Ilegal oil refineries in Nigeria thrive on illegal oil
bunkering, stolen crude oil, and vandalism of oil pipelines and other
installations. Without a doubt, these illegal oil operations are reprehensible
and should not be condoned for a number of reasons.
Firstly, it is improper for citizens of this country to destroy
oil installations in their bid to steal crude oil as feedstock for illegal
refineries.
Secondly, it is lawless to set up any kind of refinery without
going through the licensing process with the relevant government agency –
Department of Petroleum Resources, DPR. Thirdly, it is most inappropriate for
anybody, Nigerians or Foreigners, to steal crude oil belonging to the Nigerian
State with impunity.
Finally, and perhaps the most worrisome is what the illegal oil
refiners do with the residue (black oil) from crude oil distillation process.
There are serious environmental issues involved regardless of whether they dump
the ‘black stuff’ into the river or simply incinerate it.
I recently had a thought-provoking discussion on the issue of
illegal refineries with Prof. GoddyIgwe, the Director,Centre for Gas, Refining
& Petrochemicals, University of Port Harcourt. However, on further
reflection I realized that there may be a few positive lessons to be learnt
from these illegal oil operations.
First lesson: there is a significant imbalance between our
projected refining capacity and existing capacity, such that it has become very
tempting to boil crude oil in drums knowing that there is a guaranteed market
for the petroleum products (which they usually sell as diesel, AGO).
Second lesson: small-scale (modular) refineries could be
profitably sited close to oil flow stations and terminals. So, I thought that
it may be unwise for government to ‘throw out the baby with the dirty bath
water’.
Big vs. modular refineries
The capital outlay for any 100,000 barrel per day (bpd) refinery
is about $1.5 billion, while a 24,000 bpd modular refinery is roughly $250m.
Therefore, it is easier to access funds for the modular refining modules
(through US Ex-IM Bank).
The manufacturing time for plant, equipment and machinery for a
plant of 100,000 bpd capacity is within the range of three to four years.
Start-up for modular refineries of 24,000 bpd is within 18-20 months.
The modular system allows the plant to be expanded to 100,000
bpd capacity in structured increments. The increments can be funded with the
cash flows from Phase 1 and additional phases, and so the refinery will not
incur additional debt for the expansion. The expansion of the modular plant
capacity can be done without shutting down production from existing equipment
and plants. This is not the case with big capacity refineries.
Revenue streams and pay-back periods are faster with the modular
refining format, than with the larger capacity refineries.
The major short-coming with modular refineries are that the
plants are semi-automated and less labor-intensive, i.e. not many jobs can be
created directly. For instance, 20 to 30 personnel can operate a 24,000 bpd
modular refinery. Most of the spin-off jobs created are of a secondary nature,
and based on the location of the site.
In summary, modular refineries are simple, efficient and fast to
start up. Such refineries usually operate at optimal capacity at all times. The
relatively small investment cost allows for private investors to enter the
refining business much easier.
It also enables government to build the bigger capacity
refineries using the modular format, but in incremental stages.However,
government- built modular refineries should have full conversion facilities
(i.e. catalytic reformers and naphtha hydrotreaters) to enable the refineries
produce premium motor spirit, PMS or petrol.
National oil refining model
There is a current over-reliance on government- owned
refineries. Nigeria can also adopt a refining model that relies on modular
refineries (built and operated by private investors) that will produce all
refined products with the exception of petrol. The implication is that the
modular refinery operators will not have to invest in catalytic converters and
naphtha hydrotreaters that are required to convert naphtha to petrol.
These equipments are capital intensive and complex. Therefore,
the exclusion of such facilities in a modular refinery plant will further
reduce the cost of set-up. This will enable the modular refiners to focus on
producing diesel, marine diesel, dual purpose kerosene (DPK), aviation turbine
kerosene (ATK), and low-pour fuel oil (LPFO).
On the other hand, Nigerian National Petroleum Corporation, NNPC
refineries can focus on PMS production and become essentially transformed into
PMS complexes instead of full conversion refineries. In this case, NNPC
refineries will buy all the naphtha feedstock from the modular refinery
operators and convert these to PMS.
Other products that NNPC refineries can produce will include
fuel oil, bitumen, asphalt, and petrochemicals. Based on 60% capacity
utilization, NNPC refineries have the capability to process 20.3 million litres
of PMS per day. These national refineries can add another 13.8 million litres
per day if they are converted into PMS complexes, and thus satisfy the nation’s
immediate PMS production needs.
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