Nigeria’s refineries will soon be faced with extinction if they are not immediately upgraded in the face of impending competition from emerging ones, studies carried out on the country’s refineries, pipelines and depots indicate.
It is however estimated such upgrade would cost between $7 billion and $9billion for all existing refineries currently in the control of the Nigerian behemoth state corporation, NNPC. This will enable them produce environmentally friendly fuels to meet Euro-5 fuel quality specifications, according to the studies.
The studies carried out by two different groups, Solomon and Associates, an energy benchmarking organisation, and AON, a risk management firm, also state that it is virtually impossible for the Nigerian National Petroleum Corporation (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.
It said the entry of Dangote Refinery which debuts in 2018 threatens the survival of government owned refineries if measures are not taken to upgrade them so that they can compete profitably in the domestic market.
“The repeated repair intervention by the Pipelines Products Marketing Company (PPMC) after each act of vandalism, for several years, calls to question the integrity of existing pipelines which are over 35 years old, without adequate maintenance on them”.
The studies further reveal that reports from the NNPC indicate that from January to August 2015 alone, there have been over 1,824 cases of line breaks on PPMC pipelines.
Solomon Associates, an energy benchmarking organisation, states that based on the data analysed, the key findings of the study reveal that in the last 18 years (1997-2014), the local refineries have operated at a combined average capacity utilisation of about 22%, 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% in fuel and loss.”
It further states that 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 over $20-30m a year.
AON in its own report, reveals that it would require about $9 billion to replace the country’s three refineries and defective equipment in pump stations, oil depots and terminals nation-wide, as well as construct new pipelines to convey crude oil to refineries and distribute products nation-wide.
“While a phased rehabilitation of depot and pump station equipment is going on, the vandalised pipelines are often patched or affected portions replaced with fresh piping”, it said.
It also that the most significant of the root causes of the poor performance of the refineries is that the current ownership structure and business model in the NNPC have failed to promote business excellence and sustainable operations.
The existing business model it said, starves the refineries of funds to operate and carry out mandatory turnaround maintenance of critical facilities, as well as carry out necessary refinery upgrades so as to remain competitive.
The studies say the key reasons for this poor performance are inadequate funding, lack of refinery autonomy, lack of manpower, obsolescence and unserviceable process equipment and control instrumentation.
Others are irregular turnaround maintenance on process equipment, lack of plant upgrades since inception, inadequate technical skills upgrade due to funds constraints, logistic constraints and persistent crude oil and products supply pipelines vandalism.
Olusola Bello
