ARET ADAMS FOUNDATION 15TH ANNUAL LECTURE SERIES 2018
HELD RECENTLY ON “REFINERIES IN NIGERIA: CHALLENGES AND PROSPECTS”AT THE AGIP HALL MUSON CENTRE, LAGOS
Dr. Gaius Obaseki speaking at Aret Adams Foundation
In pursuance of its objectives to find lasting solutions to the challenges confronting our nation and bring out the best in people, consistent with the ideals of late Chief Aret Adams, (first Group Managing Director of NNPC) the Aret Adams Foundation, held the 15th in the series annual lecture on the topic; “REFINERIES IN NIGERIA:CHALLENGES AND PROSPECTS”
The synopsis of the presentation, discussions and recommendations are presented below.
Status and Challenges facing Existing Refineries
The total installed capacity of four major existing refineries in Nigeria is 445,000bpsd. These plants (Old Port Harcourt Refinery, Warri and Kaduna Refining and Petrochemical Company and New Port Harcourt Refinery) have within the last fifteen to twenty years had a poor operating record with average capacity utilization hovering between 15 and 25% per annum. As a result, 70~80% of the national petroleum products demand is met through import. As at 2017, the aggregate demand of petroleum products in Nigeria is equivalent to 750,000bpsd.
The challenges facing the refineries were identified as follows:
- As the refineries are 100% owned by the Government, they have no independent control of or access to their funds and all requests for funds to carry out maintenance are subject to prolonged and multilayered bureaucratic processes and considerations initially by the refinery management committee, followed by NNPC internal processes and finally by the Federal Executive Committee depending on the amounts required.
- No major turnaround maintenance has been carried out in any of the refineries since 2008. The last TAM in PHRC was carried out in 2000 as against the established best worldwide practice of conducting TAMs every two to three years.
- Erosion of experienced staff due to high turnover resulting from the frequent early retirement of senior personnel.
- The price of Premium Motor Spirit (PMS) is regulated by Government leading to serious under-recovery of crude cost which:
Makes the economics of refining unprofitable and unattractive to investors
Creates an inefficient marketplace; an incentive for rent seeking and for smuggling.
Creates an unnecessary drain on our national resources through subsidies which do not actually benefit the common man contrary to common perception
- Pipelines supplying crude oil to the refineries, and those conveying products from them are routinely vandalized.
In spite of the challenges facing the industry, opportunities exist to attract investors given that even if all the current refineries were operating at maximum capacity, there still exists a robust demand for petroleum products. Current aggregate product demand is put at equivalent refining capacity of 750,000bpd. Hence at least 300,000bpd capacity is required right now. With population growth, the shortfall in refinery capacity would rise to about 550,000bpd by 2028 assuming a growth rate of 3% per annum. Furthermore, Nigeria actually supplies petroleum products to neighbouring African countries through informal channels. An investor could target to formalize this.
This must have informed the decision by Dangote Group to invest in the construction of a 650,000bpd refinery which is expected to come into operation by 2020 or soon after. The actual conventional refinery capacity is 450,000bpsd, with the other 200,000bpsd being reserved for petrochemicals feedstock. Thus there would still be scope for another greenfield plant of at least 250,000bpd capacity, simply to meet Nigeria’s needs. A higher capacity would be justified if the intention is to supply the West and Central African regions.
- The existing refineries should be rehabilitated and brought back into operation to least at 80~90% capacity utilization. This is actually a least cost option compared with building greenfield refineries of equivalent capacities. This can be achieved either through a private sector led financing and rehabilitation initiative as is currently being pursued by NNPC, or through outright divestment of majority equity shareholding to the private sector from the current 100% ownership by Government.
- The refineries should be managed on a fully commercial governance structure in which decision making should rest with the management and board of the plants, with full control of their funds.
- The refineries should market their products directly to off-takers, so as to recover maximum value
- For the above to succeed, the downstream sector should be freed from government control. Full deregulation will make it attractive for private investors to build refineries to target meeting Nigeria’s needs and also that of West and Central Africa. This will also create jobs and grow our GDP.
- Government should create an enabling environment with fiscal incentives to attract investments into refining in Nigeria and make this happen.
- Those interested in going into modular refining should carry out feasibility studies. DPR should grant licenses and facilitating discussions for access to crude oil feedstock from upstream companies. Modular refineries should be treated as business ventures, not social services.
This series had as; Chairman: Dr. Jackson Obaseki, CON, (Chairman Brass LNG); Guest Lecturer,: Engr Tony Ogbuigwe, Consultant and past president of the African Refiners Association 2013
Aret Adams Foundation is founded on the ideals of the late Chief Godwin Aret Adams (the first GMD of NNPC). Its major objectives is the endowment of Professorial Chairs in Resource Management, Oil and Gas and Allied Areas, Organization of Annual Seminars/Lectures on topical issues of national importance, training of local manpower for the development of agriculture and cottage industry and also offering educational support to students in institutions of higher learning.
Mr. Egbert Imomoh, CON Engr. Charles A. Osezua, OON
Chairman, Board of Trustees,
Aret Adams Foundation 2nd Vice-Chairman