A Review of the Nigerian Energy Industry

One million barrels per day-refining capacity target – Illusion or reality?

Refinery20 August 2013, Lagos – With the in-country refining capacity still a little above 10 million litres, as against Nigeria’s daily consumption of over 35 million litres and the dilly-dallying on critical steps required to boost the nation’s refining capacity, Chika Amanze-Nwachuku writes that the set 1mbpd-refining capacity target by 2014 may be unrealistic

Declaring open the 2011 Society of Petroleum Engineers, SPE, yearly conference and exhibition in Abuja, Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, had stated the federal government would unveil an all-encompassing strategy that would raise Nigeria’s refining capacity from the then 60 per cent to a record 90 per cent in two years.

She emphatically stated the nation’s refining capacity would receive significant boost through the execution of a comprehensive turnaround maintenance, TAM, that would increase refining capacity from 445,000 barrels per day (bpd) to about one million barrels per day (1mbpd).

Alison- Madueke also stated convincingly that measures were being taken to ensure completion of the proposed three Greenfield Refineries in Lagos, Kogi and Bayelsa within a three-year time-frame, to further boost the country’s refining capacity and drastically reduce the rate of importation of refined petroleum products.

The minister said to ensure that the TAM was executed in accordance with best global practice, the TAM on the traditional refineries, located in Port Harcourt, Warri and Kaduna would be handled by the companies that first built them, pointing out that the Nigerian National Petroleum Corporation, NNPC, had already invited the original builders to undertake a professional overhaul of the plants and to ensure that the TAM, which had been planned to begin with the Port Harcourt Refinery took off as scheduled.

Speaking on the sidelines of the June 2012 meeting of the Organisation of the Petroleum Exporting Countries, OPEC, in Vienna, Austria, Alison-Madueke had also expressed optimism that Nigeria would stop refined petroleum products importation after government was done with the TAM of existing refineries, which first phase, she reaffirmed, would commence with the Port Harcourt Refinery.

The minister was quoted to have said: “At this point in time, we are trying to ensure that our refined petroleum products are produced in the country within the next 24months or so. To do that we need to do the TAM of the refineries that we already have on ground, we have already moved into the first phase of the TAM of PH, using the original people that built them. So at the end of this year, PH should be up to 90 percent capacity and by the end of 2013, Kaduna, and then Warri will follow suit.”

Again in 2012, the minister had restated government’s plan to boost refining capacity when she appeared before the House of Representatives, following an invitation by the lower chamber of the legislature, requesting clarification on the issue of the lingering kerosene scarcity across the country.

The minister had assured the lawmakers that the expected increase in refining capacity would help increase the volume of kerosene supply from the refineries in the medium and long term.

Echoing the minister’s statements, the then Group Managing Director, GMD, of the NNPC, Mr. Austen Oniwon, had stated categorically at an energy conference that the existing refineries in the country would be upgraded to 90 per cent capacity utilisation. He even put December this year as scheduled date for attainment of optimum refining capacity. The GMD as he then was, had admitted that the nation’s refineries were comatose but stated that the corporation had designed refinery revitalisation working plan using the original contractors that built the refineries.

Oniwon said the turn-around maintenance of the refineries was part of effort towards ensuring adequate local refining of petroleum product. According to him, the Port Harcourt refinery was billed to commence the projected capacity production by the fourth quarter of 2012 to be followed by Kaduna refinery by the first quarter of 2013, while Warri refinery would come on stream by the fourth quarter of 2013.

Onwion said: “In my presentation before House of Representatives Ad-hoc Committee on the Monitoring of the Subsidy regime, I made it clear that at 90 per cent, the three refineries will be able to produce 20.3 million litres of PMS, 9.2 million litres of kerosene and 15.3 litres of diesel as compared to the average national daily consumption of 35 million litres of PMS, 10 million litres of kerosene and 12 million litres of diesel.”

Oniwon, who sounded very optimistic that the plan was achievable, even urged Nigerians to hold NNPC management accountable to the promise. He noted that the coming on stream of Greenfield refineries would not only make Nigeria self-sufficient in refined petroleum products, but would also make the country a net exporter of refined petroleum products.

At a town hall meeting with staff in the Eastern zone of the Corporation, shortly after he was appointed in 2010, Oniwon had outlined what he described as the NNPC’s grand plan to refurbish and upgrade existing units of the refinery through the execution of a comprehensive TAM exercise.

He said though it might cost more to undertake a complete overhaul of the refinery, the NNPC was “willing to go full throttle to ensure a successful TAM, which was last executed in year 2000.”

“What we want to do is to undertake a different type of TAM that will guarantee maximum benefit. So we are going back to the original contractors who built all the units to ensure an effective and total refurbishment of the plant. Unlike in the past when the scope of work was not clearly specified, we intend to conduct a full scale technical audit with well-defined scope of work for the contract,” Oniwon had said.
Years of Neglect
The traditional refineries had been comatose for nearly a decade. Corruption and poor maintenance had undermined their performances. In 2008 and 2010, all the four refineries were completely shut down by the NNPC, which blamed the resurgence of violence in the Niger Delta region, which resulted in attacks on crude supply pipelines for the closure of Kaduna and Warri Refineries. For the Port Harcourt Refinery, he said the closure was due to the damage on its vital units owing to epileptic power supply. Also, in December, 2011, the Port Harcourt refinery had been shut down after attacks on its crude supply pipeline and also the problem of epileptic power supply.

Previous Turnaround Maintenance
Soon after the botched sale of the plants in 2007, the NNPC claimed it had awarded the contract to a Nigerian firm to carry out a comprehensive TAM on all the refineries. The contract sum as revealed by the then GMD, Abubakar Yar’Adua, was $57 million. But despite the said TAM, the refineries remained in near dilapidated states, prompting Nigerians to demand clarification on the real status of the plants. The corporation in the wake of public outcry over the poor state of the refineries had claimed that the Pipeline breaks at the Ewe and Bantan axis had affected crude oil supply to the Warri Refinery.

The NNPC also stated the TAM for Kaduna Refinery had been scheduled for November 15, 2008. “It is expected that the contractors will conclude TAM and hand back the refinery to NNPC Management on January 15, 2009”, the NNPC said in a statement then. It however admitted that operations of the Port Harcourt Refinery were being hampered by power supply problems, but that efforts were in progress to restore the plants to full capacity.

In 2009, the NNPC had announced that it spent $20 million (about N31billion) on TAM of the Kaduna refinery alone. The then GMD, Alhaji Sanusi Barkindo, who made the disclosure at a meeting of the Trans-Saharan Gas Pipeline in Abuja, Barkindo had stated the TAM became necessary because the Kaduna refinery “is very strategic as the only refinery serving the nineteen states of the North”.

Despite NNPC’s claims that the refineries were undergoing routine TAM, investigations at that time revealed that funds allocated for the TAM were diverted, as was the routine in the corporation.

A document obtained from the NNPC recently revealed that the new Port Harcourt Refinery had undergone TAM only thrice since it was inaugurated in 1989. The last one was carried out in 2000. For the old Port Harcourt Refinery, which was commissioned in 1965, the only major rehabilitation work on it took place in 1989, while the first and only TAM was carried out in 1998. In the case of Warri Refining and Petrochemical Company, the record showed that the last TAM was executed in 2004.

A senior management staff at the Port Harcourt Refinery had confirmed that the two plants located in that city had operated for about 12 to 14 years without TAM. Also in his presentation during the petroleum minister’s visit to the PHRC, the Managing Director of PHRC, Mr. Antony Ogbuigwe, had revealed that the refinery had operated for 12 years without the routine TAM. As at then, the management of the refinery, according to Ogbuigwe, had placed orders for the long lead materials and had commenced site preparation for the refineries’ fourth TAM exercise, which had been planned from October 1, to November, 30 2012.

“PHRC plants have operated now for 12 years without TAM and this has caused the equipment to deteriorate and operate on very low efficiency, unsafe state and may lead to catastrophe if not addressed. This rehabilitation work is designed to check that,” Ogbuigwe had told the visitor.

Also, the National Refineries Special Task Force, NRST, inaugurated last year by the Minister of Petroleum Resources, identified maintenance neglect; poor operational performance; organisation and government issues as root causes of poor performances of the nation’s refineries over the years.

The 22-member team had noted that all the refineries, at the time of the report was written, were operating at an average capacity utilisation of only 20 percent, “placing Nigeria at the bottom of the ladder among African refineries”. The Idika Kalu committee also observed that “the refineries have not been efficiently and safely operated and maintained for more than 15 years”.

Status of proposed greenfield refineries
At every forum, within and outside the country, the government repeated assured that adequate measures were being taken to ensure completion of the three Greenfield Refineries in Lagos, Kogi and Bayelsa within the stipulated time-frame.

Both the petroleum minister and the current GMD of NNPC, Mr. Andrew Yakubu, had at recent fora pledged government’s commitment to the projects, which had been envisaged to add additional 750,000 barrels per day (bpd) to Nigeria’s current refining capacity about 445,000bpd and end years of massive importation of refined petroleum products, which has become a national disgrace.

The initial plan was that each of the Greenfield Refineries would be able to process around 250,000 barrels of oil a day, but their combined capacity was later downsized to 400,000 barrels per day. By that arrangement, the capacities of the plants to be built in Kogi and Bayelsa were reduced to 100,000 barrels per day (bpd) each, while the one to be located in Lagos, was reduced to 200,000 bpd.

THISDAY gathered that the capacities of the plants were downsized based on a Detailed Feasibility Study, DFS, carried out by Wood Makenzie & Foster Will.

The construction earlier planned to begin in July last year had been put on hold due to the NNPC’s inability to secure federal government’s approval to commence work and the corporation’s inability to secure funding for the project.

Checks had revealed that the NNPC, which was to provide 20 per cent of the amount budgeted for the project was yet to float a consortium for the purpose of raising the funds.

Regulation Frustrates Project
But giving the latest status of the projects in May this year, the NNPC GMD, Yakubu had noted that regulation of the downstream petroleum industry has been a major setback for the take-off of three Greenfield refineries project, for which the memoranda of understanding, MoU, was signed in May, 2010, between the NNPC and the China State Construction Engineering Corporation, CSCEC.

The NNPC boss, who restated the importance of the project, which he said would enhance Nigeria’s refining capacity by additional 50 per cent expressed regrets that the project had suffered series of setbacks due to a number of challenges, top of which he said was the regulation of the downstream petroleum industry.

He said: “There are quite a number of things that are wrong, no investor will come and invest in a regulated environment. Today, the petroleum products are regulated and there are quite a number of things we need to do upfront to ensure that the business environment is conducive for investors to come and invest.”

The GMD argued that for the project to take off the business models must be right and this cannot be achieved under a regulated system.

Doubts over Project Realisability
But indications have emerged the federal government might jettison two of the three Greenfield Refinery projects. This, sources said was sequel to the recommendations of the refinery task force.

The task force headed by former Minister of Finance, Dr. Kalu Idika Kalu, had in a report submitted on August 2, 2012 found that of the three joint venture Greenfield Refineries option under consideration by the NNPC, “the economics strongly favours only Lagos”.

Based on its finding, the committee had advised that only the proposed 350,000 bpd Lagos Greenfield refinery “should be pursued vigorously as a priority project” to ensure it comes on stream by 2016, while the proposed Bayelsa and Kogi refineries should be explored later.

The committee had also in its report, observed that the old refineries with combined capacities of 445,000 bpd, could meet Nigeria’s domestic needs only if the root causes of their poor performances were vigorously resolved.

Stakeholders’ Views
However, at the recent ministerial platform to underscore the ministry’s scorecard as part of the mid-term achievement of President Goodluck Jonathan administration, the minister of petroleum had affirmed that ongoing TAM on the key refineries had started with the Port Harcourt refinery and to be extended to others soon.

But industry stakeholders, who spoke on the development argued that despite government plans to bring the existing refineries to optimum capacity through what it described as comprehensive TAM, the Greenfield refineries have become imperative, given that current output from the existing refineries was a little above 10 million litres.

With Nigeria’s daily consumption of over 35 million litres and the meager in-country refining capacity, these stakeholders maintained that Nigeria, no doubt needs the Greenfield refineries if the country must increase its refining capacity.

– This Day

In this article

Join the Conversation