Emmanuel Addeh writes that while it is a good first step, the first modular refinery in the country, which was recently inaugurated, is still too little to make a marked difference
With an estimated 200 million in population, Nigeria requires about 450,000 barrels of crude oil to be refined in-country to satisfy its local supply needs for petroleum products, according a 2016 data from the Statistical Review of World Energy.
Today, it is almost safe to posit that not a drop of the black gold , as it is popularly called, is processed locally, except of course, for the 5,000 capacity modular refinery inaugurated by President Muhammadu Buhari last week in Imo state and a couple of other negligible quantities here and there.
Last year, the federal government disclosed that about 43 refineries, including large-scale and modular refineries had been licensed to refine petroleum products across the country. Many of the licences granted preceded the current administration with some dating back to the Olusegun Obasanjo government.
Modular refineries are mini refineries with a reduced specified output level compared to full-blown refineries with the capacity to produce diverse finished petroleum products with an increased output quantity.
Apart from being portable, they have the advantage of a specified output and a relatively reduced cost of setting them up, compared to the traditional refineries. Experts also say the impact on the environment is also minimal as it doesn’t create much pollution and environmental degradation like the conventional refineries, none of which is currently working in Nigeria.
Furthermore, modular refineries reduce the cost of logistics in transporting finished products since their final products may not require long-term storage as they can be directly put in tankers or pipelines for onward distribution to retail outlets.
Aside the Waltersmith Refining and Petrochemical Company Limited in Ibigwe, which was commissioned last week, the Department of Petroleum Resources (DPR) listed some others which are currently on-going like OPAC refineries in Umuseti, Delta which has a 7,000bpd capacity .
There’s also the Azikel Petroleum Limited in Obunagha , Bayelsa with 12,000 capacity, the Ikwe-Onna Refinery Limited with 5,000bpd capacity in Akwa Ibom, the Edo Petrochemical plant in Ikpoba Okha, Edo, Lowrie Refinery Limited with 5,000 capacity and quite a handful of others that have reached various stages.
While this is a good development, it is however, not Uhuru for the Nigerian petroleum refining and supply system.
Against certain permutations, the rash of modular refineries in the country will not result in reduced pump prices, neither will it considerably positively impact local refining even if all the plants begin operation today.
Minister of State, Petroleum, Chief Timipre Sylva, captured the situation recently in an interview , arguing that modular refineries cannot replace the traditional large scale facilities.
“It is a very tall order (the issue of modular refineries making serious impact). For example, modular refineries are very small refineries: 1,000 bpd to 2,000bpd. In most cases they are so small that they don’t have the catalytic cracking unit to crack the crude, so they don’t produce the lighter ends like petrol.
“ They produce mostly diesel and other heavier products. So, they cannot be a replacement, they will only be an augmentation, because if you have 100,000 barrels, you will need 2,000 barrel refineries to give you the capacity that is being produced. There are issues of economy of scale.
“There are a lot of these modular refineries that are under construction. There’s one that’s ready for commissioning, 5,000 barrels per day. I am supposed to commission it. There are a lot going on, but they cannot replace bigger refineries because the volumes they produce cannot meet the needs of the country.
“If you put the volumes together, it’s still small. We still require bigger refineries and we are hoping that the Dangote refinery will be part of the solution to this problem. It’s about 650,000 capacity refinery in addition to the four other refineries,” he maintained.
A publication by PricewaterhouseCoopers (PwC), on the country’s inability to refine locally, submitted that over the last four decades, Nigeria has consistently struggled to keep its refineries functioning optimally, despite having a nameplate refining capacity that exceeds demand.
It stated that Nigeria ranks as the 3rd highest importer of petroleum products in Africa, bringing in over 80 per cent (now almost 100 per cent) of products consumed.
However , the organisation noted that in spite of the setbacks, the inherent opportunity for Nigeria’s erstwhile dormant refining sector holds bright prospects for the future and a recognition of key drivers will accelerate the imminent refining revolution, one of them being the establishment of modular refineries.
According to the organisation, if plans to upgrade existing refineries and the issuance of 25 refining licenses (conventional and modular) to indigenous companies are rigorously pursued, it will drive growth and reforms within the sector in the medium to long term.
“Our outlook illustrates the potential of the sector with focus on the volumes that modular refineries can contribute to bridging the supply gap in the country and regionally. These are presented in three different scenarios.
“In our scenarios, key assumptions are made across refinery setups: modular and conventional. Modular refineries are assumed to be set up close to crude sources either within existing refineries or on onshore marginal fields.
“They are also assumed to be set up close to consumption clusters thereby making them better positioned for domestic supply. On the other hand, conventional refineries are assumed to be set up to source for crude internationally and to supply both international and domestic markets,” it said.
The company stressed that while modular refineries which will be set up primarily to meet domestic demand, provides the “bottom-up” supply into the fuels value chain, another critical assumption is that the modular refineries yield will be limited to fuel oils and diesel as the lightest hydrocarbon produced.
But President Buhari says that he remains upbeat about the possibility of the modular refineries transforming the sector in terms of enhancing supply and creation of jobs.
Delivering his address at the Waltersmith event, Buhari stated that the deployment of modular refineries was one of the four elements of the refinery roadmap introduced the federal government in 2018 to meet local needs for petroleum products and eliminate importation.
He assured that government was making good progress in the rehabilitation of existing refineries, co-location of new refineries, and construction of greenfield refineries, with the goal of making Nigeria a net exporter of petroleum products in a few years’ time.
Buhari stated that the initiative came on stream several years after licences were issued for the establishment of modular refineries without any result, saying the realisation of the refinery roadmap will ultimately lead us to becoming a net exporter of petroleum products not only to our neighbouring countries but to the worldwide market.
The president described plans to commence the expansion of the 5,000-capacity refinery to 50,000 barrels per day for the refining of crude oil and condensates as an integral part of the economic reforms that the country is undergoing.
He stated that he looked forward to seeing the new phase completed within the target timeframe, adding that he had also directed the Ministry of Petroleum Resources, Department of Petroleum Resources (DPR), Nigeria National Petroleum Corporation (NNPC) and all relevant government agencies to provide Waltersmith company with all the needed support to access crude oil and condensate feedstock for the timely delivery of the additional capacity.
Buhari said in accordance with his administration’s agenda for jobs’ creation, it was heartening that hundreds of direct and indirect jobs were created during the construction of the first phase of the project in addition to various business opportunities.
Also, Sylva, in his speech, noted that only investors who have faith and belief in Nigeria, with clear delivery strategy , would have had such boldness to invest in refining like the company which established the plant in collaboration with the NCDMB.
He argued that efforts to achieve sufficiency of locally refined petroleum products has to be a combination of large-scale processing plants as well as small to medium modular processors which will be enabled by our progressive policies and regulations.”
In his remarks, the Executive Secretary of NCDMB, Mr. Simbi Wabote, emphasised that modular refineries would create job opportunities and business prospects, enhance availability of petroleum products, and provide a ready market for some of Nigeria’s crude cargo within its shores.
Wabote disclosed that the NCDMB was also in partnership with other investors for the construction of a 2,500bpd modular refinery in Edo State, which will later be expanded to 10,000bpd and another 12,000bpd hydroskimming refinery in Bayelsa State, that will produce a full slate of petroleum products to serve immediate and nearby markets.
He canvassed that at least 10 percent of Nigeria’s oil production should be refined through modular refineries, noting that an average of 10 direct jobs are created for every 1,000barrels/day capacity of modular refinery.
“We believe that about 3,000 direct jobs and over 100,000 indirect and induced jobs can be created if 10 percent of Nigeria’s oil production is refined using modular refineries,” the ES said.
However, despite the uncurbed optimism by officials of government, the reality is that 5,000bpd in a country that requires a refining capacity of close to 500,000 bpd and over 50 million litres of refined products daily cannot be the silver bullet to Nigeria’s refining challenges.
Proshare, an organisation which prepares and disseminates information , including news, data, research and analytics, says the challenges to modular refinery operation in Nigeria includes regulatory uncertainties and several other issues.
It listed others as industrial sabotage, crude oil theft, illegal refining operations, pipeline vandalism and piracy present significant challenges in the oil and gas industry.
“Modular refinery investors can be swayed by the security condition of the country as investors would, more often than not, desire an environment, where their investment is not only safe but also secure.
“The several initiatives to curb instability within the Niger Delta Region of the Nigerian government as well as multinationals notwithstanding, security still mains a major challenge. As a matter of fact, instability in the region has compelled some companies to declare force majeure on oil shipments, ” it said.
Again, it stated that feedstock access remains one of the biggest challenges which local and new modular refineries are most likely going to be faced with.
“ Guaranteed feedstock access has not been aided by inadequate infrastructure, insecurity and unstable production.
“Inability to predict whether contractual terms will be honoured and not be deviated from pose a great challenge. Every investor is concerned about the performance of contracts and often wary of contractual breach.
“Antecedents of the Nigerian government in its disposition in some of the joint venture contracts with some of its International Oil Companies (IOC) partners sometimes leave a lot to be desired.
“While there is some motivation that the government is desirous of honouring contracts executed by its representatives, more efforts should do more to ensure that agreements entered into on its behalf are kept,” it noted.
In all, although the minister of state petroleum, disclosed a few days ago that five modular refineries are on the verge of completion, which he said will produce about 50,000 barrels per day, Nigeria still has a long way to go.
Many Nigerians hold the view that a country so endowed should not roll the drums out for a 5,000 capacity refinery when it requires 450,000 daily production to match current local demand.
As the Managing Director (downstream) of Aiteo Energy Resources, Mr. Ewariezi Useh, cautioned when he spoke at last year’s Nigerian Oil and Gas (NOG) Conference and Exhibition, , Nigeria’s fuel supply challenges cannot be addressed by modular refineries alone.
He noted that that most modular refineries produce only diesel, adding that significant investments are required before a modular refinery can begin to produce petrol.
“If you are to get petrol from a modular refinery, you would need to have Fluid Catalytic Cracking (FCC) unit attached to it, which is way expensive and only a few people can put that kind of fund today,” he argued.
He insisted that the right policies and the right environment would bring the much-needed investments in the refining business, saying that hopefully the passage of the Petroleum Industry Bill (PIB), will define the regulation of the industry to ensure detailed clear-cut margins.