From Venezuela with Regrets

By Adedayo Ojo

The explosion that occurred at the Amuay refinery in Venezuela recently is unarguably the most fatal disaster in the history of the oil and gas industry in the South American nation. A gas leak at the refinery, located near Punto Fijo in western Venezuela, caused an explosion that ignited and damaged nine storage tanks, killing at least 39 people, including a ten year old boy and injuring more than 80 people. Many of the victims were members of the National Guard stationed at the refinery.

Amuay refinery processes 645,000 barrels of oil per day (BOPD) and it is part of the Paraguana Refinery Complex, and one of the biggest refineries in the world. The Paraguana Refinery Complex, which also includes the Bajo Grande and Cardon Refineries, processes a total of about 955,000BOPD.

Venezuelan Energy Minister, Rafael Ramirez, confirmed that a gas leak caused an explosion which ignited storage tanks and other facilities at the refinery, leading to “appreciable damage to infrastructure and to houses opposite the refinery”. About 500 homes were damaged in the wake of the explosion. The plant remains shut to allow engineers carry out proper checks. Ramirez reiterated that the blast would not affect Venezuela’s ability to meet its supply commitment to domestic and international markets.

Issues of Safety and Maintenance
The Amuay refinery disaster has re-ignited discourse about the level of safety and maintenance within Venezuelan oil and gas industry. While the cause of the gas leak remains unclear, some oil and gas industry analysts have recently pointed to increasing numbers of smaller accidents and spills as an indication of problems within the national oil company, Petroleos de Venezuela SA (PDVSA).

Venezuelan oil industry stakeholders claim that the oil facilities and infrastructure do not undergo sufficient routine maintenance. President Hugo Chavez and other government officials, however, deny, saying that billions of dollars have been spent in recent years on maintenance at refineries including Amuay.

“This tragedy is probably the worst one the oil industry has had in many years. Accidents happen, of course, although the problem with PDVSA is the inordinate amount of accidents that have taken place during the last years,” the energy press quoted Gustavo Coronel, an energy consultant and former executive of PDVSA. “We are not talking about bad luck but about lack of maintenance and inept management” he added.

Residents of the Amuay area have told reporters that the gas leak was apparent hours before the blast, though the government denies this fact.

British newsmagazine, The Economist, reports that oil union leaders in Venezuela say PDVSA’s industrial safety procedures have deteriorated sharply. The Economist further revealed that the Venezuelan petroleum and mining ministry’s annual report shows that maintenance work is frequently postponed for lack of cash.

Assisting Victims
The Venezuelan government moved swiftly and promptly to assist victims of the explosion.  Vice-President Elias Jaua travelled to the area after the explosion and military air ambulances were dispatched to help evacuate the injured.

Stella Lugo, governor of Falcon State, in whose state the disaster occurred said on state television: “We are deploying our whole fire service team, all our health team, the whole contingency plan on the orders of President Chavez to first of all care for the people affected by this emergency”.

Three days after the explosion, President Chavez released $23.3 million to a social fund to assist victims. During a visit to a hospital treating those wounded, the President said that spouses of the victims would receive pension for life, and their children would receive educational scholarship.

Governor Lugo of Falcon State later presented homes at a new government housing project to victim families whose homes were destroyed.  The government is also assisting those whose houses were damaged but not completely destroyed. Orlando Arias lost the roof of his house. He is already supervising the repairs. “The assistance provided by the state institutions arrived quickly. They are doing a census to verify which houses are affected by the explosion” Arias told the newspaper Ciudad CCS.

Lessons for Nigeria
Nigeria and Venezuela are similar in many ways. Like Venezuela, Nigeria’s economy is dependent on oil. The two countries are both members of the Organisation of Petroleum Exporting Countries (OPEC) and both have their national oil companies dominate the oil and gas sector.

Venezuela, like Nigeria, is a developing country dealing with numerous social, political and economic challenges. The Venezuelan national oil company PDVSA, like its Nigerian counterpart, Nigerian National Petroleum Corporation (NNPC) is challenged in several fronts – allegations of accountability and transparency are made regularly.

However, the Venezuelan oil industry, with proven reserves of about 297 billion barrels of oil, the world’s largest according to BP’s Statistical Review of World’s Energy, is many times bigger than the Nigerian oil industry. Nigeria’s proven reserve is estimated at 37 billion barrels.

Consider also the refining capacity of both countries. According to the Nigerian National Petroleum Corporation (NNPC), the combined refining capacity of the four refineries in Nigeria is 445,000 barrels of crude oil per day. The refineries, however, have never performed at optimal level – at best operating at a combined capacity average of 40 percent. The total refining capacity of Venezuela, according to BP’s report, is 1.3 million barrels of crude oil per day, satisfying the domestic market and exporting to other countries including the United States of America (USA).

What is the point? If this monstrous disaster can happen in Venezuela, where the oil and gas industry is better developed, arguably, the chances of a similar incident in Nigeria is high.

The Nigerian establishment has been paying lip service to issues of safety, security and maintenance, especially when it comes to our refineries. The refineries in Nigeria have been in bad shape for decades.  Turn around maintenance (TAM) is a common term used in our society not to describe the actual work of putting the refineries in order, but of the money allocated for that purpose.

The Venezuelan tragedy is a wakeup call for Nigeria to start today to repair and maintain our refineries. From the Venezuelan experience, if the refineries are not maintained, a resultant disaster is just a matter of time.

We can also learn a thing or two from the emergency response by the Venezuelan authorities in the wake of the Amuay refinery explosion. Victims were swiftly evacuated and those whose houses were destroyed were resettled in a matter of days without unnecessary protocols. Nigeria can begin to do likewise to victims of disasters especially those affected by mishap from oil and gas operations.

The Nigerian oil and gas industry requires continued investment not only for optimal performance but for safety. Several of the oil spillage reports are attributable to facility integrity which operators occasionally (maliciously) call vandalism.

Regulation for safety and operations integrity needs to be strengthened. All of the above support the call for deregulation and restructuring of the Nigerian oil and gas industry.

The status quo in Nigeria’s oil industry does not, and cannot, guaranty fiscal safety sustainability. A stitch in time saves nine!

FAST FACTS*

*Sources: BP’s Statistical Review of World’s Energy June 2012, Nigerian National Petroleum Corporation (NNPC), PwC Monthly Focus on tax Related Issues November 2011.

Adedayo Ojo is Lead Consultant/CEO of Caritas Communications Limited, a specialist reputation strategy and corporate communication consultancy based in Lagos.
Caritas is the West Africa affiliate of Regester Larkin, a pioneer reputation strategy/management consultancy with offices in London, Washington and United Arab Emirates