Any hope for artisanal refining in Nigeria?
Although Nigeria is the 7th largest exporter of Crude Petroleum in the world, Dangote Petroleum Refinery in Ibeju-Lekki, Lagos which was inaugurated in May this year and described as the game changer for Nigeria’s economy is currently importing crude oil from outside the country because NNPC cannot sell crude oil to the Dangote refinery. This isn’t a subject of debate in Nigeria’s energy industry.
The Executive Director of Dangote Group, Devakumar Edwin revealed in a recent interview with S&P Global Commodity Insights that although the Nigerian National Petroleum Company Limited (NNPCL) trades crude oil on behalf of Nigeria, it had committed its crude to other entities.
Although the Dangote refinery boss did not disclose the other entities receiving the oil company’s crude but NNPC disclosed last month it had entered into a $3bn crude oil-for-loan deal with African Export-Import Bank. The deal allowed the company to pledge future oil production to the bank as repayments for the loan.
The refinery is yet to commence production despite a promise by its promoter, Alhaji Aliko Dangote that petrol from the facility would start flowing into the Nigerian market latest in August 2023.
Despite being a major producer of oil, Nigeria has suffered from corrupt practices in the petroleum industry, ineffective refineries, and fuel imports.
But if the domestic production of crude oil and refined petroleum is not meeting the expected output, should alternatives not be explored? Daily, Nigerians are inundated with news of airstrikes destroying illegal refineries. If these makeshift refineries can actually refine crude, why has Nigeria been unable to set up modular refineries?
“Modular refineries require significantly less capital investment than traditional full-scale refinery facilities. The initial processing allows for simple distillation of crude oil into low-octane naphtha, diesel, kerosene, and residual fuel oil,” said Momoh Oyarekhua, chairman of the Crude Oil Refineries Association of Nigeria (CORAN) in a recent televised interview.
Oyarekhua further stated: “It will eliminate all middle costs, it will provide a lot of employment, and it will eliminate petroleum product-theft and pipeline breakage challenges. Nigeria could benefit from the modular refinery by eliminating those costs and making the products affordable.”
Only days ago, air strikes from the air component of Operation Delta Safe destroyed no fewer than 30 active illegal oil refining sites in Cawthorne Channel and Bille, in Degema Local Council of Rivers State.
In 2021, former Vice President Yemi Osinbajo announced that the integration of artisanal and modular refinery operators into the mainstream oil and gas sector would boost local content in the industry. Osinbajo’s who spoke virtually at the National Summit on the Integration of Artisanal and Modular Refinery Operations in Nigeria said such integration would advance the use of home-grown technology in the refining of petroleum products.
“We are confident that the integration of artisanal and modular refinery operations into the oil and gas sector will not only promote the inclusion of more local content in the industry; it will advance the use of home-grown technology in the refining of petroleum products. “It will also curtail illegal oil activities in the Niger Delta regions.’’
Artisanal and modular refinery operations are still being awaited.
In his 21st August 2023 article — On legalising illegal oil refineries, published by PUNCH newspaper, Sheriffdeen Tella made some insightful recommendations.
“The illegal refineries have been subjected to destruction many times and for many years. Yet, they continue to spring up because that is the source of living for the owners and there is a demand for their products. They are better than those who lift crude oil illegally for sale outside the country causing great losses and pains to the Nigerian economy. They are even better than the Nigerian government who sell crude oil, make money, and steal the fund for personal and family use at the expense of the citizens and the economy generally. Their activities may be illegal but they also want to live and need help. If the government had helped them, it would have also helped the country…
“The government should legalise the so-called illegal refinery operators and get them registered as petroleum product cooperative producers. Their activities can be integrated into the curriculum of the petroleum institute to give them free training on how to improve on different stages of crude oil refining on a small scale. The recognition will immediately stop bunkering and the attendant environmental pollution in their areas of operation…”
Sadly, after years of sinking billions of dollars into turnaround maintenance (TAM) of moribund refineries, President Bola Tinubu appears to be gearing up to spend more. Last month he assured that the petroleum refinery in Port Harcourt would start working by December 2023.
However, responding to a question from The Cable Online Newspaper on the state of Nigeria’s refineries former President Olusegun Obasanjo said: “They will not work as long as the government is keeping hold of them. When I was president, I invited Shell to a meeting. I told them I wanted to hand over the refineries for them to help us run. They bluntly told me they would not. I was shocked.
“I repeated the request and they stood their ground. When the meeting was over, I asked their big man (MD) to wait behind for a little chat. Then I asked him why they were so hesitant on not taking over the refineries. He said did I want to hear the truth? I said yes. He listed four reasons. One, he said Shell makes its money from upstream and that is where its interest lies. Two, he said they only do downstream or retail as a matter of service. Three, he said our refineries would be bad business for them, that globally, companies are going for bigger refineries because of the economics of refineries. Four, he said there is too much corruption in refineries.
“I thanked him for his honesty. I knew we had a big problem in our hands. I had virtually given up hope on the refineries when God did a miracle. Aliko Dangote and Femi Otedola approached me and said they would be interested in buying two of the four refineries. They said they would buy 51 percent stake in Port Harcourt and Kaduna. I was over the moon. I said, finally, this burden would be taken off the neck of the government. They offered $761 million and paid in two installments. Unfortunately, Umaru (President Yar’Adua) cancelled the sale and returned the refineries to NNPC. Today, we are still where we were. Someone told me Tinubu said refineries would work by December. I told the person the refineries would not work. This is based on the information I received from Shell when I was the president.”
•Lillian Okenwa, a legal practitioner is Editor-in-Chief/Publisher of Law & Society Magazine. She writes from Abuja. Lillianokenwa@gmail.com
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