Close button
The Guardian
Email YouTube Facebook Instagram Twitter WhatsApp

Questions over Buhari’s fuel import deal with Niger

Related

Haulage modalities unclear
• ‘Move signals regional solution’
• Govt may sell state refineries

The sincerity of President Muhhamdu Buhari’s roadmap on local refining yesterday became a subject of controversy among experts, who reviewed the Memorandum of Understanding (MoU) signed between Nigeria and the Niger Republic on the purchase, transportation, and storage of petroleum products.

x

Industry experts raised concern over what they described as strategic interest between the president and his Niger counterpart Mahamadou Issoufou, going by some key infrastructure project being linked from Nigeria to Niger.
Some other critics, however, argued that the trade deal with Niger on petroleum product transportation and storage, as well as the emergence of modular refineries in some states, would amount to problem-solving using a regional approach and comparative advantages.

Niger and Nigeria had, in 2018, signed a deal to build $2bn refineries with a connecting pipeline to bring crude oil from Niger’s heavy crude, laden with high sulfur content. There is also an indication that a $1.9brail line is being approved to link Kano-Dutse-Maradi into Niger. The Federal Executive Council, had earlier this year reportedly approved contracts for the construction of two roads from Sokoto and Jigawa States, up to Nigeria’s borders with the Niger Republic at a total cost of about N30 billion.

Buhari, on Tuesday, stated that the country would pursue a roadmap pegged on the rehabilitation of the nation’s 445, 000 capacity refineries, co-location of refineries, and creation of new Greenfield refineries, insisting that the country would become a net exporter of petroleum products. But stakeholders have noted that the move would be elusive since efforts are focused on imports from other countries.

x

Against optimism that the development remained a win-win situation, experts insisted that the country would only become a guaranteed off-taker at the expense of the struggle to repair existing refineries.

Niger Republic’s Soraz Refinery in Zinder, some 260km from the Nigerian border, has an installed refining capacity of 20,000 barrels per day. Against Nigeria’s sweet crude, which is relatively low in sulfur, Niger’s refinery blends heavier crude, which could undermine environmental challenges at a time Nigeria is still battling with ‘dirty fuel.’

For a country, which has struggled for decades to boost daily crude oil production to three million barrels per day and reserves to 40 million BPD, the players noted that the need to build a pipeline within the country to connect to upcoming refineries and guarantee feedstocks should be prioritised.

x

Nigeria had, last week, sealed the deal, formalising Petroleum Products Transportation, Storage, and capacity development for Niger.

Nigerian Association of Road Transport Owners (NARTO) noted that while the development could create opportunities for haulage; modalities for seamless operations remained unclear. NARTO President, Yusuf Othman said a meeting is being scheduled with the Nigerian National Petroleum Corporation (NNPC) to discuss the way forward, adding that, although there is a free trade agreement within the West African bloc, there was a need for clarity.

PricewaterhouseCoopers’s Associate Director, Energy, Utilities, and Resources, Habeeb Jaiyeola, noted that the deal could lead to cheaper products than the typical imports via high sea from refineries in another continent, as costs such as shipping and demurrage, among others, may not feature in the cost profile.

He also noted that, since transportation would happen through trucks, the access road infrastructure between both countries could be an issue.

x

“While the deal seems good for Niger, via securing an offtaker such as Nigeria guaranteeing off-take of excess refining output, the same may not be said for Nigeria that has refineries with a capacity of about 445,000 bbl/day but importing from refinery with about 20,000 bbl/day.

“This further emphasises the need for the urgent turnaround of local refining capacity in the country, as this is the ultimate long-term solution to the persistent petroleum products availability and pricing challenges being faced by consumers in the country.

“The Dangote refinery, and efforts by the Federal Government to solve these challenges, provides optimism in the sector,” Jaiyeola said.

Former President, Nigerian Association of Petroleum Explorationists (NAPE), said the move is below par, especially in the face of the urgent need to overhaul existing refineries in the country.

x

He decried the state of the Kaduna refinery, which would have been a better option for the northern corridor, especially with the quality of the crude oil in Nigeria, stressing that linking the Kaduna refinery to feedstock from Niger should also not be an option.

Some critics, however, said the deal has further reinforced the need for the Federal Government to let go of its control of the four-state refineries that have remained a financial burden to taxpayers, even as it patiently waits on Dangote refinery to be completed.

According to Stakeholders, while the deal is not bad in itself, it casts aspersion to the costs incurred in maintaining Nigeria’s refineries, despite producing nothing of value in many years.

Some of them stated that the government while seeking other measures to solve the perennial problem of oil refining, is equally playing the waiting game for the Dangote refinery.

x

Those who shared insights with The Guardian noted that the government had supported Dangote refinery so much that it would make no sense revamping the existing refineries at huge costs.

Their positions reinforce the International Energy Agency’s 2019 report that a global increase in the number of new refining capacity, expected to extend till the end of 2024, signifies major competition ahead for the oil industry, with possible shutdowns.

The IEA noted specifically that such a capacity expansion will require shutdowns to balance, estimating that 4.3 million b/d should theoretically be closed by 2024 so that the new additions do not exceed the product's demand growth.

With Dangote Refinery expected to commence operations within the timeline with a capacity of 650,000 barrels per day of crude oil, Nigeria’s existing refineries may cease to operate having continued to record huge deficit over the years.

x

The Dangote Group had earlier stated that overall work at its 650,000 barrels per day (bpd) integrated refinery and petrochemical project had reached 80 percent completion.

It said this percentage covered the engineering, design as well as procurements.

Group Executive Director, Projects and Portfolio Management, Dangote Refinery, Edwin Devakumar, however, clarified that some aspects of the project, such as physical construction, is at 60 percent.
SIMILARLY, the emergence of modular refineries is expected to drive competition and further discourage huge costs spent on rehabilitating old refineries.

For more than five years, the Nigerian refinery utilization rate has been below 30 percent, with a notable decline in the past three years when any month above a five percent utilization rate might be considered a successful one.

x

Stakeholders noted that the oil refinery in Niger is being run by the Chinese and has remained operational since 2011, as the Soraz refinery has been exporting products into northern Nigeria for some time.

Indeed, Soraz, the oil refinery in Niger is owned by China National Petroleum Corporation (CNPC). The refinery, a joint venture between CNPC and the government, has a capacity of 20,000 barrels per day and processes oil from the West African country’s Agadem field that started production in 2011.

According to industry sources, 2012 witnessed the first full year of the operation of upstream-downstream integrated projects in Niger, which achieved excellent performance in oilfield production, pipeline operation, and crude refining.

CNPC, on its website, noted that Zinder Refinery smoothly fulfilled its operating objectives, and produced diesel, gasoline, and LPG products meeting local market demand, adding that, in 2014, the refinery was overhauled and fulfilled the yearly production target, while in 2015, the refinery achieved safe, steady and efficient operation.

x

DATA from the consolidated refineries operations, according to the NNPC’s Monthly report for August, but the volume of crude processed by the facilities from August 2019 to August 2020 at zero metric tonnes.

With a cumulative plant capacity of 445,000 barrels per day, the facilities posted a capacity utilisation of zero per cent all through the 13-month period.

However, the volume of crude they recorded as closing stock between August 2019 and August this year was 3.78 million metric tonnes.

For several years, Nigeria has been importing the bulk of its refined petroleum products as a result of the inability of its refineries to refine crude oil produced within the country.

According to stakeholders, it no longer makes sense to keep the refineries, even though the NNPC stated that it was working hard and round the clock towards ensuring that the four refineries were up and running by 2023.

x

The Group MD of NNPC, Mele Kyari made this disclosure and said, “The vision of revamping the pipelines is in tandem with the Refineries Rehabilitation Project, which we have promised to deliver by 2023. I am happy to announce that the funding challenge, which had stalled the second phase of the rehabilitation of the Port Harcourt Refinery, has been resolved. The contract for the second phase will soon be awarded and work will commence in Q1 of 2021.”

It was expected that after the phase-1 of rehabilitation, the Refinery complex should be able to reach its 60% capacity utilization.

Further rehabilitation of the PHC refinery is expected to enhance its production capacity to meet its production targets.

Ajibola Oyebamiji a former President of the Nigerian Association of Petroleum Explorationists (NAPE) said the deal with Niger is a good one and would help Nigeria to address its challenges associated with costs of fuel importation.

x

According to him, the deal makes a lot of sense as a result of the proximity to the North, adding that the cost of transportation will reduce.

“Let’s leave politics aside and face the facts, it makes a lot of economic sense signing such an agreement. Whatever is imported through Lagos Port can be consumed in the South. Demand is higher in the South than in the North. Signing the agreement takes a lot of pressure off the government in terms of logistics and this also helps to protect our roads”, he said.

On the inefficiency of local refineries, he noted that the upcoming Dangote Refinery will solve the problem of production in existing refineries, adding that despite the costs incurred from maintenance and recently, rehabilitation, the refineries are still not working.

x

He explained that those who built the PHRC were invited at the outset of this administration but the perception is that the government does not want the refineries to work, having supported the Dangote refinery to a level that it would become counter-productive to spend so much on the inefficient local refineries.

He expressed concerns that the modular refineries may not survive if Dangote refinery comes up, adding that while the crop of modular refineries in the country will be able to cater to the demand of the region in which they are located competition from Dangote would be huge considering its capacity of the refinery.

“The advantage of all these would be competition. Holistically, it is an attempt to find a solution to our peculiar problem. Government is looking at different angles to solve the problem. It is commendable. Let us leave out politics. The country will benefit from all of these,” he added.

x

The Lagos Chamber of Commerce and Industry (LCCI) noted that Nigeria has been in the business of oil for over 50 years, but still does not have any private refinery operating on a commercial scale.

It's Director-General, Muda Yusuf stated that from the point of view of trade within the sub-region and the economics of supply of petroleum products to the northern part of the country, the deal with Niger makes sense.

However, he noted that the ultimate objective for Nigeria is to refine Petroleum products locally.

“Indeed, it is a sad commentary that we find ourselves in this situation. Ideally, we should be the petroleum products supply hub for the West African sub-region. This is a role that we are best positioned to play in the region. Hopefully, by the time we get an appropriate policy and regulatory framework, we could achieve that aspiration.

“This is a big issue. No oil-producing country imports refined petroleum products on a scale that we do in Nigeria. It is inexcusable,” the LCCI DG stated.
[a]d
A total of N81.41bn was expended on Nigeria’s refineries between January and August this year but the facilities refined no drop of crude oil all through this period, according to the latest data obtained from the Nigerian National Petroleum Corporation.

Of all the operations of the NNPC Group, its refinery business continues to operate in deficit, dragging other businesses.

“This is a major step forward. Niger has some excess products, which need to be evacuated. Nigeria has the market for these products,” said Nigerian Minister of State for Petroleum Resources Timipre Sylva. “Therefore, this is going to be a win-win relationship for both countries. My hope is that this is going to be the beginning of deepening trade relations between Niger and Nigeria.”

NNPC’s head Mele Kyari said the MoU should create “a long-lasting and sustainable commercial framework” for the construction of a “pipeline from the Soraz Refinery in Zinder (Niger) into the most proximate Nigerian city so that we can develop a depot.”

x

In this article:
BuharifuelNiger
Receive News Alerts on Whatsapp: +2348136370421

No comments yet