Following the decision of the Federal Government to import crude oil from Niger and Chad because of security challenges in the Niger Delta, Chineme Okafor finds out if such venture is viable
Nigeria does not produce a lot of heavy crude oil from her fields, it rather produces more of sweet light crude, but one of its four unprofitable refineries, the 110,000 barrels per day (bpd) capacity Kaduna Refinery needs heavy crude as one of the feed stocks it distils.
Reports have it that the refinery has on its table, two options it is considering to keep crude flowing into it. One of them is the importation of crude oil, including heavy crude from Niger and Chad.
While this is not entirely a new development because either way, heavy crude for the refinery is often reportedly imported into the country for it, experts in the country’s oil and gas industry however feel that the refinery which has largely operated at a loss must come with a very tight commercial term on which this would work.
A recent investigation by THISDAY revealed that the Nigerian National Petroleum Corporation (NNPC) is already considering importing crude oil from Chad and Niger Republic as an alternative supply source for Kaduna refinery.
The investigation noted that this was part of the corporation’s efforts to address frequent disruptions to the supply of crude oil to the refinery from the Delta. The refinery is, though, undergoing refitting of its units like the other three in Warri and Port Harcourt and has largely remained unprofitable.
The June 2016 financial reports of NNPC which was released some days back confirmed that the Kaduna and the other refineries were on sub-optimal operational levels. It also said that they are contributing hugely to the corporation’s overall operational deficits.
However, THISDAY through its investigation learnt that the NNPC had put on the table for consideration, the option to import crude oil from Niger and Chad alongside using railway transportation to move crude from the Niger Delta to the refinery complex. The supplies will include both light and heavy crude which the refinery uses but there are no known plans as to the commercial viability of this.
THISDAY had gathered that if the option to import from Niger or Chad sails through, the corporation might refit the Kaduna refinery to be able to process crude oil grades that will come from there. Industry experts however queried if the corporation had done its economics and the numbers confirmed good enough to proceed with the plan.
At the moment, all the oil produced from Niger’s Agadem field is shipped through 426.5 kilometres underground pipeline to its 20,000bpd Zinder refinery, while Chad with about 180,000bpd production from Badila, Mangara and Grand Baobab deposits, refines for the local market at a refinery in N’Djamena and still export via a pipeline to the Douala port in neighboring Cameroon.
But NNPC sources indicated that Kaduna was originally designed to process Nigerian crude and foreign heavy crude at the ratio of about 70:30, and as such importation of heavy crude was not out of place.
This position was also buttressed by Dr. Tim Okon, a former senior official of the corporation and head of an international energy think-tank, the International Institute for Petroleum Energy, Law and Policy (IIPELP), who, however, queried the commercial viability of the latest plan.
The Kaduna refinery, it was stated, has the capacity to process paraffinic-based crude oil from Venezuela, Kuwait or Saudi Arabia. “So apart from having the capacity to refine Bonny Light, the plant can also process heavy crude oil from Kuwait, Lagomar crude from Venezuela, Arabian Light from Saudi Arabia and Urals from Russia.
“But for it to refine crude from Chad or Niger, the plant requires some form of refitting so that it can use crude specification from those countries as well. The refitting does not involve complex technology,” the NNPC source explained to THISDAY.
Confirming the plan to THISDAY, Kaduna refinery’s public affairs manager, Idris Abdullahi, noted that the options were actually on the table.
He said: “We will choose from the two options but it depends on the financial viability. The refinery had rail lines right from inception. The rail lines were used to bring in materials and equipment during its construction.
“They have never been used to transport crude to the refineries. We get crude from Warri through the pipelines. But we are now thinking of using the lines to bring in crude from the Niger Delta because of the vandalism of the pipelines.”
“The second option being considered is importation from Niger and Chad. We are considering the two options and the option we will choose will depend on the viability,” Abdullahi explained.
Are the Numbers Right?
Experts who spoke with THISDAY, said the plan was not a bad one provided the numbers are right. They however feel that given the longstanding operational deficits recorded by NNPC’s refineries including Kaduna, the beneficiary of the plan, it would be almost uneconomical to go with the plan.
They explained that even though Kaduna was planned to process two different grades of crude oil, sourcing heavy crude from anywhere for it should be based on a profitable commercial framework, which they alleged it does not have at the moment.
They also noted that the current business condition in Kaduna refinery speaks for their judgement of the plan as uneconomical.
One of them, Okon, specifically said: “Supply security is just one of the issues that affect our refineries, but there are other issues to be considered. There is power supply in the refineries, proper management of the refineries, commercial models and evacuation plans. They all have to be considered.”
“These are tough decisions. Nigeria does not produce a lot of heavy crude, whether you are importing from Niger or anywhere, which is normal and nothing new about it, it has to be run commercially.
“My preference is that it is not a business NNPC should run because the refineries are not profitable as we speak and I won’t compel them to put public money in it.”
Okon also explained that, “when the refineries were to be privatised, the Chinese proposal for Kaduna had to do with building a pipeline from Kaduna to Niger and that is why they offered $106 million for the refinery.
“They knew they needed to build a pipeline for an alternative crude source to Kaduna if they had to run it and the heavy crude of Chad will enable them augment the crude from Warri.
“Kaduna has two crude distillation units, one is for heavy crude and the other for light sweet crude, but the key to it is that privatising the refinery is essential because if you continue to run it in the suboptimal way we are running it, it will never be profitable.”
He said rather than advancing claims of security of crude supply, the NNPC should develop a profitability plan for the refineries that will guarantee good economics for the refinery.
Even if the importation plan sails through, Nigeria would have to also contend with the challenges of getting supplies from Chad and Niger as both neighbouring countries have security challenges from the Boko Haram insurgency along their borders with Nigeria.
Okon added that this was a very critical issue that must not be overlooked by Nigeria in its plan.
Still Poor Outing for Nigeria’s Refineries
Notwithstanding the plan for Kaduna, the June 2016 financial report of NNPC indicated that the country’s four refineries are still far from the profitability threshold.
The report showed that inadequate maintenance and vandalism of crude oil pipelines have led to the sub-optimal performance of the 445,000bpd capacity refineries.
Their poor productivity had continued despite the re-commissioning the 46-km Escravos-Warri pipeline repaired by Ocean Marine Solution in April this year by the Minister of State for Petroleum Resources, Ibe Kachikwu.
The line was to restore crude oil supply to Warri and Kaduna refineries, but militants in the Delta had broken into it again in renewed vandalism.