Much I do about modular refineries
In September 2016 in the heat of the agitation in the Niger Delta which resulted in the major disruption of oil and gas production, the Petroleum Club issued a press statement suggesting that encouraging the building of mini (modular) refineries could be one of the many ways of procuring employment for the youths in the oil producing communities.
It was also suggested that that would also be a way of addressing the problem of illegal refineries, oil thefts, pipeline vandalism and the accompanying environmental damage in the region. The Petroleum Club cited the example of the Niger Delta Petroleum Development Company (NDPDC) which, alongside oil and gas production from its marginal oil field located in Rivers State, had since 2012 been successfully operating a 1,000 barrels per day mini refinery.
This suggestion caught the attention of the Ministry of Petroleum which took interest in this success story and subsequently decided to encourage all the oil producing states to establish mini or modular refineries as businesses in each of their states. This item has featured in the several and prolonged ongoing negotiations between PANDEF and the Federal Government. In fact, the Federal Government has pronounced that it would encourage the establishment of modular refineries at each of the ten states of the Niger Delta.
Some Niger Delta States like Edo and Delta states have since started moves to establish modular refineries. Only recently the Office of the Minister of State Petroleum confirmed that the Federal Government is in talks with the CBN, IFC, NSIA to provide funding for investors in the Niger Delta states. The government would also guarantee crude oil supply to the refineries and also grant tax and customs duty waivers to the companies. So it looks like the Federal Government is seriously committed to this venture in the oil producing states.
In addition to these modular refineries being promoted by the Federal Government, several entrepreneurs had over the last many years announced their intention to construct modular refineries. Many of these proposals have been on the drawing boards for several years. However the Minister of State, Petroleum, has restated that the government is not promoting modular refineries as a strategy for increasing Nigeria’s refining capacity because the capacity of these modular refineries are only in the range between 5,000 to 20,000 barrels per day.
The Federal Government is therefore relying on the rehabilitation of its own three refineries with a combined capacity of 445,000 barrels per day to be augmented by the proposed150,000 barrels per day refinery being promoted by Agip in collaboration with the NNPC. The proposed 650,000 barrels per day Dangote refinery, when completed, would also add to the nation’s refining capacity and would be sufficient to bridge the deficit in petroleum products availability.
Investors in modular refineries may take a good look at their projects in many respects such as crude oil sources, ability to procure funding, economic viability and markets. My friends who are experts in this area tell me that the approximate cost of a 10,000 barrel per day modular refinery would be in the range of $50 million. In fact those in the range of 20,000 barrels per day could be touching $250 million. They also believe that mini and modular refineries will struggle to be profitable and will not be able to compete with the larger capacity refineries if they do not have the advantages and incentives that the Federal Government is willing to give to the Niger Delta modular refineries.
Last year, presentations on the prospects of modular refineries were made at the Villa to the then Acting President by the Society of Chemical Engineers. Similarly, the Nigerian Academy of Engineering held a public lecture last November titled “Modular Refineries: Prospects and Challenges”. These events demonstrate the level of interest being shown by Nigerian entrepreneurs and investors.
About twenty two licenses have so far been awarded to applicants, most will not take off for reasons already mentioned above – economic viability, funding challenges, crude oil sourcing, product market, evacuation facilities and challenging logistics. It would be interesting to see how many of these licenses will translate into real projects. It is worthy of note that apart from the three NNPC refineries in Warri, Kaduna and Port Harcourt, the NDPD 1,000 barrel per day modular refinery soon to be expanded to 10,000 barrels per day capacity, is the only other operating refinery in the country and the only one brought to production in at least the last thirty years.
Godswill Ihetu
Godswill Ihetu, former group executive director at the NNPC and former managing director NLNG.