The persistent and severe economic damage caused by the scarcity of petroleum products, particularly premium motor spirit, diesel, and aviation kerosene, continues to plague the Nigerian economy. Despite the anticipation surrounding the Port Harcourt refinery, the situation remains dire. Instead, a wave of misleading information about the refinery is spreading, worsening concerns and leaving the nation in a state of despair.
The hope for domestic distillate supply came alive about 36 months ago. The managers of our petroleum business told us somewhere in 2020 that Nigeria would cease importing these essential commodities and others as Port Harcourt Refinery was to restart production at once. The hope was sustained by pieces of evidence from contract awards for equipment fabrication and purchases of required items.
We continued to keep hope alive when we understood that the exercise was a complete reconstruction of the refinery, not the turnaround maintenance we used to. We learned that some items, such as boilers, take 18 months to be manufactured and delivered. The coronavirus pandemic also explained the delay and kept our hopes alive as the nations where the required items originated—Italy and China—were shut down in September 2020. Even when a confirmed December 2023 dateline has come and gone, hope is still alive because the December 2023 promise by Ibrahim Onoja, MD, Port Harcourt Refinery, and his boss Mele Kyari was meant to be mechanical completion and not the commencement of production and delivery of products to the pumps at the filling stations.
For those familiar with the intricacies of refinery procedures, a planned refinery reformation with significant stripping and replacement of key items begins with the establishment of a clear, evaluated, verified, and approved technical and operational governance for contract awards, activity commencement, and completion. This is followed by a rigorous tendering process and renegotiations with the original equipment manufacturers and other contractors. Finally, contracts are awarded to the successful bidders for the manufacturing and procurement of items. When this process, governed by transparency and approval, is fully implemented, the reformation is considered to have achieved mechanical completion. The subsequent phase involves testing each piece of equipment and system.
In our refinery overhaul, the MD explained the scope of work, which, in summation, is like building a new refinery. The long-lead items were manufactured and delivered. Nearly all critical items used in 1965 were replaced. Supplementary supplies like electricity went through total replacement, including the substitution of old cables with new ones. The electrical substations were replaced. We hope that Port Harcourt Refinery has achieved mechanical completion and that the expected products will soon follow. But when will the refined products flow into the scarce national stock? The straight answer to this is after the mandatory testing of mechanics, systems, electronics, and operations is completed, which requires a few more months. My estimation of this timeline is September 2024.
In September 2024, the products will start coming. How much of it are we expecting? The old Port Harcourt refinery under review is a 59-year-old 60-tonne refinery with a crude distillation unit (CDU) of 60,000 bpd, an LPG unit of 60 bpd, and a catalytic reforming unit (CRU) of 000 bpd. It has only one conversion suit, which translates to a capacity capable of converting only 25–30 percent of crude input to PMS. Therefore, it can only achieve a maximum conversion of 30 percent of crude to PMS at total operation capacity. This means adding a paltry 4,769 metric tonnes to the national daily stock.
In the same complex, a second refinery is more than twice the size of the old refinery, and unlike the old refinery, it has four conversion suits. While the old refinery was established in 1965, this new refinery came on stream in 1988 and operated until 2003.
The choice of restructuring the old refinery with three processing units against the new one with eleven processing units, including a butane isomerization unit, defeats the tenets of petroleum refining technology and petroleum economics. A refinery business is a price-taker that survives entirely on margins between inputs and outputs in its operation. In both ways, the price of the crude oil input and that of the distillate output are global and out of the control of the refiner. This is why investors in refineries, be they public or private, must take pains in constructing sound, simulated, and tested margin estimates, capturing all variables of economics and global geopolitical influences, before venturing into them.
The two Port Harcourt refineries are totally different. The new one has a towering, unmatched, unequalled, and competitive advantage over the old. The new refinery (PHR2) can address the knotty problems of petroleum products in Nigeria in every economic, technological, business, and timing sense. PHR2 is a conventional mid-size modern refinery that has been mothballed since 2003 for careless and unexplained reasons.
The spectacular part of PHR2 is the Nelson Complexity Index (NCI). The NCI measures the sophistication and capabilities of an oil refinery to produce a variety of petroleum products from a barrel of oil. From this configuration, the refiner can produce a range of economically valuable products, from the lightest to the heaviest, to serve captive or identified markets.
The Oil & Gas Journal states that the NCI is measured on a scale of 1–20, where small numbers represent refineries that are simple in nature and fuel conversion activities. This is to say, the higher the number, the higher the capacity of the refinery to deliver a variety of products, from the heaviest to the lightest. The new refinery has a well-above global average NCI of 6.5, and according to Marples, R. E. (2000), PHR2 nearly meets the US average NCI of 9.5 and Europe’s 6.5 average. Dangote Refinery is not Nigeria’s first sophisticated refinery with fascinating complexities, but PHR2 is.
With this NCI, PH2 can run a range of critical refining processes, from the essential NCI Crude Distillation Unit operation to various Residue Fluid Catalytic Cracking (RFCC) upgrading technologies, better than the old refinery (PHR1). Expected output from the current PHR2, if it were the one reformed, would be sufficient to make a dramatic positive impact on the petroleum liquid requirements in the Nigerian economy in terms of volume, quality, ease of access, import substitution, savings in foreign exchange, taming inflation, and generally aiding in productive output.
The complexity index design of PH2 enables it to operate five processing units comprising essential distillation capacity, asphalt, vacuum distillation, thermal processes, alkylation/polymerise, and oxygenates. From this, the delightful Nigerian Petroleum Gas, Liquified Petroleum Gas, and the notorious Premium Motor Spirit will flow abundantly. A 6 NCI refinery like PH2 can generate varieties of jet fuels with compounds from C8 to C15. Distillates from these include Jet A-Fuel, Jet A-1-Fuel, Jet B-Fuel, and JP-4. If reformed to best perform at name plate, this refinery can also provide heavier oils (C25 to C70) and residues (C70 to C900) to replace imported paraffin wax, petroleum jelly, Vaseline, motor oil, asphalt, bitumen, and tar.
The foregoing discussion clarifies that the choice of PHR1’s retrofit against PHR2, with all the latter’s upside, is a bad one. Good governance and the best optimisation drive for utilising these critical assets dictate that PHR2 would have been the unquestionable choice. The omission or commission of this choice suggests that Nigeria indeed needs help in this never-ending debacle and manacle of domestic petroleum product supply, and that help is to call on OPEC.
The Organisation of the Petroleum Exporting Countries (OPEC) turned 60 in September, marking a significant milestone on its historic journey. Nigeria has been a strategic organisation member since 1971, holding leadership positions for decades. The country earns the respect of the rest of its members. However, none of the available economic opportunities presented to the member countries has Nigeria enjoyed.
Article 2(A) affirms the readiness of the organisation to coordinate and unify the petroleum policies of member countries. It went further to establish its commitment to the determination of the best means for safeguarding their interests, individually and collectively. Sound wisdom therefore indicates that the best we can do now without further delays is to accept the glaring facts that our petroleum policies have failed and the goals of our domestic petroleum product supply remain unachievable. This is why the call on OPEC at this material time becomes sacrosanct.
Pakistan, a non-member of OPEC, has realised the importance of strategic alliances in the refinery business and has so persuaded a leading member of OPEC, the Kingdom of Saudi Arabia, and Sinopec to materialise a US$10 billion green refinery project. On January 22, 2024, an international newspaper, The News, reported, “For the first time, Pakistan has initiated diplomatic endeavours to effectively persuade the Kingdom of Saudi Arabia (KSA) and Sinopec, one of the biggest Chinese companies known for installing refineries, to help materialise the dream of setting up a $10 billion state-of-the-art and deep conversion refinery with the capacity to refine crude oil to 300,000 barrels per day BPD).”
The Kingdom of Saudi Arabia has made remarkable strides in the profitable strategy of substituting crude oil exports with petroleum products. New entrants to this sound economic management of crude oil, including Oman, Kuwait, and the UAE, have long cured the maladies associated with poor optimisation of the crude oil akin to Nigeria and are amassing wealth with sustainable sufficiency on domestic supply while Nigeria is still lost in strategy.
Thomson Reuters reports that since the commissioning of the Al Zour refinery, Kuwait has been consistently exporting gasoline shipments. Previously, Kuwait used to import gasoline for domestic consumption, but now it regularly exports gasoline. The London Stock Exchange Group tracking data show that Kuwait’s weekly gasoline export averages 74,000 metric tonnes and is constantly trending upward, showcasing the successful governance of the petroleum business.
Oman surpasses Kuwait, trailing behind the Kingdom of Saudi Arabia, with an average weekly export of gasoline of 414,000 metric tons. South Africa appears prominently in the transaction as a major buyer. This is to say that vast, growing regional market opportunities are available for Nigeria’s distillates. Nigeria’s strive therefore is not limited to the quest for self-sufficiency but to take advantage of regional market opportunities.
The Kingdom of Saudi Arabia, UAE, Kuwait, Oman, and several other successful petroleum product exporters have been where we are. It appears therefore that a call on OPEC, just as Pakistan has done, is the only trump card in the hands of the managers of our petroleum industry today to help create the needed domestic supply and entrench a culture of exporting petroleum products over crude oil.
Dr. Kanya Williams Writes from United Kingdom; [email protected] 07485715
