Nigeria’s President Muhammadu Buhari has signed the Petroleum Industry Bill into law. Now, the Petroleum Industry Act, it is expected to take effect next year, to transform the country’s oil industry. EHIME ALEX looks at the fate of Nigerian refineries and the country’s oil sector in general under the PIA
Coming 50 years after the country joined the Organisation of Petroleum Exporting Countries, the PIA seeks to provide legal, governance, regulatory and fiscal framework for the country’s petroleum industry and development of host communities.
For over two decades, various attempts at reforming the oil and gas sector yielded no tangible results, even as the sector contributes highly to the country’s Gross Domestic Product. Record shows that it accounts for 65 per cent of total revenue to the government and currently contributes over nine per cent to the country’s GDP, according to a research firm, Statista.
How well the oil and gas sector continues to play a significant role in the nation’s economy may, however, depend on the pressure for countries to look away from fossil fuel for renewable energy. The latter is beginning to take the centre stage on global affairs.
Seeing the country becoming a net exporter of petroleum products seems the priority now and a desire the Nigerian government wishes could come sooner than expected. Although the country has four refineries with a combined capacity of 445,000 barrels per day, all government-owned, importation of refined petroleum products has been the prevailing custom, as the refineries have failed to operate at optimal capacity. This has left the country struggling to balance a promise to end costly fuel subsidies with public anger over more expensive fuel.
Age-long challenge
With a maximum crude oil production capacity of 2.5mbpd, Nigeria ranks as Africa’s largest producer of oil and in the dynamic top-10 of the world’s largest oil producers. However, operations and maintenance has been a big problem making a mess of the government’s efforts in operating the Kaduna refinery, and the three others in the oil-rich Niger Delta region at Warri and Port Harcourt, at optimal capacity. The Port Harcourt refinery consists of two plants with a combined capacity of 210,000 bpd, and is now undergoing rehabilitation.
The Nigerian National Petroleum Corporation, through its subsidiary, the Nigerian Petroleum Development Company, is directly responsible for the four oil fields, which, in the last 15 to 20 years, have had a poor operating record with average capacity utilisation hovering between 15 and 25 per cent yearly. These have left analysts to conclude that about 70 to 80 per cent of Nigeria’s petroleum products demand is met through import.
By 2025, Nigeria will need a refining capacity of about 1.52 million barrels per stream day to meet its demand, the NNPC said. Thus, with the NNPC’s current nameplate capacity of 445,000bpsd, and the Dangote Refinery’s 650,000bpsd, there will still be a shortfall of 427,000bpsd. A forecast on global oil demand showed that it would increase consistently by 14.39 per cent from 2021 to 104.1mbpd by 2026, even as OPEC also projects 109mbpd by 2045.
Revamping the refineries
To rehabilitate the nation’s refineries, the Federal Executive Council had in March this year approved $1.5bn to overhaul the 210,000bpd Port Harcourt refinery, a sum equivalent to three quarters of $2bn proposed for building a new 150,000bpd refinery in Katsina. Against global best practice for turnaround maintenance to be conducted on refineries every two, or maximum of three, years, the rehabilitation is being carried out 21 years after.
Meanwhile, the Kaduna and Warri refineries are also expected to go through rehabilitation works on or before May 2023. Disclosing this recently, the Minister of State for Petroleum, Timipre Sylva, said, “I want to assure you that before the lifetime of this administration expires, work on all the refineries would have at least commenced.”
With less results to show, the Nigerian 445,000 total installed capacity refineries have gulped over $25bn for turnaround maintenance, Financial Street gathered.
A wake-up call for private investors
The continuous inefficiencies in the country’s oil and gas industry have left the government to be almost entirely reliant on imports. At the moment, about five companies, including Dangote Oil Refinery Company, Waltersmith Refining and Petrochemical Company Limited, OPAC Refineries and BUA Refinery, are holding refining licences.
The Dangote Oil Refinery, the largest with a 650,000bpd capacity in Ibeju Lekki, Lagos State, is a project set to be completed this year. According to the company’s Group Executive Director, Strategy, Capital Projects and Portfolio Development, Edwin Devakumar, the $12bn project will process a variety of light and medium grades of crude to produce Euro-V quality clean fuels and produce 10.4 million tonnes of gasoline, 4.6mt of diesel, and 4.0mt of jet fuel a year.
“It will also produce 0.69mt of polypropylene, 0.24mt of propane, 32,000t of sulphur and 0.5mt of carbon black feed yearly,” said Devakumar.
In keeping with its statutory role of safeguarding national energy security, NNPC will be holding a 20 per cent stake in any private refinery that exceeds 50,000bpd capacity. “In this regard, the corporation has identified at least six refinery projects in which it intends to seek equity participation, five of them are at the development stage with the Dangote Refinery as the largest,” NNPC’s Spokesman, Mr Kennie Obateru, stated.
COVID-19 effect
Beside the sorry situation of low capacity utilisation of the Nigerian refineries due to a number of reasons, which include poor governance, lack of major turnaround maintenance and other serious under-recovery of crude cost, the Coronavirus Disease has had its effect on daily oil production.
According to data pulled from Statista, Nigeria’s daily oil production decreases from 2.1mb to 1.7mb. Among other issues, oil prices experienced a sharp fall, even as the country lowered the daily crude oil production consistently, to comply with OPEC and its allied production cut. The country fell into a recession after experiencing negative growth rates in the second and third quarters of 2020, at the heat of the pandemic lockdown and restriction, a data from the National Bureau of Statistics recorded.
Beyond oil
Efforts are already being made to cut carbon intensity. Despite oil-producing bodies, such as OPEC, seeing continued importance for crude oil in the future, hydrogen seems one such alternative generating great enthusiasm. Similar to oil, it may serve as a feedstock or main ingredient for transportation fuels, energy generation and storage, as well as chemical production, as explained in the ‘Renewable Energy Market Outlook 2025’.
Oil refineries and ammonia production facilities are the main consumers of hydrogen as of 2019, with the transportation sector accounting for less than one per cent, the report also noted. It showed that the global renewable energy market valued at $928bn in 2017 is expected to reach $1.51tn by 2025, registering a compound annual growth rate of 6.1 per cent from 2018 to 2025. This is owing to increased emissions of greenhouse gases, particularly CO2 due to utilisation of fossil fuels for energy generation.
Additionally, the limited presence of fossil fuel on the earth as well as its volatile prices will fuel the renewable energy market, as high cost of renewable energy generation is anticipated to hamper the market growth during the forecast period.
