Modular Refineries to the Rescue

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Nigeria needs as much fuel as it can refine. With the roaring into life of modular refineries, the nation’s journey to self-sufficiency has begun, Nume Ekeghe reports

When President Muhammadu Buhari performed the virtual inauguration of the National Oil and Gas Excellence Centre on January 21, 2021, on one of the issues he spoke about was modular refinery. He mentioned the completion of the 5,000 barrels per day Waltersmith Modular Refinery.

The refinery is near the Ibigwe marginal field flowstation in Imo State. It is the biggest commissioned modular refinery in Nigeria. The African refinery project is being developed in phases by Waltersmith Refining and Petrochemical Company, a subsidiary of Nigeria-based Waltersmith Petromen Oil.

The phase one of the refinery started operations in November 2020. The company was granted a license by the DPR to establish the refinery in June 2015 and received the construction approval in March 2017. The final investment decision (FID) on the phase one refinery project was reached in September 2018.

The ground-breaking ceremony for the expansion of the refinery to 50,000bpd capacity took place in November 2020. The modular refinery is intended to reduce Nigeria’s import of petroleum products.

The Waltersmith modular refinery comprises a crude distillation unit, tank farm, and other related facilities.

The modular refinery is expected to deliver 271 million litres of refined petroleum products a year. The crude oil storage capacity of the refinery is approximately 60,000 barrels.

Subsequently, the refinery is planned to be expanded in phases to have a 20,000bpd crude oil refining facility and a 25,000bpd standalone condensate refining facility taking the total processing capacity to 50,000bpd.

The refinery receives feedstock from the Waltersmith-operated Ibigwe marginal field. The petroleum products produced in the refinery include diesel, naphtha, heavy fuel oil, and kerosene.

Africa Finance Corporation agreed to provide debt finance of approximately £26.5m ($35m) for phase one refinery development in July 2018.

Velem, a joint venture between US-based VFuels and Nigeria-based Lambert Electromec, was awarded an engineering, procurement, and construction (EPC) contract for the initial 5,000bpd modular refinery project in April 2018.

There are indications that the project will be a success. Already, President Buhari has instructed the Ministry of Petroleum Resources, Department of Petroleum Resources (DPR) and Nigerian National Petroleum Corp. (NNPC) to provide all necessary support in securing oil and condensate feedstock for the second phase.

The commissioning of the refinery also received the support of other stakeholders. Imo State Governor Hope Uzodinma and Ministry of State for Petroleum Resources Timipre Sylva cut the tape on the President’s behalf. Also in attendance at the ceremony was NNPC’s head Mele Kyari, Nigerian Content Development & Monitoring Board (NCDMB)’s executive secretary Simbi Wabote and Waltersmith chairman Abdulrazaq Isa.

Commercial operations began on November 3, last year. Seplat Petroleum has a working agreement with Waltersmith on processing.

The company will build the second phase in two parts. One is a 25,000 bpd standalone condensate refinery. The company aims to complete this by 2023. The second part will be another 20,000 bpd crude processing plant.

Another example of Nigeria’s strides in modular refining is the Edo Modular Energy refinery which is set to increase crude oil production from 6,000 barrels per day (bpd) to 60,000 bpd. The project, being developed by two Chinese firms; AIPCC Energy Limited and the Peiyang Chemical Equipment Company Ltd, is expected to commence operations between September and mid-October. The first phase will produce 1,000 bpd, while the second phase will produce 6,000 bpd; with a long-term goal of producing 60,000 bpd.

Phase one – which is almost complete – will target a production ratio comprising 55 per cent diesel, 38 per cent fuel oil and less than 10 per cent naphtha. If the firm’s projections are anything to go by, some of its products will be exported to boost foreign exchange earnings and by the time it extends operations into different phases, the firm would be able to take care of more than 80 per cent of diesel requirement in Nigeria.

The investment is also expected to benefit Edo people through job creation, increased revenue and ease of pressure on other refineries.

According to Sylva, another modular refinery – the Atlantic Modular Refinery on Brass Island, Bayelsa State – will begin this year.

The key objectives of the modular refinery initiative include to promote availability of petroleum products in the country, conserve foreign exchange utilisation for the importation of Petroleum Products, promote socio economic development in order to stop restiveness, criminal and illegal refinery activities thereby sustaining peaceful coexistence in the Niger Delta Region and mitigate or eliminate environmental degradation associated with illegal refinery activities, crude oil theft and pipelines vandalism.

The signs, so far, is that the government, or if you will, Nigeria, is on course to achieve the same.There are often two sides to the modular refinery debate. On the one hand, there is the argument that profit margins in the oil and gas drilling industry are so low that most modular refineries may not be economically viable.

As of January 2020, the average net profit margin for the industry was 6.8 per cent, according to data from NYU Stern School of Business.

Competition from shale oil, excessive supply, generous financial markets and the coronavirus pandemic also have a deleterious effect on the sector’s net profit margins.

But there is a silver lining on the horizon for the industry in Nigeria which, among others, makes the case for modular refineries easy to argue.

Africa currently has a deficit of 87 million metric tonnes per annum between demand and refining capacity in Africa. According to the International Energy Agency, this deficit may increase to over 200 million metric tonnes by 2030. This provides very significant opportunities for installation of more refining capacity on the continent.

Some analysts have observed that the countries in the best position to take advantage of this opportunity are those that have access to crude oil within their borders, access to a large market for the finished refined products and access to experienced personnel who can operate the assets.

Nigeria, with inadequate refining capacity, meets all the criteria, hence the opportunities for modular refineries – simple, fast to start up and usually operating at optimal capacity.

A modular refinery generally refers to a simple or complex refinery whose parts are fabricated or constructed in several component parts or units called modules. These modules can then be assembled easily to form the plant. Furthermore, they can be transported in modules across distances and put together at the location desired.

Theoretically, this is an advantage over larger refineries. It can also commence production with a small capacity of 5,000BPSD or 10,000BPSD, and grow its capacity over time by adding more modules. A modular refinery may therefore be composed from skid-mounted modules of small capacities, put together to achieve a refinery of even up to 100,000BPSD.

Unlike previous administrations, this federal government has been quick to support moves to establish modular refineries as a way to boost the country’s refining capacity.

As part of its strategy to reposition the oil & gas industry, President Muhammadu Buhari in 2016 launched a roadmap of short and medium term priorities aimed at developing a stable and enabling the oil and gas landscape with improved transparency, efficiency, stable investment climate and a well-protected environment, tagged “7big wins”.

The fourth initiative in the roadmap, “Refineries and Local Production Capacity” seeks to transit Nigeria from being an import dependent nation into a net exporter of refined petroleum products.

Thus, presenting huge investment opportunities in the mid-downstream sector that will result in GDP growth and jobs creation.

A key component of this initiative is government support for the establishment of third party financed Greenfield and modular refineries for in-country petroleum products sufficiency that will stimulate products export.

Part of the plan is that the refineries should be scalable and located within refinery clusters for effective operations and minimal environmental footprint.

Buhari, during the virtual commissioning of the Waltersmith Modular Refinery, said progress in Nigeria’s refining sector would eliminate imports and increase local availability.

He noted that the commissioning held after many years of previous administrations giving licenses for the establishment of modular refineries without any coming on stream.

The president had named modular refineries as one of the four elements in the government’s refinery roadmap, launched in 2018.

He noted that there was increased momentum in the other three focus areas under the roadmap covering the rehabilitation of existing refineries, co-location of new refineries, and construction of Greenfield refineries.

Buhari also spoke in support of the Nigerian Content Development and Monitoring Board (NCDMB), which bought a 30 per cent stake in the plant in 2018.

The process for establishing a Petroleum Refinery in Nigeria is regulated by the Department of Petroleum Resources (DPR) through Polices and Regulations promulgated by the Ministry of Petroleum Resources and Minister of Petroleum Resources respectively.

In 2018, the federal government granted licences for 13 modular refineries. Thirty-five expressions of interest were declared. When nothing came out of this, six fresh modular refineries licences were issued and work started on the sites.