Nigerian private refineries inch forward, state plants in limbo
Thursday, Jul 05, 2018
The gradual advance of Abuja’s efforts to encourage the development of privately owned modular refineries in the Niger Delta – both to plug gaps in state provision and to curb illegal refining – continued in June.

A supply and installation contract was awarded to a US supplier already involved in the nascent industry for a proposed plant in Imo State, and a well-publicised project in Bayelsa was declared to be on track for completion early next year. Meanwhile, further confirmation was received that hopes of meeting the oil-rich country’s gaping fuel deficit rest in the near term with private projects. This came in the form of a new, extended target date set by the petroleum minister for having agreements in place to rehabilitate the four dilapidated government-owned refineries – which run at barely a tenth of capacity.

The local Waltersmith Refining & Petrochemicals was reported in mid-June to have awarded a contract to Velem for the fabrication of the modular units and the engineering, procurement and construction (EPC) of a 5,000 bpd refinery at Ibigwe, in the Niger Delta’s Imo State. Velem is a joint venture between Houston-based V-Fuels and the local Lambert Electromec.

While small in initial scope, the scheme is notable for being one of the relatively few to have progressed from the ‘licence to establish (LTE)’ to ‘approval to construct (ATC)’ stage of the development process. This progress, under the framework being overseen by the Department for Petroleum Resources, comes as a result of having secured the funding on which numerous other such projects have foundered.

On June 29, the Nigerian Content Development and Monitoring Board – a body created by Abuja in 2010 to promote local involvement in the oil and gas industry – signed an agreement to invest US$10 million in the scheme. Announcing the contract win, V-Fuels revealed that the refinery had been in the design stage for around 30 months and was expected to be completed within 18 months. Crude feedstock would be sourced from the nearby Ibigwe onshore oilfield, operated by parent company Waltersmith Petroman Oil.

V-Fuels is also working on a feasibility study for a far larger project – this envisages the development of a 20,000 bpd modular refinery at the Tomaro Industrial Park near Lagos by Eko Petrochem & Refining. The latter is a venture created by local magnate and chairman of Integrated Oil & Gas (IOG) Emmanuel Iheanacho. In a novel development in the fledgling sector, the US Trade & Development Agency (USTDA) – a US government body – agreed in August to extend an US$800,000 grant to fund the studies.

But total project costs have been estimated at roughly US$250 million. Iheanacho, who once served as the Minister of the Interior, earlier this year publicly called on Abuja to assist both his company and other prospective downstream developers in securing local and international finance. Nigerian Minister for Petroleum Resources Emmanuel Ibe Kachikwu subsequently promised to do this. The Eko plant remains at the LTE stage.

In May, state oil company Nigerian National Petroleum Corp’s (NNPC) managing director, Maikanti Baru, told a conference in Texas that 13 out of over 30 investors expressing interest had been given licences to establish modular refineries in the Niger Delta. This was carried out under a separate process to that initiated by Nigerian President Muhammadu Buhari on his accession in 2015 to license refineries nationwide.

The initiative in the restive oil-rich southwest region was launched last year as a means – long-proposed but never executed – of curbing illegal refining. It also lessened popular opposition to a central government seen as having plundered the region’s resources for years without regard for local welfare.

Another of those projects having proceeded to the ATC stage is a 12,000 bpd hydroskimming refinery at Obunagh Gbarain under development by the local Azikel Group.

This has gained a high profile in the local press since being inaugurated by former Nigerian President Olusegun Obasanjo in February. Officials claimed in early June that engineering, procurement and fabrication of the process modules was around 65% finished and that the project was on track for completion in late 2018 or 2019.

A memorandum of understanding (MoU) was also said to have been signed with Shell Petroleum Development, a subsidiary of Royal Dutch Shell and a major upstream operator in the Delta, to supply gas to the refinery.

While the Niger Delta refinery initiative sprung from an urgent, localised imperative, the wider moves to reinvigorate plans dating back many decades to encourage private sector development of greenfield refineries have been driven by the chronic underperformance of the four state refineries.

The facilities – two at Port Harcourt, one at Kaduna and one at Warri – are operating at only 10-15% of their total design capacity of 445,000 bpd. A tender was launched in 2016 seeking private consortia to finance and carry out the necessary upgrades.

Senior government and NNPC officials have repeatedly claimed that a selection was imminent while extending the target date for finalising the putative deals. In May, Baru promised a decision shortly, and in early June, Kachikwu was quoted as saying that a choice was anticipated in July.

However, in mid-June, the minister further dented his limited remaining credibility in pronouncements relating to the refining sector – asserting that the process of putting the necessary agreements in place was expected to last until October. Fortunately in light of oft-repeated pledges to end fuel imports by the end of the decade, the 650,000 bpd refinery near Lagos being developed by the local Dangote Group conglomerate is due to begin operations in late 2019. Dangote is the outstanding exception to the failure of private refining to take off in the country.

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