Are there modular refineries in Nigeria?

By Joshua Ocheja

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 modular 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.

African countries are 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 operationalizing manageable-sized petroleum production when he inaugurated the Presidential Committee on Local Content in the Oil and Gas Industry to promote Indigenous participation and ownership. It’s over two decades, and the question is how the country has fared in this regard.

In 2010, the Nigerian Content Development and Monitoring Board (NCDMB) was established 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 Nigerians’ participation in oil and gas activities. The concept of “homestead” modular refineries comes to mind.

A modular refinery is a simplified concept 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 of others have received licenses to establish. At complete optimization, these refineries can process 200,000 barrels of crude daily.

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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.”

This might be the magic wand needed to turn things around in Nigeria’s petroleum and gas value chain. Understandably, Nigeria is regularly referenced as a country with the elastic capacity to accommodate more modular refineries because it has the second largest “wetlands” in the world, after the Mississippi in the United States. Indeed, a report published by Hawilti, a Pan-African investment research firm, titled “Refineries watch Q4 2022,” states that “Modular technology solutions are acknowledged to be on the rise in Africa, 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 could 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 local currency for crude oil. The results would be tangible. 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. This is my case for sustained government support for modular refineries.

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 heightened local economic activities. The risk-fraught practice of hauling petroleum products over long distances, which often results in accidents and attendant carnages, will be minimized. Dwellers in the remote locations where the refineries are built can 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 vast 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 are coming when the government is readying its facilities in Port Harcourt, Warri and Kaduna for production. Most African traditions have variants of the Yoruba adage: “You wash your hands better when you deploy both together.” Elsewhere, there is also the saying, “You cannot clap your hands with one hand.”

More incentives should be intentionally availed of the modular concept through the growth and development of the regular and increased supply of crude oil and for payments for crude oil supplies to be made in local currency, among others. Modular refineries might be the magic wand we need to rejuvenate our economy.

Ocheja, a military historian and doctoral researcher, is an alumnus of the Nigerian Defence Academy, (NDA)