• Wednesday, May 29, 2024
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BusinessDay

Crude oil shortage deters Nigeria’s modular refineries’ expansion

Crude oil remains Nigeria’s export Achilles heel

The expansion plans for modular refineries in Nigeria as part of efforts to cut billions of dollars from the country’s annual import bill have suffered a hitch majorly due to a lack of critical feedstock to run their operations, BusinessDay has learnt.

For a long time, Nigeria has championed the development of modular refineries due to a shortage of conventional refineries across sub-Saharan Africa in addressing the deficit of petroleum products.

Over 30 licences for modular refineries were issued in 2015 by the then Department of Petroleum Resources (now the Nigerian Upstream Petroleum Regulatory Commission).

But only Edo Refinery and Petrochemical Limited (6,000 barrels per day), Ogbele Refinery (11,000 bpd ) owned by Niger Delta Petroleum Resources Ltd, and Waltersmith modular refinery (5,000 bpd) owned by Waltersmith Petroman operate efficiently.

These three refineries, alongside other smaller refiners, are struggling to find crude to run their refineries, a development that threatens their capacity to expand operations.

“It’s difficult to talk about expansion when some modular refineries are sitting idle in the last six months with no hope of when they would get crude feedstock,” a modular refinery operator who pleaded anonymity said.

He added, “There is no incentive to pump in more money to expand operations when the current capacity is struggling to get return on investment.”

Findings by BusinessDay showed the Waltersmith modular refinery, which has an initial capacity of 5,000bpd, is planned to be expanded in phases to have a 20,000bpd crude oil refining facility and a 25,000bpd standalone condensate refining facility, taking the total processing capacity to 50,000bpd.

Also, the Edo Refinery, which has an initial capacity of 5,000bpd, also has a phase 2 expansion plan of 15,000bpd with full operations slated to start in March 2023.

Read also: 6,000bpd Edo refinery receives crude feedstock from Oza field

Tunde Adelakun, a senior energy lawyer with Aflex Energy Nigeria, accused the government of paying lip service to activities of modular refineries.

“Government’s rhetoric about modular refineries is beginning to sound cliché. There is no structural framework for effective crude oil supply for modular refineries; everyone is talking about Dangote Refinery,” Adelakun said. “It’s difficult to attract investments for expansion when operators of modular refineries wait endlessly for regulatory attention.”

Data sourced from Africa Oil+Gas Report, an energy intelligence publication, showed the newly constructed 10,000bpd capacity Omsa Pillar Astex Company Refinery, located in Kwale, in Nigeria’s Delta State, has been unable to get sufficient crude oil to refine as the company doesn’t operate its own oil producing field.

“The refinery is sitting idle three months after the regulator signed off on its licence to operate,” the report said.

Documents sighted by the publication showed the facility has passed all reliability tests and won the approval of the Nigeria Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) after a refinery and an effective refinery commissioning exercise.

“It’s difficult to do refinery business with the way the regulators are currently operating,” Adelakun said.

Last September, the promoters of modular refineries under the aegis of Oil Refiners Association of Nigeria (CORAN) met with chiefs of the NMDPRA to vent their anger and frustration.

The owners of the modular refineries listed their major challenges as lack of access to feedstock, lack of access to foreign exchange (it costs about $40 million to set up a 10,000bpd reformer unit that can produce PMS), high cost of licence renewal fees, unusual difficulties in clearing their equipment at the seaports, difficulties in accessing the duty waiver for modular refineries as approved by the president as well as the absence of rules on crude oil transaction currency.

To mitigate their problems, they pleaded that the Central Bank of Nigeria and the Nigerian National Petroleum Company should extend all incentives and assistance given to the Dangote refinery to them.

Olusegun Ilori, secretary of CORAN, who presented the group’s position, appealed to the authority to ensure that all incentives that were given to Dangote refinery be extended to other refineries.

Industry players say the volumes of production lost to oil theft and production shut-in could make a significant dent into the required volumes for local refiners.

Oil companies operating in Nigeria lost N803 billion worth of crude oil to spills suspected to emanate from sabotaged pipelines and operational issues in 2022, the highest in three years, data from National Oil Spill Detection and Response Agency showed.

Ayodele Oni, energy lawyer and partner at Bloomfield Law Practice, said Nigeria already has a mechanism to deal with the problem.

He said: “Actually, the Petroleum Industry Act empowers the commission (NUPRC) to make regulations for crude producers to reserve some crude for the domestic market which means they will be refined locally.

“The commission just needs to take that bold step. Some of the production of marginal fields that are not already under crude sale/ handling can also fall within this category.”

Section 109 of the Petroleum Industry Act provides that the supply of crude oil and condensates for the domestic market shall, subject to subsection (2), be on a willing supplier and willing buyer basis.

It said the commission may issue regulations or guidelines on the mechanism for the imposition of a domestic crude oil supply obligation on lessees of upstream petroleum operations, including applicable penalties.