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Igwebueze: Cost of importing fuel in 30 days will build 10 Modular refineries


Godwin J. Igwebueze

Pioneer Director, Centre for Gas, Refining & Petrochemicals (CGRP), Institute of Petroleum Studies (IPS), University of Port Harcourt, Prof. Godwin J. Igwebueze, told KELVIN EBIRI and ROSELINE OKERE, why private refineries licensed failed to succeed and what the country stands to reap if it diligently creates a conducive environment for modular refineries to come on stream.  

What do you make of the Federal Government’s plan to encourage illegal refineries to operate modular in the Niger Delta?
Excellent idea and a sound strategy. First, let’s humanise the activities and call them “artisanal or cottage industries.” Remember that a country that is unable to refine its crude oil lacks internal, external, social and economic security because desperate people do desperate things. Illegal oil bunkering, stolen crude oil as feedstock for illegal refineries, including environmental degradation of the environment, is highly condemnable. With a thoughtful implementation and management of the modular refineries programme, the government can reduce joblessness, poverty, and hunger in the Niger Delta states.

However, the programme should be envisioned, enabled and well articulated in terms of infrastructure development investments, budgeting, crude oil supply, power supply, and technical entrepreneurial professionalism.

Inadequate funding was one of the problems that worked against the coming on stream of private refineries. Will funding challenges not also mar this new initiative?
Nothing is free, except air. Free items have less value, hence when you invest with your money, you will expect return on your investment. Private refineries did not succeed because their intentions were dubious- they were expecting government to give them free lunch. There are many financial houses interested in viable loan applications.

The Federal Government recently said that the country would become self-sufficient in petroleum refining by 2019. What role is there for modular refineries?
We have the raw material crude oil, right? We do not have the processing know-how. The Federal Government’s vision will encounter challenges if it depends on importing finished petroleum products, instead of training indigenous citizens, and giving specific tasks to universities to train local refining enterprises.

As advocated in my article, “Testing the Idea of Modular Refineries,” published in The Guardian Newspaper of Monday, February 17th, 2014, I pointed out that as more countries are discovering oil, our exports will begin to drop at some stage. In addition to this, the development of alternative fuels is bad news for crude oil producers, especially in the light of climate change.

Our case is even getting worse because of frequent production outages and unprecedented oil theft. We are taking loans every day and our debts are piling up. The world’s biggest consumer of crude, the United States has now found a formidable alternative in shale oil. So, the demand for our oil has fallen and will only continue to fall. The new reality is that crude oil is no longer a monopoly. As demand falls, the price will fall. As the price falls, production will fall. Many oil fields will become unprofitable to operate. They are likely to close down. In the event of this happening, the naira would crash. A fall in foreign exchange inflow will hurt us since we are import-dependent. If we deplete our external reserves to protect the naira, it would impact negatively on the general prices of goods and services, hence, less money to build infrastructure, less money for government overheads, leading to retrenchment and salary cuts. Money to fund fuel importation and petrol prices will increase and as petrol price goes up, mass unrest will ensue as cost of living rises.

Manufacturing plants based on modular equipment are emerging as a viable and beneficial alternative to conventional stick-built processing plants. Modular equipment offer several benefits, including flexibility in plant siting, fewer safety concerns during construction, and ease of equipment modification.

Many international oil companies operating in Nigeria have refineries in other parts of the world. What is the implication of this lack of interest by OICs in Nigeria’s refining business?
Because modular refineries will cut their profit margins on petrol import.  Most importantly, they want you to remain dependent on their ability to sell us refined products, which provides incomes and jobs to their home countries.

Further, a modular refinery can be designed to optimise the production of high quality light and middle distillates, but this comes with additional complexity and capital cost, which could be justified given the economics of the specific project.

Any project involving a modular refinery must carefully evaluate the target market demand and required product slate. This has to be part of the initial project evaluation and design of the modular refinery. The alternative value of the crude oil is export. Historically the value of refined products is always greater than the crude oil itself. The local market will either produce the fuels required, or import those from other parts of the world at a mark-up reflecting the cost to upgrade the crude oil to the products. This will involve shipping costs, and potentially higher production costs, depending on the source of these refined products.

The capacity utilisation will be defined by the quality of the equipment built, the training of operating personnel, the training of maintenance personnel and the dedication to maintain the facilities, and supply of the crude oil and other site utilities. These all start with the design of the project and a strong understanding of the properties of the crude oil. A modular refinery can be cost effectively designed and built and efficiently operated if carefully designed to meet the requirements of the particular situation in which it is installed and operated. A modular refinery can also be cost effectively built, using dedicated fabrication facilities that routinely produce these types of operating facilities. This incorporates thorough design, standard safety reviews, proven quality control and quality assurance during procurement of equipment, materials and fabrication, checkout and commissioning of the equipment, prior to shipment, and warranties on the unit at shipment.

These types of techniques can yield very significant installed capital cost savings and higher quality manufacturing, when the plant is to be located in a remote area with limited access to the right kinds of skilled labour and readily available manufacturing equipment and materials.

Training of both operating and maintenance staffs can be started during the fabrication of the equipment at the established fabrication yard and standard techniques can be transferred. The successful capacity utilisation all starts with strong project definition and project execution.
I will suggest we encourage self-reliance and diversification to maximise our production of petroleum products through modular refineries. We need more doers, not talkers, more hands-on professionals, more manufacturers to support consumers. I believe we have been able to ignite interest by creating innovative ways to bring awareness, through modular refineries to end fuel scarcity in Nigeria.

Considering the cost implication, will locals currently engaged in illegal refining activities not be thrown out of business, owing to lack of technical and financial capacity?
The sponsors of former illegal refineries can channel their resources into modular refineries. That is their best option as they can be taught technical skills, with respect to specifications, flow rates, pressure, temperature controls, and environmental process techniques.

Yes, we can teach them.  We have a pilot modular refinery at UNIPORT’s CGRP, IPS.  In a modular plant, the process equipment, instrumentation, valves, piping components, and electrical wiring are mounted within a structural steel framework (i.e., skid or module).  Heat tracing, thermal insulation, and an integrated control system are often included in the mounted structure.  Each skid is a self-contained process unit that is typically constructed offsite.  A modular plant can be comprised of many unit operations contained in a single skid, or on multiple skids that are connected at the production site to form a large process system.

Specifically, how much does it cost to have a modular refinery?
It depends on if you want to refine 1, 000, 2, 000, 3, 000 barrels per day. The more you want to refine at a given time the costlier the refinery will be. However, they range from $100m to $200m depending on the specification of what you need. Modular refineries are not cheap as such. It depends on the degree of products you want to produce. If you just want to produce diesel, that is a simple distillation process. Refining is a question of heating, evaporation, cooling and condensation. It is a very simple process. If the government pushes through this process, this can be said to be the best thing that has happened to Nigeria recently. Right now we are lucky that there is a Modular Refiners Association of Nigeria. This association can help anybody who is interested in refining and making modular refinery a business in Nigeria.

Since a modular refinery is not cheap, how then can artisanal refiners fit into what government is coming up with?
The people that are breaking the pipelines are not the people behind the business. There are people who are sponsoring them. If the small man in the village vandalises a pipeline, who will buy the products  from him? There are people staying in big hotels and sponsoring them to go and break the pipelines. If you can provide them alternative means of livelihood, they will do something else other than artisanal refining, particularly, when they know they can be killed by government forces or in an explosion that could claim their lives. So, they will avoid it if you provide them an alternative means of livelihood. Remember that the barges that carry the stolen products are owned by people that we haven’t ventured to hold responsible for what they have been doing. As soon as the government can track them, this thing will stop and the government will make a lot of money because it will be taxing the modular refineries.

Some are of the opinion that it would be difficult to recoup investment in modular refinery?
I don’t subscribe to that. If you want to make more money, you crack the bottom. Distillation process takes off those volatile gases, where diesel, kerosene and other petroleum products come up easily. When it goes to the bottom where the carbon atoms are bigger, you need another equipment to use in cracking them. You can always add them to the modular that you have. You will see people that are trying to make more money by importing petroleum products kick against this initiative. You have to give us a chance to prove that it can work. You don’t need to start with processing 10, 000 barrels per day. You can start with as low as 1, 000, 2, 000, and 3, 000 bpd. With this, you can still make enough money to enable you to set up an additional modular refinery that enables you to break even. You will definitely break even because there is scarcity of fuel in Nigeria, once you have a modular refinery, which is the atmospheric and vacuum distillation. Now, you have to buy another equipment, which is hydrocracker, which will crack the higher carbon molecules that weren’t vapouring when you did the initial distillation. So that is why it is important if you really want to make money, you also buy the hydrocracker. I had mentioned to the acting president the need to remove the regulation so that refiners can sell at any price. I am sure if you are stranded on the road and you don’t have any fuel, you will buy from all these illegal refiners that you are talking about.

Must these refineries always be located near crude source? In other words, must they all be located in the Niger Delta?
Even though at best they should be situated at the source of the crude oil, but you know we have pipes running from the South to the northern part of the country, and there are also depots along the pipelines. So, modular refineries can be set it up anywhere. If that is not feasible, crude can be bought elsewhere and delivered to the refinery in tankers and there is nothing wrong with that. We always find reasons why something should not be done, but now, we should find reasons why something should be done. I think that is the approach Nigerians should take. Lets give this thing a chance. Lets try. If it does work, everybody will see it.

University of Port Harcourt has a pilot modular refinery, what is the cost of it?
It is a pilot scale modular refinery that cost us almost a $1 million. Actually $2 million because I used $1m in building the house and used the other balance for the refinery. At that time, the exchange rate was high and that was why it cost so much. Otherwise I have manufactures, who can produce any type of equipment you want and it will be here within a short time. Imagine if one person like me could set up this sort of modular pilot plant, then imagine what the government can do. We have produced all the fraction involved in crude oil production.

Is there the possibility of foreign investors showing interest in modular refinery business?
Yes, if security of life and investments are made available, foreign investors will go where money is to be made, but safety is of primary concern in Nigeria. Why foreign investors anyway, when our local investors have more money in foreign banks than foreigners? Let government create a conducive investment environment, and reduce barriers to business.  International oil companies (IOCs), lobbyists, petroleum product importers, the Dangotes, and even our own NNPC/DPR are competitors, and are reluctant supporters of modular refineries.

What are the gains we are looking at?
Yes. We will be able to close the gap between our supply and demand portfolios. Nigeria currently imports over 60 million litres of petrol everyday. The cost of importing fuel in 30 days is enough to build five to 10 modular crude refineries. The current crude oil price free fall can be turned into gold for Nigeria by building modular refineries in most states of the country.

Modular refineries can produce a combined volume of over 1,000,000 litres per day of petrol, diesel, aviation fuel, kerosine, naphtha, and other petrochemical products. They can create over one million jobs for youths, create over 1,000 spin off medium and small businesses, such as shipping, engineering, construction, logistics, fabrication, and many more. Further more, they can train over 120,000 Nigerians and community indigenes; provide food and shelter for over five million Nigerians; rejuvenate our national economy with another “oil boom era” and give us a chance to export excess fuel produced by the refineries and earn forex from fuel export.

In addition to this, they can regenerate various key socio-economic sectors and sustainably raise the Nigerian GDP, just as oil communities can be transformed if they form oil community cooperatives and end up being made key stakeholders as joint venture partners in the ownership and operation of these modular refineries.

Modular refineries can provide oil communities and indigenes an alternative sustainable source of income, foster a fresh sense of ownership, deep sense of commitment and responsibility for protecting all the Nigerian oil assets in their environment, hence eradicating our ugly era of “pipeline vandalisation and oil spills, and save the Nigerian government the current daily loss of about N470 million per day.

Testing the idea of modular refineries at strategic locations in the country will increase internally generated revenue and reduce fuel scarcity.

What do you think the government should do to avoid the mistakes of the past, in respect of the country’s idle refineries?
Simple, privatise them. Alternatively, use the Public Private Partnership (PPP) model as with Indorama Eleme Petrochemicals Limited, or the Nigerian Liquified Natural Gas Limited (NLNG), or Notore Fertiliser Company Limited.

In this article:
Godwin J. Igwebueze
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