In 2016 the government turned its attention to bitumen – also known as asphalt, which is used in road-surfacing – placing the country’s large standalone deposits of the hydrocarbon mixture at the centre of its plans to bolster the extractive industries and support economic diversification and growth. While this has the potential to support community development in the south of the country and increase the mining sector’s contribution to GDP, exploitation of this resource does have its challenges.
New Licences
In May 2016 Kayode Fayemi, minister of solid minerals development, announced that the federal government would begin the process of allocating licences for bitumen extraction. The process, which will take 12 months to complete according to the minister, will be open to “serious investors with proven work and financial plans”.
Reserves
The country is certainly well placed when it comes to bitumen. While accurate data has not yet been obtained, reserves of the mineral are estimated to stretch for 120 sq km and total 42bn tonnes, making it potentially the second-largest deposit in the world. Furthermore, Nigeria should provide a ready made domestic market for the mineral. Currently, the West African nation sources as much as 80% of asphalt material used for local road construction from outside the country.
Demand for the material is also likely to increase, given President Muhammadu Buhari’s emphasis on road construction. During his 2015 election campaign, he pledged to build roads “from one end of Nigeria to the other”. He also said that “road construction will unlock a value chain of opportunities in the building industry for construction companies, builders, engineers, architects, quarry operators, cement and iron production, and suppliers”.
Current Production
Traditionally, bitumen extraction has only occurred in an informal, artisanal manner. The government hopes to change this by bringing in formal permits and greater oversight of the use of the reserves. Fayemi told local community leaders in May 2016 “We want your mineral to work for you, and we are fully ready to assist your communities to get the best from the process. The government will partner with states, investors and communities to create the enabling environment.”
Challenging Prospects
This aspiration will not necessarily be straightforward. The government has tried to develop the bitumen industry previously. In 2002 the administration of former president Olusegun Obasanjo, awarded contracts to the Canadian company, Nissands Nigeria, and Beecon Nigeria to exploit the reserves. However, funding problems ended the project before operations began.
There are other potential pitfalls linked to bitumen extraction. For example, Canada is home to the largest bitumen deposits in the world, the majority of which is upgraded to synthetic crude. In late January 2016 all of Canada’s 2.3m barrels of oil derived from bitumen were briefly being produced at a loss when the average breakeven price for bitumen mining projects stood at $35.34 per barrel, while the price of a barrel of US crude stood at $28 per barrel.
While Nigeria may not look to transform all its bitumen deposits into crude, it will still have to grapple with the high cost of extraction, concerns about low market prices and potential challenges to economic viability. Furthermore, although commercial losses were a recent and short-lived phenomenon for Canadian bitumen producers, the resource has long been controversial. Concerns over environmental degradation and the effects on local communities have long kept Canada’s tar sands in the headlines. “Communities are a vital component to the mining sector’s development,” Innocent Ezuma, executive chairman of local mining company Eta Zuma Group, told OBG. “Mining firms must partner and work with them to acquire land rights and relevant permits.”
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