The PricewaterhouseCoopers says Nigeria will become refining hub of West Africa, exporting refined petroleum products in the next 10 years
| By Anayo Ezugwu | Jun 12, 2017 @ 01:00 GMT |
THE PricewaterhouseCoopers, PwC, has projected that Nigeria will become a net exporter of refined oil products and the refining hub of West Africa by the start of the next decade.
The PWC based its projection on recent advancement of the Nigerian National Petroleum Policy and the sustained depression in crude oil prices, ushering in fresh waves of optimism for the sector and a paradigm shift from net imports to net exports structure.
It draws attention to the existing gaps in the supply of refined petroleum products in Nigeria and the West African region and highlights the sizeable potential for domestic refining of petroleum products.
Importantly, it identifies key drivers that will spur the growth of the refining sector in Nigeria. The report published on its website on May 4, highlighted refining asset economics and structural commercial considerations for investors and identifies the modular refinery, an off-the-shelf solution, as the cost effective supply option for investors especially when diesel is the lightest yield.
It projected that modular refineries are assumed to be set up close to crude sources either within existing refineries or on onshore marginal fields. The report noted that the modular refineries are also assumed to be set up close to consumption clusters thereby making them better positioned for domestic supply. “On the other hand, conventional refineries are assumed to be set up to source for crude internationally and to supply both international and domestic markets.
“The 650,000 bpd Dangote refinery, a crucial development within the sector, is expected to come on-stream by 2019. At optimal utilisation, the refinery is capable of meeting the country’s demand. However, a major headwind to achieving a fully optimised run, is availability of crude feedstock. At full capacity, the refinery will require about 19 (1 million barrel) cargoes of crude monthly, approximately half of Algeria’s (third largest producer in Africa) production. For the initial years of operation, this may be a significant challenge.
“Therefore, the current supply gap within the country and region creates an opportunity not just for conventional refineries such as the Dangote refinery but also for modular refineries which will be set up primarily to meet domestic demand. This provides the “bottom-up” supply into the fuels value chain,” it said.
Another critical assumption is that the modular refineries yield will be limited to fuel oils and diesel as the lightest hydrocarbon produced.
“Our Assumptions is that Dangote refinery (650,000 bpd) opens its gates mid-2019, operating at 50 percent utilisation, existing refineries (445,000 bpd) are operating at 15 percent utilisation and modular refineries (combined capacity of 100,000 bpd) also come on-stream early 2019, operating at 90 percent utilisation. These ramp up to 70 percent, 20 percent and 90 percent, respectively by 2030. With these, by 2019, Nigeria becomes Africa’s 3rd largest refiner of petroleum products and a net exporter of refined petroleum products. Its exports are estimated to exceed 37,000 bpd (approximately 6 million litres daily).
“The modular refineries bridge a supply gap of 53,000 bpd (approximately 8.5 million litres daily) in Nigeria. Nigeria becomes West Africa’s refining hub by 2019, supplying the region with at least 37,000 bpd (approximately 6 million litres daily). By 2026, Nigeria’s exports to the region exceed 130,000 bpd (approximately 21 million litres daily), reducing the region’s imports from US and Europe by approximately 80 percent.”
It stated that Nigeria consumes over 17 billion litres of PMS annually with transportation and power as the major drivers of demand for PMS in the country.
According to PwC, imports currently account for over 90 percent of PMS supplied in the country and this is likely to continue in the future. “Imported PMS is primarily sourced from North Western Europe and United States. West Africa consumes over 22 billion litres of PMS annually. Imports currently account for over 90 percent of PMS supplied to the region.
The report noted that Nigeria consumes over 3 billion litres of AGO annually and that the erratic state of the country’s power sector has been the major driver of AGO demand. The power sector is currently plagued by a plethora of challenges, increasing the demand for self generation options such as AGO-powered generators.
“Imports currently account for about 60 percent of AGO supplied in the country. West Africa consumes about 11 billion litres of AGO annually. Imports currently account for over 70 percent of AGO supplied to the region.
Nigeria’s refining sector is currently not operating at full potential and laudable attempts are being made by the current administration to drive private investment. These include plans to upgrade existing refineries and the issuance of 25 refining licenses (conventional and modular) to indigenous companies. These initiatives, if executed rigorously, will drive growth and reforms within the sector in the medium to long term. The combined capacity of the 25 candidate refineries stands at approximately 1.6 million bpd. Three (3) of the licensed companies are billed to construct conventional stick-build plants with capacity estimated at over 850,000 bpd, while 22 licenses are to construct modular units estimated at about 700,000 bpd in combined capacity.”
Nigeria is the second largest producer of oil in Africa, producing over 1.5 million bpd (as at January 2017). With proven crude oil reserve estimates of about 37 billion barrels as at 2015, Nigeria boasts of about 29 percent of the continent’s crude reserves (2nd in Africa). Nigeria is also one of the largest consumers of refined products in Africa (5th as at 2014, behind Egypt, South Africa, Algeria and Morocco) and accounts for over seven percent of Africa’s refined products consumption.
In 2015, the refined products consumption was estimated to be about 24 billion litres and products consumed include: Premium Motor Spirit, PMS; Automotive Gas Oil, AGO; Dual Purpose Kerosene, DPK, and Aviation Turbine Kerosene, ATK.
To the detriment of national earnings, these products are majorly imported from United States, North Western Europe and other sources. Imports currently account for over 80 percent of Nigeria’s refined product supply, creating a huge potential for local refining. The West African market also holds significant potential as refineries such as SIR (Ivory Coast), SOGARA (Gabon) and SAR (Senegal) cannot meet current demand for refined products in the region, estimated at 39 billion litres.
There is an opportunity for potential uptake by neighboring countries if the market has Nigeria’s refined products readily available.
Refining in Nigeria began a decade after oil was discovered in the oil-rich Niger Delta region in the 1950s. Initially starting out in 1965 with a refining capacity of 38,000 barrels per day, bpd, Nigeria’s refining capacity has grown over the years and is considered the fourth largest in Africa. The nameplate capacity of 445,000 bpd is housed by four refineries strategically located in various states around the country: Rivers, Delta and Kaduna.
Unlike the production of crude, the production of refined products has been suboptimal and Nigeria has consistently struggled to keep its refineries functioning optimally. The outlook for refining has been tainted with uncertainty due to the adverse effects of subsidies, poor maintenance, general operational failure and inconsistent supply of feedstock. As a case in point, Nigeria’s per capita refining capacity is 0.002 bpd/capita, low even by Africa standards. Libya by comparison is 0.06 bpd/capita, and South Africa 0.01 bpd/capita.