Why Nigeria’s Refineries Are Not Up And Running

The local refineries’ performances began to deteriorate in the early 1990s, when the military government forced NNPC to close its commercial bank accounts and shift its funds to the Central Bank. The NNPC was stripped of its authority. Politicians’ meddling and directives become increasingly common. It could no longer guarantee timely refinery maintenance. Most crucially, decisions about whether to perform turnaround repair and which contractor to use were influenced by the government rather than the corporation’s expertise. As a result, things swiftly went sour after that.

The following factors contributed to the unfortunate condition of poor capacity utilization that emerged and continues today:

1. Ineffective leadership
2. Since 2008, none of these refineries have undergone major turnaround maintenance. In PHRC, the most recent TAM (Turn Around Maintenance) took place in 2000. This is in contrast to global best practices, which states that refineries should do TAM every two to three years at the most.
3. Pipelines transporting crude oil to refineries, as well as those transporting products from refineries, are regularly vandalized. This results in significant revenue losses and exacerbates the issue of crude cost under-recovery.
4. Even if the refineries were able to operate consistently, the government regulates the price of Premium Motor Spirit (PMS), resulting in significant crude cost under-recovery.

Ineffective leadership

Ineffective leadership has been identified as a significant factor influencing refinery performance. The refineries are 100% government-owned and have no independent control over or access to their funds. All requests for maintenance monies go through a multi-tiered bureaucratic process. Depending on the amounts required, approvals for any meaningful maintenance are considered first by the refinery management committee, then by the corporate refineries directorate, then by the corporate management committee, then by the corporate board, then by the corporate management committee,  and finally by the National Federal Executive Committee chaired by the President of the Nation. Getting through the various steps of these processes can take months. This is not a safe way to run refineries.

As a solution to this problem, straightforward commercialization or explicit divestiture of major shares has been advocated. The Petroleum Industry Bill, which was initially introduced in the National Assembly in 2007, aimed to improve governance in this area. Regrettably, the bill has been examined by succeeding legislatures but has not yet been passed or signed into law.

A petroleum refinery is a large manufacturing facility that converts crude oil into a certain number and kind of petroleum products. Fuel and lubricating products are the two main categories of merchandise.

The fuel refinery is intended to create five different types of products:

1. LPG acronym for liquefied petroleum gas or cooking gas.
2. PMS acronym for premium motor spirit or petrol.
3. DPK acronym for dual purpose kerosene.
4. AGO acronym for automotive gas oil or diesel.
5. Fuel oil.

A refinery should be constructed and built to produce defined quantities and specifications (quality) of each of these products for 24–36 months without interruption, depending on adequate maintenance culture, before being systematically shut down for a period to perform Turn around maintenance (TAM). When TAM is delayed excessively, the refinery’s performance suffers.

Due to their use and exposure to process and environmental conditions, machines and other service facilities deteriorate over time. This deterioration must be addressed with various maintenance interventions, procedures, and at predetermined intervals so that the needed use of facilities can be maintained and service life extended until maintenance costs become prohibitive and replacement is required. For example, we maintain our own car on a regular basis.

Turnaround is defined by the American Petroleum Institute (API) as a periodic (whole or partial) shutdown of a refinery process unit or plant to undertake maintenance, overhaul, and repair operations as well as inspect, test, and replace process materials and equipment.

Turnarounds are the single most expensive portion of a plant or process plant’s maintenance budget, and they are crucial for the refinery’s health.

Pipeline vandalism began in the late 1990s with oil and product pipelines. Some scholarly publications have attempted to explain the reasons behind this shift. There are two key reasons for this:

*The increase of militancy in the Niger Delta region as a result of resource control protests.

*Theft of crude oil and petroleum products outright.

Both could be said to be intertwined. Several works have comprehensively addressed these issues. In conclusion, the Niger Delta region of Nigeria, where oil is primarily produced, has been a hotspot of resource control agitation. This arose from the people’s perception of injustice in the claim that the region has reaped little benefit from the oil wealth while bearing the weight of the environmental damage and pollution that has resulted. That is not the topic of this article; other articles, both online and in print, should be referred to for more information.

Despite this, there are chances for prospective investors to enter the Nigerian refining industry. Even if all of Nigeria’s refineries were functioning at full capacity, demand for petroleum products would remain strong. An equal refining capacity of 800,000 bpd is estimated for current aggregate product consumption. As a result, as of 2018, at least 300,000 bpd of more capacity is needed. Assuming a 3% annual growth rate, the refinery capacity gap by 2028 would be around 550,000 bpd. In addition, Nigeria provides petroleum products to neighbouring African countries through unofficial methods. This is something an investor could aim for.

The Dangote Group has decided to invest in the development of a 650,000 bpd refinery, which is projected to be operational by 2022 or shortly thereafter. The conventional refinery’s capacity is 450,000 barrels per day, with 200,000 barrels per day set aside for petrochemical feedstock. Thus, another Greenfield facility with a capacity of at least 250,000 bpd might yet be built to meet Nigeria’s needs. If the goal is to service the West and Central African regions, a larger capacity would be warranted.

The way forward

1. Existing refineries should be revamped and brought back into service at a capacity of at least 80–90 percent. When compared to building equivalent-capacity Greenfield refineries, this is the most cost-effective solution. This can be accomplished in one of two ways: through a private-sector-led finance and rehabilitation effort, as NNPC is now pursuing, or through outright divestiture of majority equity holdings to the private sector from the government’s current 100% ownership.
2. The refineries should be run under a fully commercial governance structure, with the Board of Governors of the Plants having complete control over their funds.
3. To get the most value out of their products, refineries should sell them directly to off-takers.
4. The downstream sector must be free of government control in order for the above to succeed. Private investors will be enticed to build refineries to suit Nigeria’s and West and Central Africa’s needs if the industry is completely deregulated. This will also result in the creation of jobs and an increase in the economy.
5. Attract investments into refining in Nigeria, the government should create an enabling environment with fiscal incentives.
6. Feasibility studies should be carried out by those interested in modular refining. The Department of Petroleum Resources should provide permits and facilitate conversations with upstream enterprises in order to gain access to crude oil feedstock. Modular refineries should be considered economic ventures rather than social services.