A Review of the Nigerian Energy Industry

NNPC mulls co-location model to cut refining costs

20 October 2015, Abuja – The Nigerian National Petroleum Corporation, NNPC, said it intends to reduce the cost of refining crude oil in country through resource co-location.

NNPC Towers
NNPC Towers, Abuja

The Group Managing Director, NNPC, Dr. Ibe Kachikwu, who said this, also said that with the co-location model, which is still at the proposal level, the Corporation will ensure that new refineries are situated in clusters. This is to allow for sharing of critical infrastructure like power, pipelines and technologies, and a host of other resources.

He explained that the model is aimed at encouraging the private sector to invest in new refineries. Presently, Nigeria’s four refineries have combined refining capacity of about 450,000 barrels of oil, but a large proportion of this quantum is not utilised because of the near-comatose state of the refineries, except for the Port Harcourt plant, which has shown some level of improvement in recent times.

According to Kachikwu, the co-location model for new refineries is feasible and had the capacity to drive efficiency in the midstream segment of the petroleum industry. More so, in the area of crude refining, the NNPC is 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.

As regards how the model would work, the NNPC boss said: “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,” he said.

He also said the hope of the NNPC, in the interim, was to get the existing refineries to work, saying that the model all over the world today is that the value obtainable from crude is at the upper level of the value chain. Kachikwu explained that to produce crude, there is not much technology to be deployed since it 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 have not really worked and we need to get them to work,” he added.

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.”

He further explained that although 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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