Evidently the repairs of Nigeria Refineries will ultimately reduce the quantity of petroleum products import which is currently constituting a big shame to Africa’s most populous nation and the continents biggest economy by GDP.
Low oil prices have hurt Nigeria’s upstream revenues but a long-overdue administrative restructuring of the national oil company and improved production at Nigeria’s refineries should give the country’s downstream hydrocarbons sector a welcome boost.
Nigeria, the largest oil producer in Africa, has seen export earnings fall this year as oil prices have tumbled worldwide, with oil responsible for about 90% of Nigeria’s export earnings. Given that the country is reliant on imports for fuels and refined products – which account for 35% of foreign currency outflows, according to central bank data – the low prices have also slowed the increase in the import bill, although higher demand for refined products has offset some of those savings.
Refinery Capacity of Nigeria
Nigeria has four large refineries, with a total nameplate capacity of 445,000 bpd, but historically their capacity utilisation rate has been low, around 30%, and they are far from able to address domestic demand. According to the Nigerian National Petroleum Corporation (NPPC), domestic output meets only 9% of daily petrol consumption, 24% of dual-purpose kerosene use and 28% of automotive gas oil consumption, with the rest imported from abroad. In fact, the country still relies on imports for some 86% of its aggregate consumption of more than 50m litres a day.
Production has historically suffered due to under-maintenance and vandalism, but it has also been hampered over the past year by a number of other factors including power cuts and disruptions in crude deliveries, as some oil originally slated for local refineries was instead exported under a swap deal arranged by the NNPC.
Things are looking up, however. The NNPC announced on July 29 that the Port Harcourt and Warri refineries have started production after a nine-month phased rehabilitation programme. The Port Harcourt plant has already raised its operational capacity to about 60% of its 210,000 barrel per day (bpd) capacity, while production at the Warri refinery was projected to hit 80% of its installed 125,000-bpd capacity. Attention will now shift to the 110,000-bpd Kaduna refinery which is also set to come on-stream shortly.
Were both plants to run at 80% of installed capacity, their output would be enough to meet domestic demand, according to Nigeria-based investment firm BGL.
New Refineries Granted License for small scale
A number of other projects are also under way to help increase output. The NNPC is looking to circumnavigate the risk of theft and attacks against its supply routes by making greater use of vessel-borne shipping of oil to its refineries, along with restoring service on its pipeline grid. However, both options come at a cost, with the NNPC putting a price tag of $1bn on replacing key pipelines and upgrading wharfs.
Similarly, Nigeria has granted licences for a number of new small-scale private refineries in recent years, but very little processing capacity has been added so far. This could change in the coming years, with a plan announced in mid-July by the Independent Petroleum Marketers Association of Nigeria (IPMAN) to build two refineries in the states of Kogi and Bayelsa with a combined capacity of 400,000 bpd.
The Dangote Group, led by billionaire businessman Aliko Dangote, Africa’s richest man, is also working on developing a $9bn facility outside Lagos. When brought on-line by mid-2018, the refinery will be able to process 500,000 bpd.
Splitting NNPC and other Buhari Led reforms
Other changes are also afoot in the energy sector. President Muhammadu Buhari unveiled plans in July to split the NNPC into two entities, with an independent regulator for the energy sector and a separate investment vehicle, as part of his election promises to combat corruption. No date has been set for the restructuring.
However, in the latest step of the overhaul, the number of management staff at the state-run company was reduced from 122 to 83 in August. Four new group executive directors were also appointed, following the appointment of former Exxon Mobil executive Emmanuel Ibe Kachikwu as head of NPPC a week earlier.
This follows recommendations from a committee tasked with managing the transition from the former administration for a partial privatisation of the four state-owned refineries. It suggested cutting public equity to 49%, a move it said would lead to improved efficiency and productivity. In an 800-page report, the presidential transition committee also proposed that the government prioritise the development of modular refineries for processed products such as diesel, aviation fuel and kerosene to reduce dependency on imports.
Recent Outburst by Petroleum workers against New NNPC Chief.
Nigeria’s oil workers on Friday criticised the on-going reform in the oil and gas industry, and vowed to take steps to protect their members’ interest.
The workers, under the aegis of the National Union of Petroleum and Natural Gas Workers and Petroleum and Natural Gas Senior Staff Association of Nigeria, NUPENGASSAN, described the reform as a cover-up and vindictive actions against their members. They urged President Muhammadu Buhari to call the newly appointed Group Managing Director, GMD, of the Nigerian National Petroleum Corporation, NNPC, Emmanuel Kachikwu, to order by direct him to stop the on-going sack in the Corporation.
but can all this reforms really take place without drastic reforms by the new GMD of NNPC, time will tell on the consequences of his actions