Refining crisis forces Nigeria to import $10.6b products

In spite of the existence of four
refineries and 37 licences for prospective refineries, Nigeria still
imports over 80 per cent of refined products to meet its current
domestic need.

 

In  2017 alone, Nigeria imported 22.5387 billion litres of petroleum products worth over $10.6 billion from foreign refineries.

 

According to the Guardian, this is likely going to soar this year given the rising crude prices in the global marketplace.

 

Mr Staney Opara, in his perspective of the industry,
 examines the need to harness local refining capacity.

 

Between 2012 and 2017, the Department of
Petroleum Resources (DPR), granted licences to 37 private firms,
including the 650,000 barrels per day (bpd) Dangote Refinery Plc, for
the establishment of private refineries in the country.

 

However, six years after being granted
licences, 36 of the licensees are yet to record meaningful progress in
terms of construction of their refineries. Among the licensed companies,
which have capacity to refine 2.3 million bpd
of crude oil, only the Dangote Refinery has reached an advanced stage
in ensuring the completion of the refinery.

 

Despite being one of the largest
producers of crude oil in Africa in the last four decades, Nigeria has
consistently struggled to keep its refineries functioning optimally, but
to no avail.

 

The coming on stream of these licensed
refineries is expected to turn Nigeria into an exporter of refined
petroleum products. Unfortunately, apart from the 650,000 bpd Dangote
Refinery, many other licences have not moved beyond
the initial level of obtaining permission to establish.

 

Some of these licences have expired with
no efforts from the holders to re-apply, which is an indication that the
project may have been put to rest.

 

The inability of the other private
refineries to make significant progress, has now put so much pressure on
the Dangote Refinery to bail Nigeria out of the burden of mass
importation of petroleum products.

 

In spite of having a nameplate capacity
of 445,000 barrels per day with refineries and depots in strategic
locations in the country, Nigeria imports over 80 per cent of refined
products to meet its current domestic need.

 

The country is one of the largest
consumers of petroleum products in Africa, and accounts for over seven
per cent of Africa’s refined products consumption, importing over one
million tonnes of Premium Motor Spirit (PMS) every
month.

 

For example, total crude processed by
domestic refineries are: Warri Refining & Petrochemical Company
(WRPC) for the month of March 2018 was 271,215 Metric Tonnes (MT) while
Port Harcourt Refining Company Limited (PHRC) and Kaduna
Refining & Petrochemical Company (KRPC) only processed intermediate
7,675MT and 12,675MT, respectively.

 

For the month of March 2018, Nigeria’s
three refineries produced 159,424 MT of finished petroleum products and
67,428 MT of intermediate products out of the 271,215 MT of crude
processed at a combined capacity utilisation of 14.41
per cent, according to the Nigerian National Petroleum Corporation’s
(NNPC) monthly financial report released recently.

 

Commenting on Nigeria’s refining
revolution, Partner, Africa Oil and Gas Leader, PricewaterhouseCoopers,
Pedro Omontuemhen, said the current supply gap in the country creates an
opportunity not just for conventional refineries
such as the Dangote refinery, but also for modular refineries which are
set up primarily to meet domestic demand.

 

This, he said, 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.

 

With 37 licences already granted by the
DPR to companies, including Dangote Refinery, to establish private
refineries in the country, the world is earnestly waiting for Nigeria to
halt importation of petroleum products and become
net exporter of PMS come 2019 or early 2020.

 

The private refineries, which have
capacity to refine over 2.3 million barrels per day, would not only make
Nigeria a net exporter of petroleum products, but also make the country
an importer of crude oil to meet local demand
of the refineries, which is already more than the country’s daily crude
oil production.

 

For example, Nigeria’s crude oil
production, including condensate, was 1.97 million barrels per day (bpd)
in July 2018, according to the Ministry of Petroleum Resources.

 

This is grossly inadequate to meet the
total demand of the private refineries with total capacity of 2.3 mbpd
and another demand of 445,000 bpd from the three Nigeria’s refineries.

 

The Dangote refinery is so important to
Nigeria’s self-sufficiency plans, and this informed the Minister of
Petroleum Resources, Dr. Ibe Kachikwu’s announcement of the Federal
Government’s support to the completion of the refinery.

 

Kachikwu, during a recent tour of the
refinery, commended Dangote for the project, while assuring of total
support in promoting the success of the project.

“Government will support to incentivise policies that will promote and attract investors to the refinery,” he assured.

 

Kachikwu, however, commended the
management for the ways local communities were engaged and carried along
while urging other companies to emulate the company.

 

Dangote Group is currently building the
single largest refinery, petrochemical and fertiliser complex in Africa.
The project is sited in the Ibeju-Lekki Free Trade Zone (FTZ), Lagos
State, Nigeria.

 

The refinery will have the capacity to
refine 650,000 barrels of crude oil per day. The petrochemical plant
will produce 750,000 metric tonnes per year (MTPY) of polypropylene.

 

The ultra-modern setup, which has adopted
world-class technology in its processes, is designed to meet domestic
and international demand for fuel.

According to the Executive Director,
Dangote Group, Devakumar Edwin, the refinery project is ongoing and it
is expected to help Nigeria achieve self-sufficiency.

 

“Our primary focus is Nigeria, but we are
also going to supply our products to Central and Western African
countries. Our primary focus is Nigeria – to meet the entire local
demand; but we have the capacity to export more than
50 per cent of what we produce, so the secondary focus will be on
western Africa and central Africa,” he said.

 

 “There will be no more
queues at the filling stations due to fuel shortage, which cause traffic
and waste innumerable man hours. And, last but not the least, the
quality of our products will
be high because we are coming out with Euro V grade.

 

“In Europe and in the United States, the
refineries are now being converted to Euro V grade. In our own case, we
are building a refinery which will produce Euro V grade from day one.
Finally, huge amount of foreign exchange will
be earned from the export of gasoline, diesel, aviation jet fuel and
polypropylene.”

 

For the Managing Director/Chief Executive
Officer of Seplat Petroleum Development Company, Mr. Austin Avuru, it
is only the Dangote Refinery that has the prospect to make Nigeria
self-sufficient in petroleum products.

 

He said, “The only one that has prospects
is Dangote. He is raising money from an existing business, so he has
the fund to build it. He is going to open doors, anyway. Once he builds
his own, the existing ones will rather be sold
off or will die.”

 

Rather than becoming Nigeria’s sources of
revenue generation, NNPC’s refineries have become main nexus of waste
and revenue loss through their Domestic Crude Oil Allocation (DCA) and
unending Turn Around Maintenance (TAM) processes.

 

For example, NNPC has been spending billions of dollars on TAM in the past 15 years with nothing tangible to show for it.

 

According to the Natural Governance
Institute (NGR), the government allocates around 445,000 barrels per day
to NNPC in so-called ‘domestic crude’.

 

The institute explains: “NNPC sells this
oil to the Pipelines and Product Marketing Company (PPMC), one of its
subsidiaries. PPMC is supposed to send the oil to Nigeria’s four
state-owned refineries, sell the resulting petroleum
products, and pay NNPC for the crude it received, and then NNPC is
supposed to pay the government.

 

“In practice, the refineries only process
around 100,000 barrels per day. NNPC ultimately re-routes most DCA oil
into export sales or oil-for-product swaps.”

 

There are also indications that there are
group of people who are against local production of petroleum products
due to their selfish interest in the importation of petrol, kerosene and
diesel.

 

A source, who craved anonymity, said
there are people who will see to it that Nigeria does not refine one
barrel of oil, “because if we do, then we will cut them out from all
these importation and diversion.

 

“Look at our refineries that are not
working. Why should that be the case? We are producing oil; all the
other members of the Organisation of Petroleum Exporting Countries are
refining crude oil efficiently. And with four refineries,
we cannot refine the crude we produce,” the source said.

 

“NNPC should focus on revitalising
Nigeria refineries, rather than signing new agreement. We need our
refineries to work first before focusing attention on other major
projects,” the source said.

 

The Group Managing Director of the NNPC,
Maikanti Baru, is optimistic that Nigeria’s four existing refineries
would begin full capacity utilisation before the end of 2019.

 

But stakeholders in the Nigeria oil and
gas industry believe that the Nigerian refineries will not work until
they are privatised. They opined that the production of petroleum
products should be left to the private sector.

 

Former Executive Secretary of the Major
Oil Marketers Association of Nigeria (MOMAN), Thomas Olawore, stated:
“As presently owned, the refineries cannot work until they are
privatised. Monies will be pumped into rehabilitation
and maintenance, but they won’t take us anywhere. It’s not the first
time that monies were budgeted for the refineries. Why should we
continue to waste such monies?”

 

The Executive Secretary of Lubricants
Producers Association of Nigeria (LUPAN), Obidike Emeka, said the
Federal Government should channel its resources and actions towards
eliminating the challenges inhibiting the development
of private refineries, and make the prospect of modular refining more
appealing and profitable to investors.

 

“This it can do by setting up investment
friendly legal, economic and regulatory framework and policies, while
minimising bottlenecks and stipulating moderate, practical licensing
procedures,” he added.

 

He called for special funding mechanism to encourage investment in refineries.

 

Obidike stated: “Institutions like the
Bank of Industry (BoI) were established to assist businesses all of
which are afflicted with the same complications – asphyxiating criteria
and crippling interest rates on loans, whose repayment
plan most times put their beneficiary out of business.

 

“So far, none has effectually carried out their objectives and responsibilities.

 

Whatever incentives and policies the
government proposes to extend to encourage prospectors into investing in
this venture, should ensure punctual and constant availability of crude
to the refineries, and guarantees to backstop
investors’ obligations.”

 

“They should also ensure fiscal
incentives such as access to loans with lenient interest rates and
repayment plans, attractive pioneer status, and the occasional exemption
from certain duties and taxes, and protection of their
investment by addressing issues bordering on vandalism and oil theft”,
he added.