Nigeria refineries have passed through litmus tests in the school of public opinion across the country and the populace often blame the sorry and deteriorated state to previous administrations including the handlers who are saddled with the responsibility to make the refineries operational like other climes. It is befuddled that not many understood when and how the refineries came to existence and what transpired in decades. Engineer Tony Ogbuigwe, former Group Executive Director (GED), Refinery and Petrochemical Division of the Nigerian National Petroleum Corporation (NNPC) now Managing Consultant/CEO, PEJAD dissected the historical background of Nigeria’s ailing refineries.
Ogbuigwe claimed that Nigeria’s premier refinery based in Port-Harcourt was built in 1965 and it was a JV between Shell and British Petroleum (BP). The Federal Government eventually acquired 60% equity in 1970 and got balance of the shares to claim full ownership. It was renamed as NNPC refinery, Port Harcourt. Surprisingly, at the time that the refinery was the only noticeable one in Nigeria, the country was meeting all its local demands in terms of petroleum products. Thereafter, NNPC built the Warri refinery which was at the capacity of 100,000 barrels per day in 1977. Warri refinery gave ray of hope as the country was meeting its national demands. Kaduna refinery was also conceived to be built because it was foreseen that by 1980 demand for petroleum products would have increased further in the country and there will be need to proactively increased refinery capacity so as to meet local demands. A greater proportion of the demand was on the northern part of the country to deliver petroleum products and the decision was taken to locate the refinery in Kaduna. Kaduna refinery has the capacity to supply petroleum products to the northern part of Nigeria.
Notwithstanding, by 1982, NNPC did projections into the future and saw that the by the end of the 80’s, there would be deficit in supply of petroleum products in Nigeria if nothing was done to address the issue. The new Port Harcourt refinery was then built to address unforeseen future deficit in petroleum products and it was completed in 1989. It is only 60% of the capacity of the new Port Harcourt refinery that was meant to meet the demand which was foreseen to have arisen within the country by the end of the 80’s and 40% of the demand was to be exported. When the refinery was commissioned in 1989, Nigeria was exporting petroleum products outside the shores of the land.
However, according to the former GED of NNPC, the corporation’s autonomy which has kept it forth was shredded through political interference due to its huge financial status. From 1989 towards the end of the 90’s Nigeria was exporting petroleum products and meeting its local demands as well. Unfortunately, the new Port Harcourt refinery was the last to be built in the country when NNPC still had autonomy and control its funds from oil proceeds. The corporation was able to make self-decisions to carry out Turn Around Maintenance (TAM) as and at when due for continuous maintenance of the refinery to keep it in operation. At the inception of the Port Harcourt refinery, neither was there an unscheduled shut down nor any emergency. The first time it was experienced, was a little linkage device which cost less than $3000. When the refinery was built, the country had acquired two years spare parts and progressively the parts were put to use.
Eventually, there was change of administration and NNPC was forced to move proceeds from oil through its own account into the Central Bank of Nigeria (CBN). Ogbuigwe revealed that when the corporation needed fund to fix a problem in the refinery, it had to make a request under consideration that was “how everything started going downhill. It could not replace ordinary linkage device and the entire power plant was shut down.”
In addition to the refineries, Eleme petrochemicals was also built by NNPC, it was commissioned and it functioned well while the needs of the country was met. However, the Escavos-Lagos pipeline phase 1 was conceived and implemented to supply gas to fired power plants to some parts of the country. Provision was made for it to supply power to industries in Lagos along the route between Escavos and Lagos so as to enable these industries work optimally. NNPC had the ability to plan ahead looking forward but political interference discarded every good idea of the corporation. Ogbuigwe gave account on the sale of Indorama, interestingly, after sale, the capacity of Indorama went up to 100%. As at the time Indorama was bought, $200million worth of spare parts, such as: compressors, rotors, turbines and other significant parts were at the port in Onne, Rivers State. Since it has acquired the rights and ownership of the company, it automatically has the right to $200million parts. The company cleared the parts from the port, the plant was commissioned with NNPC personnel and it went up to 100% because decision was taken promptly. The company did not pass through strident protocols of government, decision was taken and effected straightaway. The refinery consultant urged the government to learn from “Indorama sale and imbibe in its change mantra to move the country forward.”
Besides, the Liquefied Petroleum Gas (LPG) supplies from the refineries failed when the utilized capacities retrogressed leading to a lot of shut downs because it could not perform its statutory duties. Engineer Ogbuigwe attributed the poor performance of Nigeria’s refineries to inadequate funding, lack of autonomy, poor governance and distant decision making. Poor maintenance, interference by political forces, prompting of subsidies, lack of competition, inefficiency and delayed TAM have been the reasons why the refineries are in sorry state.
SOLUTIONS FOR A BRIGHTER FUTURE
Notwithstanding, the refinery expert revealed that Nigeria has no option than to ultimately deregulate its downstream sector which is inevitable. Government equity should be sold 40% below the existing refineries and the equity should be managed by NNPC as it is in the Nigeria Liquefied Natural Gas (NLNG). Ogbuigwe advised the country to allow construction of large scale private refineries like the in-coming Dangote refinery. Modular refineries should operate as an independent business model to aid existing ones without the interference of government so that it will not be politicized thereby jeopardizing the initiative. Private investors need to evaluate opportunities in modular refinery before embarking on it and should be located near a crude source with efficient way of selling the product nearby, “this is an ingenuity for business success.”
Due to the negative effect of desertification, it is paramount to stimulate and encourage the use of LPG to take over from kerosene and wood for cooking which will promote good health. Stakeholders should advance the course in the use of LPG and Compressed Natural Gas (CNG) for vehicles owing to innovations in gas and renewables.
Ogbuigwe observed that Nigeria is not dedicating enough gas to industries, just paltry 13% of the country’s gas production is going to industry and power. Nonetheless, NLNG has contributed immensely to monetization of gas resources and it has been exporting gas. The country can do more if it promotes petrochemical industries and fertilizers from the gas resources that it has. Nigeria has been using 31% of its gas in the upstream to run operations and 19% is flared. Only 19% of the country’s gas is being flared contrary to speculations that it flares 75% of its gas. If tentative investments go ahead, the country will meet its demands for the industries that use gas and still have gas for export. If Nigeria has its gas policy right, it will encourage the upstream companies to invest in gas production and there will be substantial gas for power, industry and export. The country has advantages from its industries, if it encourages its gas production.
Out of the 650,000 barrels which the Dangote refinery is planned for, 200 of it is to provide feed stock for petrochemical plant. If these projects are implemented, the country would have increased its fertilization production to 2.8 million tons. Ogbuigwe commented on the country’s new gas policy that has been approved and its implementation will be of immense benefit to the country. He added that Nigeria has spent its resources in importation and part of its imports will be reduced substantially if it carried out thorough diversification of its economy. The drain in the country’s foreign exchange is because it is still largely an import dependent economy, it needs a change by enhancing its manufacturing industries particularly using its gas resources to stimulate petrochemicals and other related sectors.
BENEFITS FROM PETROCHEMICAL PRODUCTION
Nigeria has not paid much attention to petrochemical production which is one of the greatest benefits accruing to the country in terms of efficiency and deployment of resources for job creation. It will lead to growth in the private sector with multiplier effects on the economy. Each job created in the oil sector spurns eight more jobs and the country should refine its crude and use potentials from products accruing from the petroleum industry before exporting.
Being a former President of Africa Refinery Association, Ogbuigwe shed more light on the impact of involving fuel specifications on investments, there are some works which has to do with improving the specifications of the products that are coming out from refineries around the continent. There is an initiative which is ongoing and it has been implemented in the East, northern and Southern Africa region except in West Africa. If Nigeria is designing its refinery for the future it should plan for it especially the drop of sulphur content in order to attract investors.