Modular refineries for Niger Delta
Recently, the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC) Maikanti Baru, at the 53rd International Conference and exhibition of the Nigerian Mining and Geosciences Society, NMGS, in Abuja, unveiled government’s plan for the modular refineries being planned for the Niger Delta region and how it will incorporate militant youth and those engaged in illegal refining of crude oil. According to Baru, the government will organise the youth into consortia and each consortia will refine 1000 barrels of crude daily. The government’s main argument is that organising these restless youth into a consortia will not only provide employment, but more strategically, will lead to a reduction of crime, rampant crude oil theft and reduce environmental and ecological damage and degradation caused by their activities of oil thieves.
True, we support the decision of government to formalise illegal refineries. But we must also state that it is a very delicate endeavour and must be well planned and handled with care to achieve its noble goals.
Research has indicated that Nigeria loses about $6 billion annually due to crude oil theft. Since the operation of illegal/artisanal refining is one of the motivations that support the theft, it could help tackle it. The crude oil theft economy which sustains illegal/artisanal refining has an economy valued at $9 billion, employing about 26,000 direct and 100,000 indirect persons.
What is more, refining capacity is very poor in the entire Gulf of Guinea and formalized artisanal refining in the Niger Delta has significant small scale export potential in both Central African countries and West African countries
Projected growth in petroleum product consumption cannot be met by all current efforts towards growing refining capacity in Nigeria (i.e. assuming all 4 state refineries in Nigeria with 445kbbl/day work at full capacity + Dangote group’s 650kbbl/day). The gap can be augmented by formalized artisanal refiners, especially in the creeks and remote areas of the Niger Delta, where difficult terrain and poor infrastructure makes it nearly impossible to run the normal petroleum product supply chain.
But as an expert argued recently, “initial ideation is not the huddle, but long term planning, strategic vision, gritty commitment, use of systematic methods and expertise – which is often absent in Nigeria – could be the bane of this initiative.”
While illegal/artisanal refining is one of the major motives for oil theft, it is not the main or most important motif. The real deal is in the international sale of stolen crude.
As expected, this $9bn underground sector is organized by financially and politically powerful persons. Consequently, formalizing all illegal refineries without properly tackling crude oil theft can lead to a proliferation of more illegal refineries, since locally stolen crude has to be put to use in one way or the other.
Being a clandestine business, there is limited data on the operation of artisanal refiners and any formalization framework that is not data-driven and fact-based cannot survive. The risk of doing otherwise will be the unavoidable high failure rate of supported operators.
Articulating a convenient participation channel for the private sector including, upstream operators for feedstock supply and financial institutions for funding will be possible but difficult.
In view of the attractions and challenges, a successful formalization programme must be well rounded and detailed, taking into consideration matters such as; the definition of new regulatory conditions/policies meant to nurture very small scale refining in the long run; refining skill gap assessment meant to guarantee long term/wide spread domestication of refining skills in Nigeria and the definition of a properly-phased support and expansion program for promoter (for up to 20 years).