Fuel challenge In Nigeria: Modular refineries to the rescue?

By Joshua Ocheja

Nigeria is enmeshed in the imbroglio between the Dangote refinery and the Nigerian National Petroleum Corporation Limited (NNPCL). African countries, however, seem to be tapering towards developing capacities to solve their problems. This entails creating an environment that enables indigenous solutions in critical sectors of the economy. In 2001, former President Olusegun Obasanjo lifted the lid on the operationalisation of manageable-sized petroleum production when he inaugurated the Presidential Committee on Local Content in the Oil and Gas Industry. This was to promote indigenous participation and ownership in the oil and gas sector. The Nigerian National Petroleum Corporation (NNPC) was mandated to drive the policy and set specific targets for the burgeoning sector.

In 2010, the Nigerian Content Development and Monitoring Board (NCDMB) was established with a mission to “promote the development and utilization of in-country capacities for the industrialization of Nigeria through the effective implementation of the Nigerian Content Act.” It is also tasked to maximize the participation of Nigerians in oil and gas activities. The question is: How this could be achieved? Enter, the concept of “homestead” modular refineries comes to mind. Modular refineries are not novel. A modular refinery is a simplified refinery requiring significantly less capital investment than traditional full-scale refinery facilities. Nigeria currently has 25 licensed modular refineries. Five are operational and producing diesel, kerosene, black oil and naphtha. About ten such projects are under various stages of completion, while a handful others have received licenses to establish. At complete optimization, these refineries can process 200,000 barrels of crude daily.

Aradel Refinery in Rivers State was originally “Midas Drilling Fund” when it was first established in 1992, while Excel Exploration and Production Company Ltd in Bayelsa State was incorporated in 2001. Other functional refineries in Nigeria include Waltersmith Petroman Modular Refinery and Petrochemical Company Limited (WRPC) commissioned in November 2020 by former President Muhammadu Buhari; Edo Refinery in Ologbo community abutting Delta State; Duport Refinery also in Edo and Azikel Petroleum Ltd in Bayelsa State.

The modular refinery strategy is hinged on establishing relatively simple-to-operate oil production plants in oil-producing corridors to reduce the nation’s dependence on imported refined petroleum products. It is also a strategy to mitigate product shortages. They serve their immediate catchments to a large extent to reduce often despairing expectations from subsisting centrally distributed sources. This brilliant thinking corroborates the position of oil and gas sector experts about modular refineries as an alternative to the persistent poor performance of the nation’s big refineries and the near total reliance on importation for all our refined petroleum needs. With petroleum exploration efforts yielding positive results from parts of the country other than the pre-established oil producing hubs around and about the Niger Delta region, modular refineries may yet become a more diverse concept. For the avoidance of doubt, states like Lagos, Anambra and Kogi have been listed along the existing oil producing states, as beneficiaries of the “13% oil derivation fund.”

Moving forward, this might yet be the magic wand needed to turn things around in Nigeria’s petroleum and gas value chain socioeconomy. Understandably, Nigeria is regularly referenced as a country with elastic capacity to accommodate more modular refineries because it reputedly has the second largest “wetlands” in the world, after the Missisipi in the United States. Indeed a report published by *Hawilti,* a Pan-African investment research firm, titled “Refineries watch Q4 2022,” “Modular technology solutions are acknowledged to be on the rise in Africa, and especially in Nigeria. They offer investors the opportunity to cobble together a refinery in a little over a year, from foundation stone laying, to the commencement of actual refining.” Modular refineries come with ample benefits but require conscientious and sustained support from the government. This has potential to enhance their net contributions to the economy in diverse ways. Among others, they need regular “back patting” to ensure functional efficiency, with the view to enabling them to refine crude oil in line with their installed capacities effectively.

One of the ways this could be achieved is through an increased crude oil supply to the modular refineries and the subsequent payment in naira as against the dollar for crude oil. The results would be tangible. How would this happen? Refining crude oil in modular refineries is more cost-effective. Modular refineries are mainly situated near the wellhead of oil production, which will require minimal cost. Also, landing costs associated with shipping and other charges would be eliminated. If this doesn’t make sense, what else would? This is my case for modular refineries. We can’t continue to do the same thing and expect different results.

The government must rethink the strategy of modular refineries in Nigeria to support its growth and the attendant benefits accrued to the country. If that doesn’t happen, then the mission of the Nigerian Content Monitoring and Development Board of “promoting the development and utilization of in-country capacities for the industrialization of Nigeria through the effective implementation of the Nigerian Content Act.” would remain a mirage. The state must think strategically in this regard. The potentials inherent in a functional modular refinery regime cannot be overemphasized. This much was corroborated in an editorial by *Businessday* newspaper, where it stated that modular refineries have the potential to grow into massive refining clusters and envisages a situation where at least 10 per cent of Nigeria’s oil production should be refined through modular refineries, with the overarching objective to provide a lower-cost, steady supply of fuels and products on a local level.

This is sublime and the way to go in our quest for sustainable growth and development. Industry experts have identified modular refineries as a viable alternative to the current refining template in Nigeria. This is because they provide excellent economic prospects and are more cost-effective. Modular Refineries have various benefits. Typically, environments contiguous to production areas experience some heightened activities in the local economy. The risk-fraught practice of hauling petroleum products over long distances which often result in accidents and attendant carnages, will be minimised. Dwellers in the remote locations where the refineries are built will be able to access products more readily at controlled rates. Because the pipeline network of refineries is local, the nuisance of oil pipeline vandalism will be checked.

Being a very large market, Nigeria can sustain the smaller modular refineries side-by-side with the big players in the industry, including the federal government-owned processors. It is indeed instructive that conversations about the need to encourage modular refinery petroleum processing is coming at a time when government is readying its own facilities in Port Harcourt, Warri and Kaduna for production. Most traditions in Africa have their variants of the Yoruba adage which exhorts that “you wash your hands better when you deploy both together.” Elsewhere, there is also the saying that “you cannot clap your hands with one hand.”
More incentives should be intentionally availed the modular concept by way of
growth and development of regular and increased supply of crude oil, as well as for payments for crude oil supplies to be made in local currency, among others. Modular refineries might just be the magic wand we need to rejuvenate our economy.

*Joshua Ocheja, a military historian is a doctorate student at the University of Abuja*