Why Nigeria’s refining capacity falls below expectation

14 December 2014, Lagos – Defective policy framework, greed and corruption are key factors that have adversely affected the nation’s booming oil and gas sector, especially in oil refining, experts have said.

Speaking against the backdrop of the World Oil and Gas Review 2014 released recently, which revealed the dwindling fortunes of the nation’s oil and gas sector, petroleum expert, Mr. Nnamdi Ebube, said it was rather disheartening to note that despite its status as Africa’s top crude oil producer and exporter, Nigeria continues to trail other African countries such as Algeria, Egypt, Libya and South Africa in terms of refining capacity.

Ebube, a former staff of the Nigerian National Petroleum Corporation (NNPC) said at the centre of the crisis bedevilling the nation’s petroleum sector is the blatant disregard for due process by the authorities, a development, he lamented would continued to work against the progress and growth of the sector.

According to the survey, which covers refining output for last year, Egypt has the highest primary refining capacity in 2013 among the five countries, followed by Algeria and South Africa.

Primary capacity in Egypt was put at 840,000 barrels per day, in Algeria 607,000 bpd, South Africa 520,000 bpd and Libya 380,000 bpd.

In Nigeria, primary capacity was 342,000 bpd last year, as against 345,000 in 2005, according to the report.

“We need a paradigm shift in the oil and gas industry. As the United States stops buying our crude oil and set to become an exporter of crude oil, I think it is a call to action. We need to start to look at value addition in terms of refining, petrochemicals and others,” the chief executive officer of Dubril Oil, Imo Itsueli, said on at a public presentation of an industry book.

“Singapore has no crude oil, but they have many refineries. Why can’t we be a refining hub for the rest of Africa? Why can’t we export petroleum products to Europe instead of crude oil. We are still talking about crude oil, not value addition out of crude oil, that is our challenge.”

The country’s four refineries operated at an average of 10.46 per cent of their combined nameplate capacity of 445,000 barrels per day in June, data from the latest monthly report of the Nigerian National Petroleum Corporation showed.

According to the data, 244,000 metric tons of dry crude oil, condensate and slop was received by the three refineries, Kaduna Refining and Petrochemical Company, Port Harcourt Refining Company and Warri Refining and Petrochemical Company.

“With an opening stock of 428,000 mt, total crude oil available for processing was 672,000 mt, out of which 221,000 mt was processed. The respective average capacity utilisation during the month was 0.00 per cent, 17.96 per cent and 13.44 per cent for KRPC, PHRC and WRPC respectively,” the NNPC said.

Kaduna refinery in the month had total available crude oil of 169,301 mt, but nothing was processed. Out of 289,852 mt, the Port Harcourt refinery processed 152,889 mt, while Warri processed 68,098 mt out of 213,352 mt.

The country’s refineries have long been operating well below installed capacity as they are in different states of disrepair. They operated at an average of 31.1 per cent capacity in 2012, according to data from the Central Bank of Nigeria.

“Our domestic refineries must be made to work. Appropriate incentives need to be worked out to attract new investment in refining. While domestic refining by itself is not sufficient to guarantee product price stability, there are clear gains to be derived from domestic refining as opposed to imports,” said the General Secretary of the Nigeria Labour Congress, Dr. Peter Ozo-Eson, in a report entitled ‘Pricing of Petroleum Products in Nigeria’.

Dangote Industries Limited is building a $9 billion refinery/petrochemical/fertiliser complex in Lagos. The refinery, which is expected to be completed by 2016, will initially have a capacity of 400,000 bpd, doubling the country’s refining capacity as well as cut imports of refined petroleum.

Nigeria is arguably the biggest importer of refined petroleum products on the continent, creating a lucrative market for refineries particularly in Europe and the United States.

The country, which is home to over 170 million people, imports more than 80 per cent of its refined petroleum products for the servicing of its economy.

“Subsidies have also contributed to low capacity utilisation at refineries. In Nigeria, for example, current subsidy schemes lead producers to sell crude overseas rather than to local refineries and therefore add to increasing volumes of refined product imports, which present a large cost to the economy,” said KPMG in its 2014 Africa Oil and Gas Report, while noting that problems in the refining industry on the continent include corruption, poor maintenance, theft, and ggoperational problems.




– The Nation

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