Ministry of Mines and Energy is still collecting information to see whether an oil refinery would be a viable exercise based on pure commercial principles, with no subsidies from the government or elsewhere. Mazeingo told New Era yesterday that 10 companies have so far expressed interest in embarking on a pre-feasibility study into the project. Out of the 10, four will be short-listed and one or more be awarded the contract to conduct the study based on the companies’ technical and financial capabilities. For any refinery to have a return of 15 percent of the investment, it will have to produce 200 000 barrels per day, with anything less than that making the venture loss making. Namibia at present consumes 40 000 barrels per day, which means that the rest, 160 000 barrels will need markets among the country’s neighbours or elsewhere. The refinery could cost in the region of N$18 billion to N$20 billion. Among Namibia’s options would also be buying into the refinery that Angola wants to put up in Cuito to produce 200 000 barrels a day. The Namcor MD said if Angola goes through with the project, then the country could supply fuel to the whole of west and central Africa including Namibia. “We can try and buy into them and also make sure that with those shares the refinery supplies Namibia,” he added. Chinese investors are said to be behind the establishment of the refinery due to the need for fuel in that country. China is one of the most important emerging markets, which has seen a growth of nine percent of GDP. “It needs fuel, it needs steel, the country is growing,” said Mazeingo, adding that if the Chinese put up a refinery using Angolan crude oil, the country could ship what is not used to China. Namibia gets its fuel from South Africa, which also supplies the resource to all the countries within the Southern African Custom’s Union (SACU) and also to Tanzania, Zambia, Zimbabwe and the Democratic Republic of Congo. Although Zambia, Zimbabwe and DRC have refineries, due to the economies of these countries, it has been difficult for them to maintain the refineries to an extent that they are running at 40 percent capacity, said Mazeingo. The advantages for Namibia having its own refinery would be that it could have security of oil supply and also earn foreign exchange from the sale of surplus fuel. The country has a problem with two of the most important drivers of the economy, namely electricity and fuel which it imports from elsewhere. Without them, the MD says, Namibia will face serious problems down the road. While this is the case, it is believed that a refinery could be more viable for Namibia by 2010, when it is projected that South Africa will run out of refinery capacity. “Based on its current consumption, they don’t have space for additional refinery capacity,” said Mazeingo. It could also mean that the country could either expand the existing four refineries or source fuel from its parent companies. But when this happens, the price of fuel will shoot up due to transport costs, making it even more expensive than it is at present. Consideration for the idea of an oil refinery started when some investors suggested that the country was capable of having such a facility. Namibia has a harbour and space in Walvis Bay, through which it can bring crude oil, refine it and them sell it to other countries although the problem has been whether or not the country can compete. There are currently eight oil licence holders doing prospecting for oil in Namibia.