Nigeria’s refinery dilemma: All eyes now on Dangote Refinery

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Ibe Kachikwu

Despite the coming on stream of Dangote Refinery soon, the federal government should strive to revamp the nation’s refineries with a combined capacity of 445,000 bpd in order to avert the challenges of monopoly, which the private refinery will introduce into the downstream sector of the oil industry.

By Goddy Ikeh

FOR several decades, the Nigerian refineries have joined the league of irredeemable industries like the power plants that have gulped billions of dollars without any tangible results to show for the huge investments in them.

The failure of three out of the four local refineries is responsible for the hiccups usually experienced in the downstream sector of the Nigerian oil industry and the billions of dollars spent yearly for the importation of petroleum products as well as the funds sent often for the turnaround maintenance of the ailing refineries. However, past administrations and the oil ministers and ministers of state for petroleum resources had promised severally to revamp the nation’s refineries and save the billions of dollars spent on the importation of petroleum products without fulfilling such promises.

It will be recalled the former minister of state for petroleum. Ibe Kachikwu, said in July 2019, before he bowed out of the Federal Executive Council, FEC, that 26 firms had indicated interest to participate in the revamping of Nigeria’s four refineries, which would require investment of about $2 billion.

Rick Perry

Unfortunately, this plan never worked in spite of the pledge at that time by the then US Secretary of Energy, Rick Perry, who reiterated his country’s willingness to continue to encourage investments in Nigeria’s oil and gas sector. There were also plans to have several modular refineries to assist in bridging the gaps in domestic products supply and licences were given to a good number of investors willing to invest in the sector. Unfortunately, only one modular refinery has come on stream in the country.

But Kachikwu was already pinning his hope on the Dangote Refinery as the saving grace to the perennial challenges of products shortages in the downstream sector of the oil industry.

Speaking on the proposed Dangote Refinery, expected to be completed in 2020, Kachikwu expressed the hope that it would significantly increase Nigeria’s nameplate refining capacity.

According to him, the Nigerian National Petroleum Corporation, NNPC, is involved in negotiations to improve the existing capacity of 445,000 barrels of oil per day, bpd. “If these plans come to fruition, Nigeria’s refining capacity will double to almost one million barrels of oil per day by 2020. This new capacity will be sufficient to meet the near-term domestic demand, which allows for the export of large amounts of distillates. In line with this increase in production, imports of refined petroleum products will also be curtailed,” he said.

Despite the pledges of Kachikwu for the revamping of the local refineries, the Presidency had during its several economic diplomacy abroad raised the hopes of Nigerians that the problems of the refineries were about to the solved.

For instance, the highlights of the Russia – Africa Summit, which had been described as the most successful outing of Buhari, witnessed the signing of the Memorandum of Understanding between the NNPC and the Russian oil giant, Lukeoil.

According to official government statement, President Muhammadu Buhari and Russian President, Vladimir Putin had in Sochi, Russia, agreed to put Nigeria-Russia relations on a fast track, and pursue the completion of partially completed and abandoned projects initiated by both countries.

At a bilateral meeting held on the sidelines of the Russia-Africa Summit, the two leaders agreed to start new infrastructure projects and expand trade and investment, security and military cooperation.

In statements made by both leaders, Nigeria and Russia will work together to improve efficiency of Nigeria’s oil sector, which is the backbone of the economy, in a way that will see to rehabilitation of epileptic oil refineries through establishment of framework for a joint venture between Nigerian National Petroleum Corporation (NNPC) and Russia-based leading oil company, Lukoil.

Both NNPC and Lukoil will work towards prospection of oil deep offshore.

Other important agreements reached included the interest of Russia’s leading rail line service providers, MEDPROM in undertaking the 1,400km Lagos-Calabar rail track that will pass through all the states in the South-South sub-region, support in tackling Boko Haram insurgents, cooperation in the strategic fields of defence, civil nuclear energy and in dealing with piracy and oil pipeline vandalism in the Gulf of Guinea.

The revival and management of the Ajaokuta Steel plant and the Aluminium Smelter Company of Nigeria, ALSCON, Ikot-Abasi, Akwa-Ibom State were also discussed and agreed upon.

With the delay in implementing some of the MOUs signed between the Nigerian government and the Russian government, which included the revamping of the country’s refineries and the interests shown German and Saudi firms on Nigerian refineries at some point in the economic diplomacy, all eyes are now focused on Dangote Refinery.

The 650,000 bpd refinery, which is expected to come on stream this year, will meet the local demand of petroleum products locally and it will export its products to foreign markets.

Speaking recently on the refinery, the current minister of state for petroleum resources,

Timipre Sylva

, said that the successful completion of the Dangote Refinery was a crucial step that would aid federal government’s aspiration of reversing the ugly trend of fuel importation.

The minister, who paid a working visit to the refinery in 2020 in Lagos said: “This is a very heart-warming moment for all of us as Nigerians. There is no way a project of this magnitude will be going on and the government will not be interested. Anywhere in the world, if a citizen of a country has committed so much money into investing in this kind of massive project, the government must show interest.

“I must say now that Dangote Group has turned this project to the story of all of us; we must all support this project to succeed because the success of this project signals a lot. Of course, I am sure that the whole world is looking at the success of this project. Investors all over the world will look at the success of this project and will come to Nigeria to at least also enjoy the benefit of investing here.

“So, we are here to assure you, Dangote Group, that as a government, as NNPC, we will support this project as much as we can. You have done very well,” the former Bayelsa State governor stated. He noted that the Dangote Petroleum Refinery and Petrochemical complex was a testament that the country possesses an enabling environment for businesses to thrive, and added that the success of the project would boost investor confidence in the country’s oil and gas projects.”

Devakumar Edwin

For the group executive director of Dangote Refinery, Devakumar Edwin, the plant is the largest single-train refinery in the world. It is about 50 percent larger than the largest refinery. Petroleum refineries globally are all tuned to maximise the production of diesel because diesel is the largest produced commodity. If you go to the US, Europe, India, Singapore, and the Nigerian refineries too, they are all tuned to maximise diesel production, but Nigeria is unique because the consumption of petrol is the maximum in Nigeria, compared to even diesel.

“So, we took a unique approach. This refinery should be designed to maximise gasoline and not diesel; that’s one of the first things we focused on. That’s why this refinery can meet the entire gasoline requirement of Nigerians, and still have a bit of surplus to export. “Then, we adopted the normal three pillars we use in any business we enter. The first is, go for the latest technology with a focus on minimising the cost of production because of the technology involved, and as part of the process, we went for a very complex refinery because, for every barrel of crude that goes in, we want to extract the maximum value from it. So, that is why we are maximising by having an integrated petrochemical complex, to maximise gasoline, which is the highest in demand. So, everything will be a high-value product; that’s our primary focus,” local media reports quoted Edwin as saying.

On the Refinery’s marketing plan, Edwin stated that the refinery would comply with emission rules, allowing oil to be readily sold in Europe and North America, as well as to all parts of Nigeria.

“Most of the refineries are tuned to produce their products to their immediate export markets and not the global markets,” he said, adding that “my focus is to sell it in any part of the world. I am ready for all the markets. The volume is so large obviously I can meet the requirements of all the products of Nigeria and I’ll still have surplus to export.”

Although, Nigerian officials are full of expectations that the Dangote Refinery will meet the domestic needs of petroleum products, there are still plans to revamp the nation’s refineries with 445,000 bpd capacity.  Speaking in October 2020 on plans for the local refineries, the group managing director of the Nigerian National Petroleum Corporation, Mele Kyari, said that the refineries would be revamped and running again by 2023 and cut down reliance on imported fuels.

Meanwhile, there are reports that the NNPC plans to raise $1 billion in a prepayment deal with trading firms to refurbish its largest refining plant in Port Harcourt.

According to ETenergyworld reports, if the financing deal is concluded, the rehabilitation of the refinery should reduce Nigeria’s huge fuel import bills.

The reports also said that the Cairo-based Afreximbank is leading the financing deal.

“Afreximbank is looking into a facility for the refurbishment of the Port Harcourt Refinery. However, the borrower is yet to be determined,” the reports quoted the spokesman for the bank as saying.

Certainly, the Dangote Refinery will solve the perennial problems of petroleum products scarcity in the country, but some energy experts believe the private refinery may not be able to address the high cost of products, especially petrol since it has both the Nigerian and international markets as targets. They, however, suggest that the federal government should invest in revamping the state-owned refineries to avoid creating a big monopoly and its attendant challenges in the downstream sector of the nation’s oil industry.

– Jan. 09| 2021 @ 16:08 GMT |

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