A Review of the Nigerian Energy Industry

NNPC to cut crude oil refining costs

04 September 2015 – The Nigerian National Petroleum Corporation is looking at significantly reducing the cost of refining crude oil within the country through resource co-location.

NNPC-logo-335x270With the co-location model, the corporation will ensure that new refineries are situated together in clusters, which will allow for sharing of critical infrastructure like power, pipelines and technologies, among other resources.

This model, our correspondent learnt, was at the proposal state, and was targeted at encouraging the private sector to invest in refineries.

Currently, over 440,000 barrels of crude oil are meant for local refining, but a large proportion of this quantum is unutilised because of the near-comatose state of the refineries, except for Port Harcourt plant which has shown some level of improvement in recent times.

The Group Managing Director, NNPC, Dr. Ibe Kachikwu said in an interview that the co-location model for new refineries was feasible and had the capacity to drive efficiency in the midstream segment of the petroleum industry, especially in the area of crude refining.

He said the corporation was open to Nigerians willing to key into the model and give the petroleum sector a lift.

“The co-location model for the refineries is actually a proposal. I will like a situation where we will deal with our own existing refineries and then find individuals who are willing and ready to invest in other refineries,” he said.

Speaking on how the model would work, Kachikwu explained, “In a co-located area, they (refineries) share common tanks, common pipelines, common power, and this will obviously bring down the cost of building refineries, and the effect of that is, if they are sharing technical skills and management together, there would be huge cost efficiency.

“We have to do our marketing very well and get people who are willing to do this.”

In the interim, he said the hope of the NNPC was to get the existing refineries to work, saying that the model all over the world today was that the value obtainable from crude was at the upper level of the value chain.

The NNPC GMD stated, “To produce crude, there is no much technologies to be deployed as crude is the same everywhere. The only time you get an incremental value in terms of pricing is when you refine.

“Crude is cheap, and you need to refine to make some quick returns. There is the need for us to expand our refineries and grow more refineries and ship out refined products to the rest of Africa because there is a lot of market for them.

“Unfortunately, ours haven’t really worked and we need to get them to work.”

The NNPC had last month said with respect to the new refineries, its role would be limited to providing the required space for their operations.

Kachikwu was quoted to have said, “I am pushing to build new refineries next to our existing plants in order to boost the nation’s refining capacity for the common good.

“The new refineries will be developed by private investors and NNPC’s role will be just to provide them with space close to the existing refineries to enable them share key facilities such as pipelines and storage facilities.”

The GMD pointed out that though the current challenges militating against the operations of the refineries were huge, they were not insurmountable.

He also praised the vision and foresight of past Nigerian leaders for establishing the refineries and challenged the present generation to sustain the vision, adding that all hands must be on deck to salvage the situation.

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