Of the 26 valid licences to build refineries as listed on the Department of Petroleum Resources’ website, three are conventional refineries.
Two of these conventional refineries have a nameplate capacity of 100,000 barrels of oil per day. The other, has 500,000bpd capacity.
The rest, 23 of them, are modular refineries with nameplate ranging from 30,000bpd to 5,000bpd. These modular refineries are at different stages of completion. Some are close to commissioning.
Modular refineries are usually available in capacities ranging from 1,000 to 30,000bpd. Conventional refineries are bigger with a capacity higher than 100,000bpd.
It is evident though that there are more licences for modular refineries than there are for conventional refineries.
Nevertheless, in March 2016 we published an editorial on how wasteful modular refineries could be and why Nigeria’s desperation to end the import of refined petroleum products cannot depend on building modular refineries alone.
Our position was based on the fact that modular refineries are limited in the range of petroleum products they can refine. The Nigerian market for petroleum products is about 50 percent of light to medium products such as petrol.
Modular refineries are unable to produce light petroleum products in this category. They produce heavy petroleum products such as diesel and kerosene.
While our views on the economics of modular refineries has not fundamentally changed, we believe it is important to be more strategic and deliberate about using modular refineries to meet Nigeria’s growing demand for petroleum products through increasing local refining capacity.
Modular refinery, which is ideal for stranded production fields and remote locations, could be sited in the riverine areas where accessibility to the petroleum products at the present seems to be very difficult due to logistics. This will allow the dwellers in such areas to buy the products at a cheaper price than what is obtainable there at present.
One major advantage of a modular refinery is that it can be put together within a short time span of about 15 to 20 months for modular refinery of 20,000bpsd and can be established within a short period of time at different locations.
There have been recent attempts made in driving the growth of refineries through private investment. Nevertheless, Nigeria still has a long way to go in establishing refineries that are capable of producing at full potentials.
At least 80,000 daily barrels of modular refining capacity is expected to be completed in the next five years, according to Simbi Wabote, head of the Nigerian oil industry’s local content agency.
These modular refineries have the potential to grow into massive refining clusters. We reckon that at least 10 percent of Nigeria’s oil production should be refined through modular refineries.
Modular Refineries are ideally suited for remote locations and are viable for investments by Public-Private Partnership (PPP) as a source of rapid production of primary fuel products and raw materials for petrochemical downstream industries.
Nonetheless, regulatory uncertainties, security, infrastructure, feedstock access, and sanctity of contracts and the cost of capital are some of the major challenges holding modular refineries back.
For instance, damaged pipelines, shallow channels and the absence of an effective logistics backbone are some major infrastructural impediments that have constrained the growth of refineries in Nigeria. For a while now, damaged pipelines have impeded the supply of crude for refining operations.
In the light of these challenges, the conditions required to make such an investment in modular refinery workable will include: proximity and access to crude supply; location to sizable markets with logistics advantages; project finance on preferential terms from development credit agencies; and government incentives.
We believe that the availability of government incentives through a well-balanced legal and regulatory framework to promote investments and guarantee returns on investments are necessary. Also, economic incentives such as tax holiday and grants will encourage investors to come into the sector in their droves.
Adequate security is critical too. Restoring security and safety would require a multi-faceted approach involving the use of various pragmatic measures. The government has adopted various measures to stabilise and engender peace within the Niger Delta region.
However, interventions need to be sustainable and address the agitations of the South-South communities; which range from developmental neglect to environmental degradation.
Government securing guarantees of foreign and domestic equity and debt capital is also crucial, and government is making strides in that direction. However, government should also engage with some of the regional financial institutions, such as the African Development Bank (AfDB).
The time is also ripe for the creation of Energy Bank in Nigeria, to address oil and gas investments, and electricity generation and distribution investments as well.
Investors in modular refinery projects should not rest on their oars and expect government to secure and guarantee all the funding and inputs for their projects.
They need to explore various sources of equity and debt financing, which may include multilateral and bilateral financial institutions, international equity markets, local capital markets, pension funds, mutual funds, insurance companies, international commercial and investment banks, local and international bond markets, suppliers’ credit, and specialised international energy funds.
We hold that Nigeria’s refining sector locks great prospects for the future. There have been some government initiatives to increase local refining capacity to offset the continued growth of importing finished products for growing consumer demand.
We believe that the goal is to provide a lower-cost, steady supply of fuels and products on a local level.
