When President Muhammadu Buhari took office, he prioritised rehabilitating Nigeria’s ageing refineries with the notion that replacing imported fuels with local production would be an important contribution to solving several pressing problems in the country, including expensive fuel imports. There is plenty of room for the refineries to improve their performance; average capacity utilisation was 20% from 2010 to 2015, according to Dolapo Oni, an analyst for Ecobank.
Private Refining
There is a push to establish new private sector refineries, because of the persisting challenges facing state-run facilities. The Economic Recovery and Growth Plan, a macroeconomic strategy for the country, has identified existing state refineries as candidates for privatisation through to 2020.
Operational challenges in the local public sector have supported the rising import bill. Nigeria’s refineries employ thousands of workers – with many national refineries overstaffed – and the inflated payrolls are contributing to the non-competitive cost of fuels produced. “It was cheaper to import the final product,” Karim Belkaid, founder of Xploil, a Lagos-based energy consultancy, told OBG. “It’s not capital expenditure that’s the problem – it’s the operating budget.”
Raising domestic capacity and efficiency are therefore major objectives in new projects. A $12m refining, petrochemicals and fertiliser complex now under construction by Dangote Industries in Lekki, east of the Lagos central business district, will have 31% of all refining capacity in Africa and sufficient output to satisfy all of Nigeria’s domestic demand.
There could also be room for further investment, particularly on a smaller basis. “Things are done best in Nigeria when you start small and then scale up,’’ Amy Jadesimi, managing director of Lagos Deep Offshore Logistics Base, told OBG. “We’re just getting out of that centralised model where you build at massive scale.”
Investment Approaches
There has also been discussion of potentially working with illegal refiners, converting them into equity holders of stakes in small, modular refineries. Stolen crude is often refined into fuels in illegal operations in the Niger Delta region. To improve economic prospects, in April 2017 the group managing director of the Nigerian National Petroleum Corporation, Maikanti Baru, revealed government plans to engage young people who work in illegal refineries to create modular refineries with the capacity to produce up to 1000 bpd of crude. Bringing Delta communities into a refining scheme through equity and job opportunities could potentially reduce the threat to the system, by aligning local interests to their success or failure. “If you tell the local community they can participate, then you suddenly don’t have a problem protecting the pipelines anymore,” Belkaid said. “Refineries with a capacity of 2000 bpd or less could be run by five workers.”
Pipelines
Current gas supply pipelines cause bottlenecks for the sector, but the network is set for a significant upgrade to its capacity and resilience. An east-west trunk line from the Obiafu/Obrikom Central Processing Facilities in Rivers State. This will be the biggest pipe in the country, with a capacity of 2bn standard cu feet per day (scfd). It will connect to the Escravos-Lagos Pipeline System. This pipe will also receive a capacity upgrade, with the double-tracking of its route. The 342-km path through five states passes by many of the main power plants, and will add 1.1bn scfd of capacity.
Dangote and First E&P are planning a pipeline with a capacity of 1.5bn cu feet to the Lekki industrial complex that Dangote Industries is building. The pipe will source gas primarily from First E&P-owned blocks. First E&P will account for one-third of the gas to be sent through the pipe, and Dangote needs 600m-700m scfd for the industrial complex. That means there is an opportunity for gas producers to get gas to market through the pipe, as well as an opportunity to buy gas in Lekki. If all goes well, Dangote and First E&P may install a second 1.5bn-cu-feet pipe along the same route, creating even more opportunities to connect gas with customers.
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