For so long, Nigeria has depended on imported petroleum products, exporting crude oil and importing its finished products, to run the engine of her national economy. The Nigeria Extractive Industry (NEITI) says about N3.6trillion was frittered by the Federal Government on the importation of premium motor spirit (PMS) in six years. It is against this background that the approval of about 65 modular refineries by the Federal Government becomes significant. Stakeholders in the oil and gas sector say if the refineries go on stream, they will have a multiplier effect on the economy, ending perennial fuel scarcity, turning the country into a hub of finished petroleum products for the West African sub-region and creating jobs, writes AKINOLA AJIBADE.
Nigeria is a member of the Organisation of Petroleum Exporting Countries (OPEC) pumping an average of about 2.3million barrel of oil per day (bpd) to the group’s daily basket. But she is hardly able to meet her daily domestic fuel demand of about 35million litres. The reason for this is not far fetched.
The three refineries in Port Harcourt (1&2), Warri and Kaduna hardly produce to total installed capacity of refining 445,000 bpd. Thus, the need to import finished petroleum products to augment the shortfall in domestic fuel need becomes inevitable.
With falling prices of crude oil in the international market, Federal Government earnings have dipped. The situation has also forced policy makers to go back to the drawing board. One of the result of these brainstorming sessions by the PresidentMuhammadu Buhari’s administration is the grant of approval to about 65 companies to operate modular refineries, as part of efforts to increase fuel production, ease fuel scarcity, which has become a perennial problem in Nigeria.
Though details of the companies that were approved to set up modular refineries are still sketchy, sector analysts say the approval is a step in the right direction. This is because for the first time, the Federal Government is showing more interest in the operation of modular or non-conventional refineries in the country to address the twin issue of perennial fuel scarcity and depletion of foreign exchange (forex) on the importation of PMS.
Conceived by the Federal Government to serve as a back-up to the local refineries in the event that they suffer technical problems and stop production, the idea of modular refineries will in the short-term help assist in reducing fuel scarcity.
Incentives that would boost modular refining operations in Nigeria include guaranteeing of 100 per cent crude oil feedstock for all refiners for at least 10 years; discounted price of crude oil for domestic consumption; a minimum of 60 days credit for each cargo of crude oil
Prior to this period, stakeholders including the Federal Government, the Nigerian National Petroleum Corporation (NNPC), Department of Petroleum Resources(DPR) and oil marketing companies, among others, in the value chain have been advocating for the establishment of modular refineries as part of efforts to ensure that Nigeria meets her domestic fuel needs. Also, calling for the establishment of modular refineries was the Joint Task Force (JTF), an agency charged with the responsibility of monitoring the waterways in the Niger-Delta region in order to check crude oil theft.
At forums organised by both the government and private sector operators in the oil industry, the issue of modular refineries had always stood at the centre of discussion.
The discussion was borne out of the need to allow smaller refineries to operate in order to complement the efforts of state-owned refineries that have for long been grappling with problems such as low output, failure to meet the growing needs of users of petroleum products, and excessive spending of tax payers’ money on turn around maintenance (TAM).
Other problems, which made stakeholders to call for the establishment of modular refineries include the huge bills by the government, as a result of sourcing for spare parts from the Original Equipment Manufacturers (OEMs) abroad in order to make the refineries work and further reduce importation of fuel into the country.
Even though the refineries are believed to be working at 60 per cent capacity, with the figure expected to rise from 90 per cent to 100 per cent soon, barring any unforeseen circumstances, the refineries are yet to produce fuel that would meet the requirements of domestic users, which, according to the NNPC, stands between 39 million and 40 million litres per day.
To boost fuel production and meet local demands for the product, the government has decided to tinker with the idea of modular refineries.
What are modular refineries?
According to the search engine, Google, “a modular refinery is a processing plant that has been constructed entirely on skid mounted structures. Each structure contains a portion of the entire process plant, and through interstitial piping the components link together to form an easily manageable process.”
The Bureau of Public Enterprises (BPE) further defined modular refineries as refineries whose parts or equipment are constructed in modules, which are designed to be quickly and easily transported to any parts of the world.
Modular refineries in Africa
The idea of modular refineries is increasingly becoming popular in Africa. Some countries in the continent have already set up smaller refineries to complement the regular or conventional ones. The Nation gathered that countries such as Senegal is running a modular refinery with a capacity of 27,000bpd capacity, Cameroon has a modular refinery with 42,600bpd; Congo, 21,000bpd; Niger Republic, 20,000bpd; Chad, 20,000bpd; Zambia, 34,000bpd, and Gabon, 25,000bpd.
A Professor of Energy Economics, University of Ibadan, Adeola Akinnisiju, said the idea of modular refineries is gaining ground in Africa, adding that it would be good if Nigeria can explore opportunities in modular refinery for growth.
He said: “A few African countries are refining to meet their needs through the regular and modular refinery models. Apart from oil-producing countries such as Algeria and Libya, which refine 499,000bpd and 380,000bpd, respectively, South Africa and Egypt also do same with 626,500bpd and 1,102,550bpd, respectively.”
Capacity/location
Industry operators say modular refineries come in a variety of sizes with capacities that range from 500 to 20,000 bpd. The Deputy Director, Engineering and Standard, DPR Engineering, Mr. Alfred Ohiani, said modular refineries are made to refine smaller proportion of crude oil into petroleum products, adding that the refineries are best suited for remote locations or where marginal oil fields are located.
Ohiani, who spoke during a one-day programme organised by the BPE in Abuja to sensitise Nigerians on the importance of modular refineries in the oil and gas industry and the country in particular, said such refineries could be established in rural and semi-urban areas in order to boost their economic activities.
Also, the Chief Executive Officer, Jehata Nigeria Limited ( owners of Abuja Power Station in Abaji) Jameel Jammal, said modular refineries are best suited for remote location, adding that his company is building one in Abaji to boost production of petroleum products in the area.
Cost-benefit analysis
It was gatherd that modular refineries can be set up with between $1m and $15m depending on their capacities, as against conventional refineries that require billions of naira to set up and maintain.
Jammal said an average modular refinery costs between $2million and $5million, depending on the size, adding Jehata Nigeria Limited is building a modular refineries with 25,000 capacity in Abuja.
He, however, said some modular refineries require a lot of money to operate, due to their complex nature. According to him, the modular refineries, which Jahata Nigeria Limited is building in Abuja have complex nature, adding that it will have more than five different lines of production.
This, Jammal said, means that his company would spend a lot of money to bring the project to fruition.
“There would be kerosene, PMS, AGO (diesel), jet fuel, and gas section. It will be a big project covering a large expanse of land,”’ he said.
Socio-economic benefits
The immediate past Commander, JTF, Major General Emmanuel Atewe said modular refineries would help in creating jobs for people. He said the idea would create direct and indirect jobs in the country.
According to him, many youths in the oil-producing region of Niger-Delta, are committing crimes because they do not have jobs.
He said areas such as Gbaramotu, Alakiri among others in the region, boast of illegal refineries, adding that such refineries could be converted into modular refineries to facilitate socio-economic growth.
He said: “JTF, under my watch, has visited many communities in the Niger-Delta region. During the visit, we discovered that there is huge unemployment in the region. Many of the residents are jobless because their lands and waters have been destroyed by spills from vandalised oil pipelines. Farming and fishing are the two traditional occupations of the people of Niger-Delta, and inability to get jobs to do made them to indulge in criminal activities.”
Atewe said when modular refineries are established in the region, its inhabitants would not only have jobs to do but further help in contributing to the socio-economic growth of the area.
The Deputy Director, Engineering and Standard, DPR, Engineering, Mr. Alfred Ohiani, said modular refineries would help create jobs for professionals from different field of endeavors aside improving the production of fuel in the country.
Modular vs conventional refineries
Both are serving the same purpose of refining crude oil into petroleum products, but differ in some aspects. The differences between modular and conventional refineries are in their configurations, production capacity, cost of investment, among other variables.
Jammal said modular refineries are mostly installed on topping or hydro skimming plant, while the configuration of conventional refineries take the form of topping, cracking and hydro skimming. He said conventional refineries can process different kind of crude, while the modular refineries cannot.
He said in modular refineries, the refining units may operate independently or be interconnected, or a combination of both aspects. According to him, the cost of installing equipment used in a modular refinery is small, adding that the rate of recovering money spent in setting up a mini-sized refinery is faster than a conventional refinery. He said Nigeria can operate modular refineries alongside the conventional refineries in order to produce fuel that would meet the needs of its over 170million population.
Challenges
In spite of its overwhelming advantages, the process of setting up modular refineries, is not without hiccups or problems. Like previous initiatives, modular refineries are going to suffer problems such as human, material and community attacks.
Akinnisiju said certain challenges are bound to hinder the operation of modular refineries. According to him, such challenges are tied to political, land, funding, crude feedstock and market viability.
He said: “These refineries are going to be located mainly in the Niger Delta, and the state governments may want to get involved because it is a high revenue earner, which grants only 28 days credit cycle.
“Also, refinery requires huge land, and there may be issues with acquisition from the land owners and to cap it all, refinery of any capacity requires huge capital. You need at least $30,000 to produce a 1,000bpd, which is a huge sum of money.“
He said modular refineries require a strong market to survive, and provide multiplier effects on the economy.
One of the major problems facing modular refninery project is dearth of funds. Banks are not ready to make funds available for the project. Besides, they are not ready to assist by way of standing for the company as guarantor
“If there is no guaranteed market, we will face a similar situation like what is happening in the power sector, where meter manufacturers have manufactured millions of meters, but the distribution companies refused to take them,” he said.
Also, in the area of funding, he noted : “some modular refining equipment manufacturers in the United States (U.S.) can partner with the licencees by contributing their equipment as equity investment in the project, while some can work with the U.S. Export-Import, EXIM Bank to finance their equipment.
Jammal said problems such as funds, bureaucratic bottlenecks, infrastructural deficit in the host communities, among others, are responsible for the slow pace of work at the proposed power station and refinery project of the company.
He said the resolve of the company to build the power station and the refineries was borne out of the desire to improve the energy needs of Nigerians, lamenting that funds have hindered the project.
He said local banks have refused to show interest in the modular refinery and other projects, by not lending to the company.
“One of the major problems facing modular refninery project is dearth of funds. Banks are not ready to make funds available for the project. Besides, they are not ready to assist by way of standing for the company as guarantor. When you are bringing foreign investments into the country, you need a local bank to stand for you to guarantee the foreign loans you are going to use for the project. But, this is not forthcoming,” he said.
Jammal observes that owners of modular refineries are going to have problems with land, stressing that his company is finding it difficult to get government’s approval on the land earmarked for its refineries
“We have been waiting for approval of the land by the management of the Federal Capital Territory. We want the Minister of Federal Capital Territory to intervene to get the land. We are not asking for the land for free. The communities in which the land is located are cooperating with us. They have welcomed us but getting approval is a problem. Despite the fact that Jamata Nigeria Limited is planning to develop Abaji and its environs by citing its power station and refineries in that community, the company is yet to get approval on the land earmarked for the project. Many firms are likely going to experience similar problems too,” he added.
Ways forward
Sourcing for funds to execute certain critical projects is now a problem in Nigeria. The decline in the international prices of crude oil, and other issues in the global petroleum industry, makes it difficult for some oil and gas operators to get funds from financial institutions in the country and beyond. Experts said it is imperative that investors in modular refineries collaborate with one another for growth.
The President of Nigerian Chapter, International Association of Energy Economists, Prof Wunmi Iledare, said the cost of funding businesses in the sector is high, arguing that financial institutions are skeptical about advancing loans to businesses whose rate of returns is low. He said collaboration among investors in oil and gas projects is important in this regard.
Jameel said the provision of collaterals by the Federal Government would help in stimulating the growth of operators in the oil and gas sector, urging the Central Bank of Nigeria(CBN) to provide collaterals for ease of take-off of modular refineries.
Besides these guarantees, he said other incentives that would boost modular refining operations in Nigeria include guaranteeing of 100 per cent crude oil feedstock for all refiners for at least 10 years; discounted price of crude oil for domestic consumption; a minimum of 60 days credit for each cargo of crude oil, at least for the first five years of operations; while the supply of crude oil feedstock should commence as soon as DPR certifies mechanical completion of each new plant.
A few African countries are refining to meet their needs through the regular and modular refinery models. Apart from oil-producing countries such as Algeria and Libya, which refine 499,000bpd and 380,000bpd, respectively, South Africa and Egypt also do same with 626,500bpd and 1,102,550bpd
Others are guarantee of 100 per cent refined products off-take by government (NNPC); government guarantee of foreign loans for domestic companies wishing to set up refineries; plants should be granted tax exemption for at least three years from date of commencement of operations; plants should be exempted from import and export duties and value-added tax (VAT) for at least five years; plants should enjoy accelerated capital allowance of about 95 percent and the percentage of assessable profit for the purpose of capital allowance recovery should be 70 per cent at most.
