Improving Nigeria’s refining capacity

The Nigerian National Petroleum Corporation (NNPC) announced last week that two of the nation’s oil refineries in Port Harcourt and Warri were back on stream, and had resumed production.  The Port Harcourt Refining and Petrochemicals Company Limited and the Warri Refining Company Limited began production after both went through nine-month turnaround maintenance (TAM) of their […]

The Nigerian National Petroleum Corporation (NNPC) announced last week that two of the nation’s oil refineries in Port Harcourt and Warri were back on stream, and had resumed production.  The Port Harcourt Refining and Petrochemicals Company Limited and the Warri Refining Company Limited began production after both went through nine-month turnaround maintenance (TAM) of their facilities, said to have been led by Nigerian engineers.
Since that announcement, the Kaduna Refining and Petrochemicals Company and the second Port Harcourt Refinery have been slated for to begin production as well, which could vastly improve domestic supply and reduce the import of refined petroleum products at high cost. It will also ameliorate the frequent and economically ruinous dislocation cause by instability in the supply chain.
With the envisaged 90 per cent capacity utilisation, this would be a little less than the combined production capacity of all four refineries, currently put at 445,000 barrels per day. Nigeria produces two million barrels of crude oil per day, but has to export most of it because of the absence of refining capacity. It then imports fuel back into the country at international market prices, a practice that was sustained over the years through corruption and mismanagement in the oil and gas sector. To cushion the effects on the general population, the previous  government often sold fuel on the streets at subsidised prices, and made up for the higher amounts spent by importers by reimbursing them the difference through an opaque scheme that was replete with false claims, over-invoicing and overpayments.
The proposed completion of the 500,000 barrels per day refining capacity of the Dangote Group would make the prospects of self-sufficiency in domestic petrol needs much better.
Producing to capacity is one thing, safeguarding the installations is another but vital element in the entire scheme. Crude oil theft on a massive and industrial scale has always been a challenge to the federal government in the oil producing areas of the country. Because of the huge profits that can be made from such illegal activities, the possibility of using the ill-gotten wealth to compromise the very security officials deployed to neutralise them is thereby heightened.
Indeed, a recent report on the activities of crude oil thieves suggests that top government and oil industry officials are engaged in the criminal act, which in the past led to serious shortfalls in national budgets, affecting the joint venture cash call budget of some 600 million dollars a month.  The drop in government earnings from crude oil can be seen in the average of 460 million dollars, a yearly funding shortfall of about $4.8 billion for the sector.
 The report notes that crude oil theft from January to April 2015 stood at 39.3 million barrels, or a loss of 3.9 billion dollars at an average crude price of $97.9 per barrels. The twin-evil in this is the ongoing practice of pipeline vandalism, which costs the nation considerable resources to fix.
Such vandalism could be as a result of the activities of crude oil thieves, who use sophisticated gadgets to puncture the pipelines and siphon crude; it may be done by a community as a way of expressing anger on displeasure at some local issues; or it may be plain sabotage for a political cause. In all cases, it is criminal to tamper with public installations.
It is important therefore that as the nation’s oil refining capacity continues to expand, so must the security of all industry installations be enhanced.
Most of the refineries are connected through a network of pipelines; its integrity should be checked regularly and the right of way protected from encroachment by unauthorised persons.
The NNPC, along with the heads of the refining companies and Pipelines and Products Marketing Company (PPMC) should meet and determine crude allocation to each of the functioning refineries, which should be on the basis of the capacity of each to refine its quota.
With declining demand for Nigerian crude on the international scene, and the increasing interest shown by Western countries to explore shale oil production, capital can in fact be made out of the present situation, because the West Africa sub-region is a potential market to cushion the effects of no longer being a major player in global oil politics. This may not be for long, though.