DAILTY TIMES – SEPTEMBER 22 -28 2014
11
business
Curbing Oil Theft Through Modular Refineries to conventional refineries, Igwe says that the four big refineries have different product slates and processing units, that’s why they are conventional refineries. A modular unit specifically targets specific products, e.g., gasoline, kerosene, diesel, etc. Speaking further, he says that “Setting up a modular refinery will enable employment opportunities to be created for the citizens. We need to convince and persuade the government of the economic benefits from modular manufacturing processes. The government is shy from adopting this system because of the fear of subsidising for crude oil, just like the current NNPC petrol stations. If the modular refinery entrepreneurs could justify economically, net present value and return on original investment, the government will sell crude to them at prevailing market value. For modular refineries, our marginal field operators are in a better position to operate since they produce the crude to be refined without going through all the licensing processes. Speaking also on the need for the establishment of modular refineries, the Managing Director, Frontier Oil, Dada Thomas in a chat with our correspondent, urged the Federal Government to also look into exploiting modular refineries and create conducive operating environment for the operator to thrive. According to him, the private operators could make meaningful impact in the nation’s refining sector, if they are encouraged. Modular or mini-refineries, from simple diesel production units to more sophisticated cracking refineries, are increasingly becoming a flexible and cost-effective supply option for crude producers in remote regions. This is particularly necessary where there is a need to adapt rapidly to meet local demand. Relatively low capital cost, speed and ease of construction are key advantages of a modular mini-refinery. Two 30,000 barrels-per-day (bpd), units producing high octane unleaded gasoline, LPG, diesel, kerosene and fuel oil can be installed in an 18 month time window, with a budget of 150-200 million dollars. Modules from 4,000 bpd up to 30,000 bpd primary distillation capacity can be added together with debottlenecking to create a refinery of 100,000 bpd or more. Adopting this cost-effective measure, according to industry analysts could save the nation about N971 billion incurred on fuel subsidy last year. The Nigerian Navy had also confirmed that the nation is losing the sum of $20 billion annually to crude oil theft, which might be minimised by creating employment for the ag-
gressive youths. The situation brought to the fore a number of unimplemented modular refinery projects in the country. For example, the status of the $4.5 billion (about N697 billion) modular refinery project of which the Federal Government signed a Memorandum of Understanding (MoU) with a Nigerian-American joint venture capitalist, Petroleum Refining and Strategic Reserve (PRSR), remains uncertain since 2012. The MoU, was signed between the Ministry of Trade and Investment and PRSR, provided for the construction of six modular refineries with combined refining capacity of 180,000 barrels of crude oil per day that would have been constructed in the country within 18 months by PRSR. Each modular refinery, when functional, will refine up to 30,000 barrels of crude per day, producing up to five million litres of petrol, diesel, kerosene and Low Pour Fuel Oil (LPFO). According to provisions in the MoU, the first two refineries had been slated to begin full operation within 12 months; that is by the end of the first quarter of 2013. Barely, eight months after the expiration of the target, the fate of the project remains uncertain. Meanwhile, Honeywell International Inc recently said it sees a market for readymade modular refineries in oil producing countries such as Nigeria. President of Honeywell’s oil and gas service unit, Rajeev Gautam, said, the modular building of oil and gas equipment helps reduce cost overruns and construction time. “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),” he said. Most refineries in Africa tend to be medium to large-scale refineries, perhaps because of the state of technology at the time they were built. This article is about presenting a cost- effective and timely option, as represented by the modular refining format. Government Endorsement Also, some key government officials have lent their voice to the call for the establishment of modular refineries. Recently, Governor Emmanuel Uduaghan of Delta State said that the state Government was in support of those calling for the establishment of modular refineries across the Niger Delta region in place of the illegal ones being destroyed as part of the measures to get the youths gainfully employed among other benefits. Dr Uduaghan said it was important for the people of the Niger Delta to guard against pipeline vandalism and crude oil theft because such dangerous activities destroy the environment and made the government lose billions of dollars which could aid in the development of the nation mostly the rural communities where these products are extracted from. According to him, it was also important for them not to engage in such nefarious activities observing that oil spillage degrades the environment for a long period of time. “Crude oil theft and pipeline vandalism are not just economic loss, they are also, environmental challenges because if the oil finishes tomorrow, the damage to the environment continues and it will take years
to clean,” the Governor said. “Our people, the people of Niger Delta should understand the damage involved in pipeline vandalism on the environment; we appeal to them not to get involved in crude oil theft as it affects our own people and the environment, we should all be involved in protecting the environment.” Also, the Commander of Joint Task Force (JTF) in the Niger Delta, Major General, Emmanuel Atuwe, said the government should encourage the establishment modular refineries, to buoy the nation’s refining capacity. Atuwa stressed that establishment of such refineries would go a long way in addressing the problem of unemployment in the country, and ultimately prevented crude theft and vandalism. According to the Petroleum Act, any entity operating in the oil and gas sector should register and get approvals from the Department of Petroleum Resources (DPR). The DPR had licensed 18 private refinery operators since 2002, but many of them are yet to put up any structure due to what they described as unfavourable crude supply terms from the government. The operators are demanding for some waivers that would guarantee return on investment. This included selling of crude at lower rate compared to international rate, as well as deregulating the market. Other Benefits Revenue streams and pay-back periods are faster with the modular refining format, than with the larger capacity refineries. However, it is necessary to point out that the major short-coming with modular refineries are that the plants
are semi-automated and less laborintensive, 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. Hurdles and the Role of Government The major hurdle to implementation is political in nature. Petroleum products, by their characteristics, are linked to all transport systems and so private ownership of refineries carries with it some national security implications. Secondly, the daily cash flows that attend such business will likely confer enormous political capital and influence on private owners. As a result, government officials are unlikely to provide a clear framework and incentives that permit indigenous private investment in the refining business. However, the Nigerian Government can also adopt the modular refining format in constructing medium to large-scale refineries and in partnership with Chinese NOC’s.