Nigeria ramping up refining capacity as world shifts to electric cars

If the Dangote Refinery and all the planned modular refineries come on stream, Nigeria could power most of the vehicles on the West African subcontinent, but the trouble is that petrol may not be the priority for most of the world.

Only about 17, 000 electric vehicles (EVs) were on the world’s roads in 2010, according to IEA. By 2019, that number had swelled to 7.2 million, and 47 percent of which were in China. Nine countries had more than 100,000 electric cars on the road. At least, 20 countries reached market shares above 1 percent in 2019.

Transit bus electrification projects in Kolkata (India), Shenzhen (China), Santiago (Chile), and Helsinki (Finland), cheaper cost of batteries, the shift from direct subsidies to policy approaches that rely more on regulatory and other structural measures – including zero-emission vehicles mandates and fuel economy standards could have a lasting impact on how the world moves.

Nigeria is growing refining capacity when fossil fuel is facing intense scrutiny due to climate change. This means market share could become tougher for the 650,000 barrel per day Dangote Refinery, modular refineries being built, and NNPC’s 445,000bpd when it gets fixed in 2023.

Analysts say the situation could even be more challenging for newer big-ticket refinery projects. BUA Group and Total recently signed an agreement to build an integrated 200,000bpd refinery and petrochemicals plant to produce Euro-V fuels and Polypropylene for the domestic and regional markets.

“Now is not the time to be all out building mega new refineries. If a project of similar magnitude as Dangote Refinery is to be developed today, it would struggle to secure financing in today’s energy landscape because most of the model assumptions and scenarios analysis used would be unrealistic today,” Uchenna Ibe, a chartered engineer and clean energy project expert, said.

For over two decades, government officials have prioritised importing refined petroleum products rather than maintaining the country’s decrepit refineries. This is largely because it provides an opportunity for graft leading to squandering billions of dollars on phantom fuel imports.

This waste has become unsustainable forcing the government to bend to calls to deregulate the downstream sector, but Nigeria may now be waking up at dusk because the much-touted energy transition is on the horizon.

“The boom is over,” said Wolemi Esan, energy lawyer and partner at Olaniwun Ajaiyi, a Lagos-based law firm. “Efforts by countries like the UK to arrest climate change emergency suggest that the crude market may be heading to a more permanent glut.”

The UK, last week, said it would no longer directly fund fossil fuel projects overseas with taxpayers’ money. Many have set a date to ban petrol and diesel cars, and even many fund managers have announced plans to exit funding fossil fuel projects.

But green energy projects including electric vehicle investment will see a surge. Bloomberg New Energy Finance (BNEF) forecasts that EVs will hit 10 percent of global passenger vehicle sales by 2025, rising to 28 percent in 2030 and 58 percent in 2040.

This will be driven by improved, cheaper battery technology, more readily available charging infrastructure, new markets, and price parity with internal combustion engine (ICE) vehicles.

In another forecast by Deloitte concluded that EVs market’s collective accomplishments over the past two years offer hope, despite the short-term impact of COVID-19: a pattern of continued growth, which is expected to be sustained throughout the 2020s.

“Our global EV forecast is for a compound annual growth rate of 29 percent achieved over the next 10 years: Total EV sales growing from 2.5 million in 2020 to 11.2 million in 2025, then reaching 31.1 million by 2030,” said analysts at Deloitte.

Deloitte expects that by 2030 China will hold 49 percent of the global EV market, Europe will account for 27 percent, and the United States will hold 14 percent. EVs would secure approximately 32 percent of the total market share for new car sales.

These forecasts suggest that the African market and some parts of Asia could provide the last growth frontier for fossil fuels products but these markets also have some of the world’s poorest countries.

Worse still, the petroleum refining sector is grappling with serious challenges.

“The global oil and gas community these days operate with a strong focus on optimisation and efficiency. CAPEX allocations are being slashed. Everyone wants to operate existing assets in the most efficient and cost-effective manner,” Obi said.

Though demand has rebounded from the lows of the second quarter of 2020, there is still an oversupply of products. This is why Middle distillate cracks, which usually see a boom during winter from higher heating demand in Europe and Asia, are muted.

The industry is marked by refinery closures and rationalisations. In the United States, about 1.5 million bpd of global refining capacity closures have been announced since the start of the year and at least 580,000bpd of additional capacity globally is under consideration for closure.

China added 400,000bpd of new refining capacity in 2020, and another 520,000bpd is expected to be commissioned in 2021 globally. But these refineries are betting on healthy petrochemical margins buoyed by plastics demand, and to recoup their capital investment.

China, which has lifted the global crude oil market by absorbing surplus production, is emerging a global refining powerhouse and this year began issuing product export quotas to private refiners leading to an oversupplied refining market.