Perennial scarcity of products and the shortfall in the needed foreign exchange for sustained imports in sufficient quantities have combined to present Nigeria with a compelling reason to review her policy of importing refined petroleum products. With global crude oil prices tumbling from an all-time high of $147 per barrel in 2008 to a lowly $29 pb earlier this year, before rebounding to $40 pb last week, resources for the continued importation of petroleum products are becoming thin on the ground, while long queues dominate petrol stations across the land.
As Africa’s largest crude oil producer, the country has no business whatsoever relying on imports to satisfy local needs. It is indeed embarrassing that Nigeria imports refined products, while her crude oil cargoes float on the high seas, waiting for buyers. There is, therefore, an urgent need to buck the trend of squandering the proceeds of crude oil sales on importing refined products.
To solve the problem, Nigeria needs to restrategise and embrace pragmatic options that will not only guarantee refining for local demand, but also ensure her emergence as an exporter of refined products. The Minister of State for Petroleum Resource and Group Managing Director of the Nigerian National Petroleum Corporation, Ibe Kachikwu, showed government’s strong commitment to tackling this problem when he said last week, “On the whole, we must target a time frame of between 12 and 18 months to get out of importation, for it is not good for the country. It leads to loss of income to the government and creates a huge amount of emotional backlash.” We will hold him to his promise.
This also informs the recent move by the Department of Petroleum Resources to encourage the option of modular refineries which, though coming belatedly, should be applauded. Considering the urgency of the situation, coupled with the capital-intensive nature of building conventional refineries, the government intends to cash in on modular or mini-refineries to ramp up local refining capacity and end the vicious circle of a major crude oil producer relying almost entirely on imports for local consumption. This decision to mobilise private interests in local refining has already resulted in the government issuing modular refinery licences to prospective refiners.
Modular refineries, unlike the conventional ones, are processing plants constructed entirely on skid mounted structures. According to Chemex Modular, a pioneer of modular refinery, “Each structure contains a portion of the entire process plants and through interstitial piping, the components link together to form an easily manageable process.” The unique thing about modular refinery is that it is smaller and can be completed within 12 and 18 months, depending on the capacity, which could range from 500 barrels per day to 20,000 bpd.
It is also cheaper; with between $1 million and $15 million, a modular refinery could be constructed, according to reports quoting the DPR. By contrast, it takes hundreds of millions of dollars – even billions, depending on the size – to bring a conventional refinery on stream. Recent reports indicate that no fewer than 23 companies have been licensed to promote modular refinery, with the prospect of not only making refined products available in sufficient quantities but also creating a lot of jobs.
Although this is not the first time the government would be licensing private participants in the refining business, the landmark decision to review the guidelines, which had hitherto kept private interests away, is expected to boost investor confidence. Most importantly, the DPR’s decision to halve the licensing fee from $1 million to $500,000 will doubtlessly send out a strong message of intent to prospective investors.
The first attempt by the government to encourage private participation in oil refining in 2002 ended disastrously, as only one of the 18 licensed firms, with a refining capacity for 1,000 bpd, successfully put its licence to good use, in diesel refining. Complaints of stiff guidelines and government’s refusal to quit the downstream sector, among other things, have held back many would-be private investors.
Currently, Nigeria boasts four government-owned refineries in Port Harcourt, Warri and Kaduna, working in fits and starts. Assuming they work optimally, their output will be just 20 million litres of Premium Motor Spirit per day, from a 445,000 bpd allocation. This is just 50 per cent of Nigeria’s daily consumption needs, estimated by Kachikwu at 40 mlpd. Yet, their performance has never come anywhere near full capacity.
They have been hobbled by massive corruption, resulting in the government coughing up billions of dollars that would otherwise have gone into infrastructure development to finance fuel imports as well as frequent and fraudulent turnaround maintenance. The fact that refined products are subsidised is also an avenue for massive looting of government resources. In 2011, fraudsters swindled Nigeria out of over N1.7 trillion, more than a quarter of the national budget, in dubious subsidy implementation.
With Africa’s richest man, Aliko Dangote, already investing in the downstream sector, the future can only be rosy for local refiners. Dangote’s 650,000 bpd capacity refinery, expected to come on stream by 2018, will put Nigeria in the league of countries that will be exporting refined petroleum products and meeting the domestic demands. But before then, Nigeria has to follow the trend in countries such as Britain, and many of the Middle Eastern countries that combine both conventional and modular refineries to boost their refining capacity.
