Nigeria has 25 licenced modular refineries with a combined capacity of producing 200,000 barrels of crude oil daily.

Although not all of the plants are currently operational, it was gathered that the functional ones were increasingly finding it difficult to purchase crude due to the worsening foreign exchange crisis in the country.

Brent, the global benchmark for crude, traded at about $80/barrel on Sunday and had remained within that range for months.

With an estimated capacity of 200,000bpd, the modular refineries, if fully operational, would refine about $16m (or N25.14bn if Thursday’s  official closing rate of N1,571/dollar is used.”

Annually, it means the modular refineries has capacity for about 73 million barrels annually, representing about $5.84bn worth of crude oil.

But the facilities, which produce Automotive Gas Oil, popularly called diesel, Dual Purpose Kerosene or kerosene, naphtha and black oil, are now finding it hard to make the refined products available to oil marketers for distribution to consumers.

They explained that the scarcity of dollars had made it almost impossible for operators to purchase crude oil, as the modular refinery players and oil marketers demanded for the sale of crude oil in naira from the Federal Government.

The modular refinery operators, who spoke under the aegis of Crude Oil Refinery Owners Association of Nigeria, also lamented that the Federal Government had not been able to keep its part of the bargain with respect to the provision of feedstock to local crude oil refiners.

Speaking with our correspondent on the matter, the Publicity Secretary, Crude Oil Refinery Owners Association of Nigeria, Eche Idoko, stated that modular refineries may close shop if nothing is done to ameliorate the situation.

CORAN is a registered association of modular and conventional refinery companies in Nigeria, while  modular refineries are simplified refineries that require significantly less capital investment than traditional full-scale refineries.

Idoko said, “The purchase of crude oil in dollars is currently the major challenge to modular refineries. We buy crude in dollars and sell our refined products in naira, and this is a major challenge. And apart from that, where do you get the dollars to pay for the crude?

“You heard the Manufacturers Association of Nigeria crying out recently about the dollar saga. We have requested that crude oil be sold to us in naira. And when you do this, you ease the pressure on the naira and this will make our diesel cheaper.

“It will encourage more investors to build and patronise the local refineries. If you take petroleum products off the foreign exchange market, you would have helped the naira by 60 per cent.”

Asked whether the inability of modular refineries to source dollars for crude oil purchase was slowing down production at the plants, Idoko replied, “Yes. We’ve not been able to get enough crude and from the little that we see, we’ve not been able to get forex to buy them.”

On whether this posed a threat to the survival of the plants, the spokesperson of the group said, “Exactly, it is a threat to our existence and it also opens the country to the volatility in the international market.”

Although the association could not state the estimated volume of crude refined by modular refineries in Nigeria, it stated that operators in the sector could refine about 200,000 barrels daily if all of them were operating.

Idoko said, “Right now, I don’t have the actual volume of crude that modular refineries refine annually. However, it is important to state that what each refinery produces in a month is dependent on the amount of crude they are able to get.

“The government has not been able to fulfill its own side of the obligation by providing 60 per cent of the crude required by modular refineries, as captured in the Petroleum Industry Act. So a lot of modular refineries are performing below capacity.

“For instance, OPAC has a 10,000 barrels per day installed capacity, but the most they have been able to refine is like 3,000 to 4,000bpd. The Edo refinery has 1,000bpd, but sometimes they do just 500bpd. Aradel and Waltersmith are the ones that refine as much as 70 and 80 per cent of their capacities because they have their own marginal fields.

“Waltersmith has a capacity of 5,000bpd, while Aradel has 10,000bpd refining capacity. However, if all the modular refineries come onstream, all those that have been licensed so far, our crude demand would be about 150,000bpd and 200,000bpd.”

Nigeria currently has 25 licensed modular refineries. Five of them are operating and producing diesel, kerosene, black oil and naphtha. About 10 are under various stages of completion, while the others have received licences to establish.

Officials of the Federal Ministry of Petroleum could not be reached to tell whether the government would consider selling crude to the modular refineries in naira, as they had yet to respond to enquiries up till when this report was filed.

However, the Minister of State for Petroleum Resources, (Oil), Heineken Lokpobiri, recently confirmed the lack of crude to domestic refiners, noting that Nigeria’s inability to meet its crude oil production quota approved by the Organisation of Petroleum Exporting Countries was the major limiting factor.

Lokpobiri, however, stated that the government was working hard to meet the production quota in order to supply crude oil to local refiners as stipulated in the Petroleum Industry Act.

Meanwhile, Idoko noted that “the current NNPC boss, petroleum minister and NUPRC have all talked about the possibility of having some arrangements with us in naira. But that hasn’t been implemented. Our people still source crude from domestic producers in dollars.

“We buy crude in dollars and sell our refined products in naira. So it is not that we earn dollar proceeds. Our earnings from the sale of diesel, kerosene and black oil is in naira.

“The only dollar component is the sale of naphtha, but most of our refineries won’t sell naphtha, they put it back into the system and reproduce kerosene or diesel. So we still have to visit the Central Bank of Nigeria or domestic dollar market to source our dollars.”

Commenting on the development, oil marketers stated that the continued fall of the naira against the dollar was limiting the release of refined petroleum products from the modular refineries.

Marketers under the aegis of the Natural Oil and Gas Suppliers Association of Nigeria stated that operators of these refineries had stated that the country’s foreign exchange crisis had made it difficult to put a price on refined petroleum products.

They called on the Federal Government and NNPCL to start supplying crude oil to local refineries in naira, considering the persistent fluctuations of the dollar.

The President, NOGASA, Benneth Korie, who conveyed the resolutions of members of the association after their meeting in Abuja, stated that the government should peg the foreign exchange rate at N750/$ in order to enable refineries to start pumping out refined products.

“If for example crude is $80/barrel, we will have to convert it to naira and sell to Nigerians at the naira rate. Let me start by telling you the implications. The problem holding most of these refineries and modular refineries from coming up is the exchange rate crisis.

“So the answer to this is for the government to come out and tell Nigerians that this is how much the dollar is, not this forex rate we hear on TV. Let the government come out and tell us the rate, not the black market rate.

“I know our budget this year was benchmarked at about N750/$. So if the government can maintain the exchange rate at N750/$, heaven will not fall, whether there is inflow or no inflow. It is not the first time we are seeing the dollar at N400 and they (black marketers) are selling for N800.

“So let’s go back and try it, because if we allow this crisis to continue, the dollar may get to what we cannot handle; it may get to the point that all our food items could be sold at dollar rates if care is not taken.

“Therefore, let us go back to N750/$ as it was stated in the budget and work with that, so that the crude oil that will be sold to the refineries will be sold at the exchange rate of N750/$, and it should be converted and we pay in naira.”

Explaining further, he said, “If you are buying crude oil from the government, you pay in dollars, but how do you blend? How much are you going to sell your refined products when you don’t know how much the dollar is going to be tomorrow?

“So it will affect you as a businessman. But if we have one price from the government, then when you are buying the crude from the government or NNPC, you will calculate it based on the government’s rate, convert it to naira and then sell it to Nigerians in naira.

“But when you go to get dollars today and they say it is N1,500, how do you calculate? It creates confusion. So it is causing a problem. Let’s have one rate from the government and things will change positively.”

The NOGASA president went ahead to speak on refineries under the management of NNPCL, as he stated that the forex crisis was also affecting these plants.

“For the Port Harcourt refinery, they said it will come up, and they are also into the business of buying and selling, so if the dollar is not stable, be rest assured it is their problem too,” Korie stated.

When probed further on whether the forex crisis was a major factor limiting the release of products from the refineries, he replied, “For most of them, yes!. This is because you don’t know how much you are going to buy the dollar and so you cannot tell how much you are going to sell (your products). It (dollar) is not stable.”

Speaking further on modular refineries, Korie said operators in this space were finding it tough to source dollars to make crude oil purchase, stressing that the instability of forex had remained a challenge.

On modular refineries, the problem they have is that they do not know how much they will buy and you are selling to them at the dollar rate. If you go to any modular refinery to buy products, the products’ price will be the same at almost the same price as the one you import,” the NOGASA boss stated.

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The minister spoke during the recent Independent Petroleum Producers Group (IPPG) annual dinner.

Speaking at the event, Lokpobiri said the independent petroleum producers are an integral part of the country’s ability to meet its energy needs.

“Most of the IOCs want to sell their crude abroad. But some of you (the independent players) are owners of modular refineries,” Lokpobiri said.

“We are fixed up in a major challenge. By the time you increase your production, you will be contributing immensely to our energy needs as a country and you will fix our forex that will be available for other sectors.

“Whatever we can do, I can assure you we will do it. I want to say that going forward, it is important that when we want to do anything bid round, the boys shouldn’t come, let the men alone come.”

He said one of the things authorities have uncovered is that there are a large number of operators with licences with no capacity for oil exploration and so “it ends as souvenirs in their cupboard.”.

“So, going forward, the members of IPPG, please get ready for any other bid round. I want to assure you that you the men will be the ones to be considered,” he said.

“To me, if I give anybody any licence, and the person wears some nice suit and starts roaming around the world, looking for investments, I have cost him more pain.” 

Lokpobiri said operators “who have already proven capacity should be the people that we should prioritise in terms of future bid rounds”.

Meanwhile, the minister enjoined companies to ensure that they pay their taxes.

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The Minister of State for Petroleum Resources, Dr Ibe Kachikwu, made the commitment as part of efforts to woo businessmen at the offshore technology conference holding in Houston, United States.

Vice-President Yemi Osinbajo had on March 25 assured that the proposed modular refineries would be sited only in oil-producing areas as part of measures to address the developmental challenges in the area.

“Now that the Vice-President has visited the area, I will go round and make a workable plan to kick-start the modular refineries, we need to move away from state-ism to a pan-Nigerian development.

“We have to boost local refinery. The concept of producing crude and selling it off barrel per barrel is some policy we have to look at.

“I hate to sit over a ministry where we can’t be self-sustaining. The Niger Delta has shown that it can cooperate and ensure peace if focus is on developing the region,” he said.

Kachikwu said President Muhammadu Buhari had set out tough choices, hence, focus would be to stabilise macro-economic environment, align monetary trade and fiscal policies.

Part of the choices were to accelerate non-oil revenue generation, drastically reduce costs, privatise public enterprise and assets, achieve food security, improve transportation infrastructure and boost local refinery, he said.

Kachikwu said a 10-point focus had been developed to attract massive investment and growth, with focus on equity collaboration with joint-venture partners, diversification of the downstream infrastructure among others.

The Minister said the government would do more to grow production from 2.2 million barrels of crude per day to three million, refine crude, improve yield from oil through transparency and the need to continually cooperate with OPEC.

He also said he was working assiduously to ensure that the cost of producing crude per barrel reduces from $28 to $18.

“Nigerians should take the lead, invest and return monies to the sector. We need to make the sector regain its relevance and most importantly we must begin to address the future by saving.

“There are oil wells in places like Saudi Arabia that are capped and kept for future generations. We must save, although that anomaly is being addressed as we speak, we must save, creativity must return,” he said.

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The Traditional Prime Minister of Gbaramatu Kingdom, Chief Wellington Okirika, and the Chief Executive Officer of Missouri Energy, Henry Iwenofu, said after a meeting with Vice President Yemi Osinbajo on Thursday.

According to Okirika, the project is in response to the political will demonstrated by the Muhammadu Buhari administration on modular refineries and to develop the oil producing communities.

“So we are very excited that there is now the opportunity to develop our degraded environment and turning the fortunes round.

“The issue of illegal refinery will be over; the issue of illegal bunkering will be over.

“We will be producing refined products; it will stop the importation of refined products into this country.

“How can we be selling our crude oil and just spending the money?

“We don’t have added value to the crude oil value; but now we are going to have a chain of values. We are going to have refined products.

“It will stop the importation of refined products; it will eventually put to rest the issue of fuel subsidy and it will create jobs and wealth.’’

The Bolowei of Gbaramatu and Consultant on Modular Refineries said the community initiated the Gbaramatu Oil and Gas Producing Trust Fund with the objective of empowering the community, developing and industrialising the degraded environment.

According to Okirika, one of the options to develop the environment is the modular refinery.

“We have been on this matter for some years now. It has been on the drawing board.

“We got excited when the presidency during the tour of the Niger Delta made pronouncement on modular refineries.

“So, we got back to the drawing board and we came here to tell Mr President that this option of modular refineries has been accepted and adopted by our people since about eight years ago,’’ he said.

The community leader said the kingdom made publications which it circulated including in the U.S.

“We went everywhere but there was no political will at the centre.

“Now that there is a political will to do the right thing we came here to provide a document to show that we are the model that can produce the first modular refinery in Nigeria.

“It is 20,000 barrels per day modular refinery. It will create jobs and create wealth.

“Those of us in the oil-producing communities, our environment has been degraded by the oil industry and if you go there you will find that there is nothing like industry.

“And the only industry that can be established will be based on the raw materials that are available in massive quantities,,’’ he added.

Also speaking, Iwenofu said the U.S.-based group was interested in the economic development in the Delta and the policy from the federal government.

“We are interested in this economic development in the Delta and the policy from the federal government. And we appreciate the opportunity to invest in the area. But there are certain things that we need to see.

“We saw it today which is the dedication from the Vice President that the government is ready and willing to assist in which way that is business-like, that is transparent as we can see here which will make the communities that produce the oil benefit from the resources from their community.’’

Iwenofu said that the organization was ready to train the people of the community to work and operate the refinery.

He said that most of the people would benefit from the refinery being sited in their community and in other aspects of the economy.

“So there is multiplier effect in having the refinery in the communities, not only in Gbaramatu but in the Delta area,’’ he explained.

Investors requested among other things the relaxation of regulations and controls which could delay the importation of plants and equipment.

They also asked for guarantee of 80 per cent crude oil stock, five year tax exemption and CBN guarantee to the foreign investors to repatriate their funds as appropriate.

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