For Nigerian refineries to operate in a sustainable manner and remain competitive, they must squarely face the challenges that confront other refineries. They must improve staff competencies, reduce operational inefficiencies, effectively manage assets in a manner that responds to changes in market demand and improve margins.
In addition, refiners must earn market rates of return for investors, as well as returns sufficient to make investments in expansion, technological improvements, possible business restructuring, and to meet environmental regulations, both with respect to refined product specifications and refinery site operations and expansion.
Unfortunately, the challenge for sustainable operation of our local refineries is majorly threatened by crude oil supply to refineries/product evacuation issues, poor maintenance, lack of processes and equipment upgrades and funding problems.
The pertinent question is, what long lasting corrective actions can be taken to address the core issues confronting our refineries so that they can remain competitive and profitable?
Previous studies have looked at the problems confronting the refineries and recommended solutions that will make them operate at levels at the time they were designed. This study specifically addresses measures to be taken by the owners to make the refineries remain competitive now and in the nearby future.
This refining improvement study was therefore commissioned to assist FOSTER/OPM Ltd put in place a plan for ensuring self–sufficiency of petroleum products in Nigeria, within a strong commercial framework, in the shortest possible time.
Relevant data for the study were obtained through records, discussion with key stakeholders, brainstorming, and personal experience. These data were analysed in tables and charts.
Based on the data analysed, the key findings of the study are summarised below:
In the last 18 years (1997-2014), our local refineries have operated at a combined average capacity utilisation of about 22percent, placing the country at the bottom of the ladder among African refineries. In addition, all the indices for profitable operations of the refineries are absent as fuel and loss combined statistics for the last 10 years for the three refineries averaged over 9 per cent on crude oil processed. Good performing Refineries average 5-5.5 percent in fuel and loss.
According to Solomon Associates, a renowned energy benchmarking organisation, a 2 per cent improvement in fuel and loss in 100,000 barrels of crude oil per stream day (BPSD) refinery is reported to save a refinery of over $20-30million a year.
Our refineries were built using technologies that were available in the early seventies and mid-eighties. Today, several of these technologies and equipment are obsolete and have become difficult to maintain and unsafe to operate. While the industrialised world and most developing economies have taken advantage of advancements in refining and petrochemical technology in areas of processes, automation, and information/computer technology, to significantly improve operability and profitability, our government owned refineries are yet to catch on.
The analogue instrumentation control system in the Kaduna refinery is an example of obsolescence of vital equipment in the refinery. The control system is completely obsolete as there are no manufactured spare parts to maintain it. The refinery has since been slated to have a modern distributed control system over the years but failed due to funding constraints.
On-going rehabilitation of the refineries at a reported estimated cost of $760m only addresses some critical equipment in the refinery and not obsolescence of the processes and equipment.
Funding constraints still remain a key issue in the on-going refineries rehabilitation programme.
The study also revealed that the demand for light and middle petroleum products outstrips supply and it is widening over time. Our local refineries will be unable to close the product supply gap.
Consideration and approval for setting up a new Greenfield refinery by DPR in the country should be therefore be based on maximising PMS and ATK output. The new Greenfield refineries to be built in Nigeria should mandatorily meet AFRI-5 standards for PMS and Diesel specifications.
However, it is worthwhile mentioning here that refinery availability at 90 percent plant capacity utilisation strictly depends on a secure business environment, where pipeline vandalism is completely absent. Unfortunately, security remains a very serious threat to the Downstream Petroleum assets and the security issues impacting so negatively on the industry within the last decade should be addressed once and for all.
However, the entry of Dangote refinery threatens the survival of government-owned refineries if measures are not taken to upgrade them so that they can profitably compete in the domestic market. The study revealed that it will require an estimated investment of about $7 billion to upgrade the three refineries to produce environmentally-friendly fuels that meet Euro-5 fuel quality specifications.
In general, petroleum markets in Nigeria favour consumption of light and middle distillates. Modular refineries that process local crude oil leave these markets with large amounts of fuel oil for which there is no effective market. There is high production of fuel oil with modular refineries which is value destroying. This is because a barrel of fuel oil is worth less than a barrel of crude oil. On the other hand, their limited capacity utilisation also means that they are not able to produce enough ‘white products’ to satisfy local demand.
In addition, the use of fuel oil to fire furnaces in local industries is on a rapid decline since the advent of natural gas that is cheaper, cleaner and abundantly available nation-wide. Apart from the fact that their net operating margins are very low and sometimes negative, there must be a veritable and secured outlet for fuel oil produced by these categories of refineries if they are to profitably compete and remain in operation.
Currently, there is only one modular topping refinery (1000BPSD) operating in the country at Ogbele in Rivers State. The refinery currently produces only diesel but it will soon be producing other product such as Aviation.
The study clearly revealed that it is virtually impossible for NNPC to operate its refineries, crude oil and products pipelines nationwide profitably, unless government takes drastic measures to eliminate all acts of pipeline vandalism in the country. The repeated repair intervention by NNPC after each act of vandalism for several years calls to question the integrity of existing pipelines that are over 35 years of operation without adequate maintenance on them.
OLUSOLA BELLO
