Stakeholders say opportunities exist in downstream sector despite challenges

Stakeholders in oil and gas industry have  said  that in spite of the challenges  facing  the  industry there  exist  great opportunities and hope in the downstream sector of the industry as the  refineries can still be  effectively rehabilitated.

According  to the  communiqué which was arrived at after the recently  held Arety Adams Foundation lecture  series,  urged the government to rehabilitate the existing refineries  and bring them back into operation to least at 80~90% capacity utilization.

This they said should  actually be at  a least cost option compared with building greenfield refineries of equivalent capacities. This can be achieved either through a private sector led financing and rehabilitation initiative as is currently being pursued by NNPC, or through outright divestment of majority equity shareholding to the private sector from the current 100% ownership by Government. 

In addition to these, other resolutions that were reached include that the refineries should be managed on a fully commercial governance structure in which decision making should rest with the management and board of the plants, with full control of their funds; the refineries should market their products directly to off-takers, so as to recover maximum value.

For the above to succeed, they said that the downstream sector should be freed from government control, adding that full deregulation will make it attractive for private investors to build refineries to target meeting Nigeria’s needs and also that of West and Central Africa. This will also create jobs and grow our GDP.

They also want the government to create an enabling environment with fiscal incentives to attract investments into refining in Nigeria and make this happen. While those interested in  going  into those interested in going into modular refining should carry out feasibility studies. DPR should grant licenses and facilitating discussions for access to crude oil feedstock from upstream companies. Modular refineries should be treated as business ventures, not social services.

The communiqué stated that In spite of the challenges facing the industry, opportunities exist to attract investors given that even if all the current refineries were operating at maximum capacity, there still exists a robust demand for petroleum products. Current aggregate product demand is put at equivalent refining capacity of 750,000bpd. Hence at least 300,000bpd capacity is required right now. With population growth, the shortfall in refinery capacity would rise to about 550,000bpd by 2028 assuming a growth rate of 3% per annum. Furthermore, Nigeria actually supplies petroleum products to neighbouring African countries through informal channels. An investor could target to formalize this.

This must have informed the decision by Dangote Group to invest in the construction of a 650,000bpd refinery which is expected to come into operation by 2020 or soon after. The actual conventional refinery capacity is 450,000bpsd, with the other 200,000bpsd being reserved for petrochemicals feedstock. Thus there would still be scope for another greenfield plant of at least 250,000bpd capacity, simply to meet Nigeria’s needs. A higher capacity would be justified if the intention is to supply the West and Central African regions.

Olusola Bello