The Federal Government has summoned 23 companies licensed to establish (LTE) Modular Refineries, to report on progress made so far, BusinessDay investigation has revealed.
Licensing modular refineries is part of government’s efforts to get crude oil refined locally in-country, so as to reduce dependence on imported petroleum products and cut cost ,such that the pump price falls.
The status report, according to a source close to the Department of Petroleum Resources (DPR) would enable it make informed decisions on the companies and determine how to encourage this group of investors.
Two firms that have carried out extensive studies on the nation’s refineries have however warned the government about Modular Refineries because engaging such refineries would amount to huge economic waste.
According to the report of the firms, the petroleum markets in country, favours consumption of light and middle distillates which are not produced by modular refineries.
“In general, petroleum markets in Nigeria favour consumption of light and middle distillates. Modular refineries that process local crude oil, leave these markets with large amounts of fuel oil for which there is no effective market. There is high production of fuel oil with modular refineries, which is value destroying. This is because a barrel of fuel oil is worth less than a barrel of crude oil. On the other hand, the limited capacity utilisation of the modular refineries also means that they are not able to produce enough petrol to satisfy local demand”.
The firms, Solomon and Associates, an energy benchmarking organisation, and AON, a risk management firm, said in addition, the use of fuel oil to fire furnaces in local industries is declining rapidly, as it is being replaced by natural gas, which is cleaner and abundantly available nation-wide.
“Apart from the fact that their net operating margins are very low and sometimes negative, there must be a veritable and secure outlet for fuel oil produced by these categories of refineries, if they are to profitably compete and remain in operation”.
Currently there is only one modular topping refinery operating in the country. It is situated at Ogbele in Rivers State and produces 1,000 barrels of diesel per day. The refinery is being operated by Niger Delta Exploration and Production plc.
The refinery produces only diesel and injects back the residual fuel oil and other products obtained from its crude distillation unit. The diesel cut from the refinery is about 30% of the crude it processes.
The government had to resort to giving license for Modular Refineries after failed attempts in the past to get those initially issued licenses to build standard refineries failed to do so.
Government had earlier on issued 18 licenses for the establishment of refineries of various capacities but which were eventually cancelled because those that got them did not establish any.
The four national refineries with capacity to refine 445,000 barrels of crude oil per day, have been comatose for years now. This stagnation made government to depend on importation of petroleum products. To sustain this, trillions of naira has been spent by government on subsidy of petrol.
However by first quarter, 2018, the 600,000 barrels capacity Dangote refinery is scheduled for commissioning. The refinery is expected to bring into the market on daily basis, Euro-5 compliant additional high quality 44.23m litres of PMS; 20.18m litres of ATK/HHK and 9.31m litres of diesel respectively.
It is expected that rising additional capacity would eliminate import of petroleum products and make Nigeria self-sufficient in this area.
The entry of Dangote refinery in 2018 threatens the survival of government owned refineries if measures are not taken to upgrade them to competitive levels.
It is estimated that the four refineries would require an investment of between $7 and $9 billion to upgrade.
Olusola Bello
