Modular refineries are economic wastes
In these day when the whole world is moving away from things that could negatively impact the environment, the Nigerian government, in its characteristic way of not looking ahead, has again awarded licences to 23 companies to establish modular refineries.
Modular refineries are colossal wastes to any country that operates them. A modular refinery produces only one type of fuel out of several other products that could be gotten from crude oil. However, modular refineries could be useful in places where there are bigger refineries to complement. In such instances, fuel could be refined in modular refineries and the bye product taken to bigger refineries close by to process other products.
Usually one 42-gallon barrel of oil creates 19.4 gallons of fuel. The rest (over half) is used to make other fuel products like asphalt, tar paraffin wax, lubricating oils and a host of other chemicals and plastics too numerous to mention. The sad thing with modular refineries is that it can only refine fuel and nothing else.
Besides, the petroleum markets in the Nigeria favours consumption of light and middle distillates which are not produced by modular refineries.
So, if Nigeria should push further with the establishment of modular refineries that will process local crude oil, the market will flooded with large amount of fuel for which there is no market.
What is more, modular refineries are value-destroying and can never be profitable because a barrel of fuel oil is worth less than a barrel of crude oil. Apart from the fact that their net operating margins are very low and sometimes negative, there must be a veritable and secure outlet for fuel oil produced by these categories of refineries, if they are to profitably compete and remain in operation. This is besides the obvious fact that the limited capacity utilisation of the modular refineries also means that they are not able to produce enough petrol to satisfy local demand”.
Currently there is only one modular topping refinery operating in the country. It is situated at Ogbele in Rivers State and produces 1,000 barrels of diesel per day. The refinery is being operated by Niger Delta Exploration and Production plc.
The refinery produces only diesel and injects back the residual fuel oil and other products obtained from its crude distillation unit. The diesel cut from the refinery is about 30% of the crude it processes.
Apparently, the government had to resort to giving license for modular refineries after failed attempt in the past to get those who were initially given licenses to build standard refineries failed to do so. The 18 licenses for the establishment of refineries of various capacities were eventually cancelled because those that got them did not succeed in building any apparently due to lack of funds. The promoters of the refineries met a brick wall in financial institutions that insists on a clear business plan that shows clearly how the costs could be recovered. Sadly, Nigeria regulates the price of petrol and it sells below the market price.
The government still regulates the price of petroleum product. What guaranty has it that the promoters of modular refineries have what its take even establish them? This shows the lack of ideas and strategic thinking on the part of our government.
The four national refineries with capacity to refine 445,000 barrels of crude oil per day have been comatose for several years now. This has necessitated the importation of petroleum products to meet local demands. And to regulate the price, the government spends trillions of Naira yearly on subsidy of petrol. It is time the government sells the refineries and let private and capable firms manage them.
Meanwhile the government cannot close it eyes to the negative financial and environmental effects and impacts of modular refineries just because it is desperate to stop the importation of petrol. It is that lack of strategic thinking that has kept us where we are in petrol refining since 1990.