Five years after the Federal Government signed an agreement with the China State Construction Engineering Corporation (CSCEC) for the construction of three Greenfield refineries with a completion period of five years; the project has remained a mirage.
For several years, getting adequate fuel to power the Nigerian economy has remained a major challenge. Even though Nigeria is one of the largest producers of crude oil, its citizens spend hours in fuel stations just to get what can be used to power their vehicles, generators and other necessities. This ugly situation has persisted despite the promises by successive administrations to tackle the challenge. Many were hopeful that fuel scarcity will become a thing of the past when, in 2002, the Federal Government licensed 18 private companies to build private refineries. That hope has been dashed because more than a decade after the licences were issued, the private refineries are nowhere to be found.
In 2010, the Federal Government also made another positive move to build $23 billion petroleum refineries in Lagos, Kogi and Bayelsa states through the China State Construction Engineering Corporation (CSCEC). The project was envisaged to add 750,000 barrels per day (bpd) of extra refining capacity to Nigeria’s current 445,000 (bpd) refining capacity as well as stem the tide of imported refined products into the country. Conceived in 2010, the project was expected to be completed and ready for operations in 2015. However, five years after, the fate of the laudable idea is yet unknown.
The House of Representatives had last year mandated its Committee on Petroleum Downstream to investigate why the Federal Government failed to execute the $23 billion refinery project. The order followed a motion brought before it by Abbas Tajudeen who observed that despite the agreement signed by the Federal Government since May 13, 2010 with the CSCEC, nothing has been done. Today, the Greenfield refineries project has remained a mirage and the planned probe seemed to have been swept under the carpet.
Worried by the situation, the Conference of Nigerian Political Parties (CNPP) had petitioned the former Minister of Finance and Coordinating Minister of Economy, Dr Ngozi Okonjo-Iweala, requesting for full disclosure of transactions concerning the contract for three Greenfield refineries and petrochemical plant awarded by former President Goodluck Jonathan five years ago.
From investigation, 80 per cent of the cost is to be provided by China Export Credit Insurance Corporation and a consortium of Chinese banks led by the Industrial and Commercial Bank of China, while the Nigerian National Petroleum Corporation (NNPC) is to provide 20 per cent of the remaining fund as equity contribution. The NNPC, in its feasibility study for the project displayed on its website, said: “Detailed Feasibility Studies undertaken by Messrs Wood Mackenzie Energy Consulting Limited and Messrs Foster Wheeler Energy Limited in 2011 for three Greenfield Refineries to be located in Lagos, Bayelsa and Kogi states confirmed that all three refineries would be economically feasible at the respective sizes of 200,000 bpd for Lagos, 100,000 bpd for Kogi and 100,000 bpd for Bayelsa.”
It, however, added that: “Nigeria is currently deficit in the supply of white petroleum products, most of which are currently imported into the country. Current consumption of gasoline or Premium Motor Spirit (PMS) is estimated at 35 million litres per day, while that of kerosene is 10 million litres per day. In order to meet the deficit in supply, Nigeria currently spends between $12 and $15 billion yearly and it is the desire of government to stem the flood of imports by investing in additional refining capacity along with interested equity participants.”
Recent studies by stakeholders in the industry have revealed that a new refining capacity of at least 420 KBPD would be required to meet the existing refining gap. If this gap is projected to 2016 at the growth rates of between 3 per cent and 5 per cent per annum, the estimated refining gap in Nigeria by 2016 would be 500-560 KBPD. This forms the basis of the current effort to establish at least three new refineries of approximately 400-550 KBPD capacity in Lagos, Bayelsa and Kogi states.
An industry analyst and consultant on good governance in development, Ademola Oshodi, said the failure and the delay in completion of the Greenfield refineries summarise the challenges faced in the oil and gas sector in the past five years. “Though CSCEC is meant to pick up 80 per cent of the bill, with NNPC the rest, refineries were unusually still meant to operate strictly on a commercial basis. A joint partnership with the unreliable government-run NNPC is always fraught with difficulty. However, the biggest reasons for the delay are the non passage of the Petroleum Industry Bill (PIB) and its resultant hesitation for the sector to attract foreign direct investment, the unsettling international oil market with the prevailing drastic fall in prices, and the slowdown in the Chinese economy,” he said.
Oshodi observed that the Chinese are no longer quick to drop their money as before. “This was all manifested in the Kalu Report as it recommended the jettisoning of the Kogi and Bayelsa projects for a single Lagos refinery. Basically, accepting the new reality, the implication to the Nigerian economy is what we are experiencing as we spend long hours lining up for fuel while paying above the N87 pump price with the associated corruption and mismanagement, with the continual importation of processed fuel and its enormous cost to the government and populace,” he said.
The massive importation of petroleum products and the low capacity utilisation of the existing three refineries have thrown the country into persistent fuel crisis. Ahmed Adamu, a Petroleum Economist and President, Commonwealth Youth Council, believes that to halt fuel crisis, all refineries must start to operate at least above 70 percent capacities (currently operating at 16 percent), new ones must be built, subsidy must be totally removed, industrial sector must be bailed out, and the economy diversified. “Nigerians must be ready to adapt to some difficult times for a while, and wait to benefit from the resulting effects of these difficult decisions,” he said.
Adamu noted that as at 2014, Nigeria imported 886 million barrels of petroleum products, making it the 13th largest petroleum importer in the world. For each barrel of petrol imported, the Federal Government paid at least $8 per barrel, which tallied the total fuel subsidy payment to about $7 billion in 2014.
Chief Executive Officer of Dubril Oil, Imo Itsueli, said Nigeria needs a paradigm shift in the oil and gas industry, noting that efforts should be made to add value to the country’s refining capacity. “We need a paradigm shift in the oil and gas industry. As the United States stops buying our crude oil and is set to become an exporter of crude oil, I think it is a call to action. We need to start to look at value addition in terms of refining, petrochemicals and others.”
Itsueli explained that although Singapore has no crude oil, it has many refineries. “Why can’t Nigeria be a refining hub for the rest of Africa? Why can’t we export petroleum products to Europe instead of crude oil. We are still talking about crude oil, not value addition out of crude oil, that is our challenge,” he said.
General Secretary of the Nigeria Labour Congress, Dr. Peter Ozo-Eson, had in a reporten titled ‘Pricing of Petroleum Products in Nigeria,’ insisted that the country’s domestic refineries must be made to work. “Appropriate incentives need to be worked out to attract new investment in refining. While domestic refining by itself is not sufficient to guarantee product price stability, there are clear gains to be derived from domestic refining as opposed to imports,” he said.
The KPMG said in its 2014 Africa Oil and Gas Report that subsidies have contributed to low capacity utilisation at refineries. “In Nigeria, for example, current subsidy schemes lead producers to sell crude overseas rather than to local refineries and therefore add to increasing volumes of refined product imports, which present a large cost to the economy.” The report noted that the challenges in the refining industry on the continent include corruption, poor maintenance, theft, and operational problems.
Experts believe that the Port Harcourt Refining Company (PHRC) Limited is fundamental to increasing and improving local refining capacity in the country. They argued that if it is working at near optimal capacity, it would assist in reducing the importation of refined petroleum products, as well as help in conserving foreign reserves.
Chairman of in-house branch of the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), Fidelis Ighodaye, noted that the PHRC produces varieties of products, including Liquefied Petroleum Gas (LPG), Premium Motor Spirit (PMS – petrol), Kerosene, Automotive Gas Oil (AGO – diesel), Low Pour Fuel Oil (LPFO) and High Pour Fuel Oil (HPFO), saying that the unleaded gasoline produced by PHRC was of international standard. He said the two refineries in Port Harcourt have not been functioning at optimal capacity due to some challenges, including the refusal by the government to carry out the Turn Around Maintenance (TAM) as at when due.
The Group Managing Director, NNPC, Dr. Joseph Dawha, recently disclosed that the Port Harcourt Refineries was being rehabilitated. According to him, when the ongoing rehabilitation and Turn Around Maintenance of the Port Harcourt refinery is completed in July, this year, the plant would run at 80 per cent installed capacity and produce five million litres of petrol on a daily basis. “Presently, the refineries are undergoing rehabilitation and we are undertaking what we call a new strategy to carry out the turnaround maintenance on them. Basically, what this means is that we are carrying out phased implementation of rehabilitation of the refineries. We are taking the refineries unit by unit and carrying out turnaround maintenance on them,” he said.
NNPC has four refineries, two in Port Harcourt, and one each in Kaduna and Warri. The refineries have a combined installed capacity of 445,000 bpd. A comprehensive network of pipelines and depots strategically located throughout Nigeria link these refineries. Dawha said the maintenance exercise on the refineries was spontaneously taking place in all the facilities. “At the end of the target 18 months, most of the refineries would have been rehabilitated to such level where they can actually process crude optimally to make contributions to the availability of products in the country. I have heard people saying we have neglected the refineries, no, farther from that. We hope that at the end of the exercise, these refineries will be fully back into operation and we will minimise some of the problems we have with importation,” he said.
The NNPC boss explained that why the refineries were not running was a conscious decision, adding that “we decided that if the refineries were not in good state to process crude for maximum gain, then there was no point sending crude to the refineries.”
While Nigerians wait for the fulfilment of the promise made by Dawha, experts believe that the new administration of President Muhammadu Buhari should as a matter of urgency ensure that private refineries become operational and then facilitate the construction of the Greenfield refineries by the CSCEC.
Crude Oil Feed and Products Yield Pattern
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Source: NNPC
By Pita Ochai
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