All articles in the Refining Gap Section:

Decklar Resources has announced the receipt of payment for the delivery of 10,000Barrels of crude oil to AIPCC owned refinery, which it initially described as “a small crude oil refinery in Edo State, Nigeria”.

“Trucking of oil has continued from the Oza Field to the Edo Refinery and Petrochemicals Company Limited (ERPC) in Edo State, Nigeria”, Decklar, a Canadian producer of Nigerian marginal oil fields, disclosed.

ERPC is a 6,000 barrels per day modular refinery, executed in two trains of 1,000BPSD; and 5,000BPSD, “and has been commissioned and is fully operational”, its owners say. “The refined products sold are Diesel, Naphtha and Low Pour Fuel Oil (LPFO)”.

ERPC is the third, fully commissioned, legitimate modular refinery with clear line of sight to feedstock in Nigeria,  after the Niger Delta E&P owned 11,000BSPD refinery on the Ogbele field in Rivers State and Waltersmith Petroman  owned 5,000BSPD in Ibigwe, Imo State.

Decklar says it has, in conjunction with partner Millenium, have issued another invoice for delivery of 5,000 barrels of crude oil (bbls) to ERPC “under the recently signed 30,000 Barrels crude sale agreement., “and initial payment for previous deliveries totaling 10,000 bbls has now been received.

Edo Refinery statement notes that work on the Phase 2 (15,000BPSD) has already commenced, with full operations slated to start in March 2023.

President Joao Lourenco has made increased hydrocarbon refining capacity a priority

Angola has inaugurated an extension unit on the Luanda refinery, which quadruples the production of petroleum products at the plant.

It Is the first of three ongoing refinery projects in the country.

\Italian major ENI led the revamp for Sonangol, the Angolan state hydrocarbon company.]{_:(*H

The project bumps up gasoline output from 100,000tons to 450,000 tons per year.

“The Combined Cycle has been rehabilitated so as to be fed by hydrogen produced by the new Platforming unit”, ENI says in a statement. “Power is now produced recycling gas with a net reduction of pollutant emissions”.

ENI and Sonangol signed a Memorandum of Understanding to give continuity to the support to expansion and modernization activities the refinery of Luanda.

“The main highlight is increasing the production capacity of refined petroleum products, such as diesel and gasoline. The situation in the country, which has significant crude oil production but until recently had little capacity to transform it, was somewhat incomprehensible,” Angolan President Joao Lourenco, said at the inauguration.

Angola produces only about 20% of the refined products it needs, despite being one of Africa’s top two crude oil producers.

President Joao Lourenco has made increased hydrocarbon refining capacity a priority. Construction of the 60,000BPSD refinery at Cabinda is ongoing, under a joint venture agreement with Sonangol, according to a report in the April 2022 edition of the Africa Oil+Gas Report.  “Phase 1 of that project is expected to include a 30,000BPSD CDU with a desalter, kerosene treatment and ancillary infrastructures including a conventional buoy mooring system, pipelines and storage facility for over 1.2Million barrels. It is due to be commissioned before the end of 2022. Phase 2 and 3 will upgrade the plant to a full conversion refinery with additional 30,000BPSD capacity, a new catalytic reformer, hydrotreater and catalytic cracking unit”, the report notes.

Also ongoing is the construction of the 100,000BPSD grassroots Soyo refinery in Zaire Province. The contract was won by the US company Quanten Consortium, in March 2021, under a Design, Build, Own, and Operate a tank farm and marine terminal for feedstock (including crude oil) delivered to and products exported from the refinery

Meanwhile, ENI said of the upgrade Luanda refinery: “The modernization and expansion project is based on a commitment taken by Eni with the Government of Angola, and leverages ENI’s know-how and expertise and its long cooperation with Sonangol. The project has had a positive impact in job generation and provided training opportunities for over 100 employees of Sonangol who benefitted from training by ENI in Milan, Sannazzaro, Livorno, Taranto and Luanda”.

By Babajide Soyode

Nigeria needs to liberate its currency, The Naira, from its shackle to the global price of Crude Oil.

The country would also benefit, enormously, from promotion of Fuel Taxation as an instrument of fiscal revenue generation.

These are two of the core messages of this paper.

I will restate them, add the others and elucidate.

• Liberating the Naira from its shackle to the global price of Crude Oil since the enunciation and adoption of the Structural Adjustment Programme (SAP) in late 1980’s by immediate, unceremonious cessation of Fuel Subsidy totally.
• Promoting Petroleum Fuel Taxation as the most efficacious, equitable, and accountable manner of fiscal revenue generation which is directly related to national economic performance and to the direct choice of the fuel consumer. If you do not fuel, you do not pay the tax. This is why there is no agitation over fuel price and fuel taxation in all developed countries, most developing countries where fuel is taxed, and all other non-oil producing countries, which have fuel taxation regime. It is a highly discretionary expenditure.
• Creation of hundreds of thousands of different kinds of jobs and trading activities through the upgrade of Fuel Production and Distribution Assets, namely the NNPC Refineries, the over 5,000 kilometers of products pipelines, 21 depots and pump stations, during the construction period.
• Minimal direct capital expenditure by Government, if any.

1. Financial Implications

This proposal is designed conceptually to be fiscally neutral, in reality, if all the policy measures advocated are adopted, and to result in very substantial and stable new source of revenue for Government.

• Only a declaration of complete cessation of subsidy on Petroleum Fuel in any form, either through control of crude oil pricing to any domestic refiner, or ‘‘under recovery’’ by any refinery. In simple and clear language, crude oil will commence, from the date of the declaration, to be charged to all domestic refiners at the competitive equivalent international prices at the domestic terminal of lading, or at the domestic production flow station or quality control centre. In this way, Government will not suffer any revenue loss from domestic consumption compared with export. Currency of pricing is different matter, which shall be handled administratively.

Appropriate Road Network from Dangote Refinery to Main Expressways Dangote Refinery products should reach the widest market inside Nigeria with the lowest cost of distribution. This is possible only if the products transit through existing Pipelines and Depot Network. Road transit is the next lower cost option, but the Host State for the Refinery is yet to honour her obligation to construct appropriate road network from the Refinery to the main expressways into the hinterland. Delivery by sea is most expensive in any direction as it involves the products first going to sea, transshipment in small tankers, and landing charges at seaports. Consequently, a collaboration between Dangote and NNPC Ltd to effect interconnection between Dangote Refinery and Mosimi is in the nation’s strategic interest.

As for imported products, products pricing will reflect full landing costs plus full internal distribution costs and profit, all to be controlled or dictated by market competition.

• The implication, and desired effect of this, is that only the prices of fuel products will change or vary with variation in global crude oil prices for whatever reasons, but the value of the Naira will remain stable. This stability of the Nigerian currency is vital and critical for sustenance of stable economic development and social harmony.
• This was the premise of the paper submitted to Government in 1992, conceived along the Marshal Plan of the United States after World War II to finance European economic recovery and redevelopment, to create a Nigerian Petroleum Patrimony Fund from the difference between the $2.00 per barrel price fixed by SAP for the 250,000 barrels per day of crude oil earmarked for domestic consumption, and the actual average market price of $18 per barrel in 1992/93. This would have resulted in additional revenue of $16 per barrel, and a fund accumulation rate of $4Million daily or $1.469Billion annually. The fund was to be domiciled as a Special Account ONLY at the CBN, and to be dispensed on matching grant basis to States for development of transportation infrastructures, and other critical infrastructures as might be deemed necessary. In the end, the Abacha Administration created the Petroleum Trust Fund from partial removal of subsidy, and the rest is history. This history must not be repeated in this instance!
• Beside the primary and most critical objective of decoupling the Naira from the global price of crude oil, and assuring that its value inheres from the aggregate health and vibrancy of the overall economy, removal of subsidy will facilitate private equity participation in the proposed Fuel Production and Distribution Assets upgrade, since NNPC Ltd alone cannot, and, indeed, should not be allowed to execute the works alone. In order words, the Downstream Industry should be completely deregulated and open.
• Removal of subsidy will also enable NNPC Ltd to emerge from the permanent under-recovery operating status, and generate enough revenue to not only sustain operation but also to invest in the upgrade of the Assets along with private equity.
• The proposed fund from ₦10 per litre fuel tax is open to both NNPC Ltd and private investors for bridging or matching loan to finance the upgrade works. The fund shall be operated by commercial banks under the strict supervision of the Central Bank of Nigeria.
• Government may consider obtaining advance loan from CBN to fund practical human welfare development projects in critical major urban centres like Lagos, Abuja, Kano, Ibadan, Jos, Port Harcourt, Onitsha, Benin City, where potential public blowback to subsidy removal may be fierce. Such projects include completion of ongoing Mass Transit Systems, Procurement of Buses from Local Assembly Plants for donation to these Urban Centres to augment existing mass transit. The loan will be repaid from subsequent revenue accruals from subsidy removal. It is also presumed that well-conceived, fact-based public awareness campaign programmes will be developed and implemented well ahead of the declaration of cessation of subsidy regime, by the National Orientation Agency.

2. Fuel Tax

This is not new in most parts of the world. In Nigeria, it has become inevitable in view of our expensive political governance structure, our very narrow industrial range of economic production, our low economic productivity, and, above all our surging population. We are a very poor oil producing nation. It is only fair and equitable therefore that our taxation should, as much as equitably justifiable, be consumption based. Those who consume petroleum fuels should as much as possible pay for the construction and maintenance of the infrastructure, such as roads, which their vehicles ply.

Fuel tax has also become imperative to efficaciously control smuggling of products across our porous borders to neighboring countries where prices are much higher, even when subsidy is removed. Border closure is not efficient, and cannot be sustained indefinitely. Economic damage to the country, not to mention diplomatic stigmatization, will be unacceptable.

Finally, fuel taxation may discourage the myriad of unaccountable taxes being levied willy nilly by all levels of government all over the country.

3. Optimization of Strategic Impact of Dangote Refinery on Nigeria’s Economy.

Dangote Refinery products should reach the widest market inside Nigeria with the lowest cost of distribution. This is possible only if the products transit through existing Pipelines and Depot Network, at least in the Southwestern, Mid-Western and North Central regions. Road transit is the next lower cost option, but the Host State for the Refinery is yet to honour her obligation to construct appropriate road network from the Refinery to the main expressways into the hinterland.

Delivery by sea is most expensive in any direction as it involves the products first going to sea, transshipment in small tankers, and landing charges at seaports.

Consequently, a collaboration between Dangote and NNPC Ltd to effect interconnection between Dangote Refinery and Mosimi is in the nation’s strategic interest.

4. Implementation Schedule

The present assets were constructed substantially between 1975 and 1980, while Colonel Muhammadu Buhari was Federal Commissioner for Petroleum Resources (1975 – 1979) for most of that period. This author had the honour and pleasure of driving hm and the then Head of State, General Olusegun Obasanjo, round Warri Refinery when it was being commissioned on 26^th September, 1978.

I was the coordinator of the Refinery Project Implementation, and I was firsthand witness to the exemplary leadership Col. Buhari gave to the Oil Industry in general, and to NNPC Downstream Development Projects specifically during the period.

• Clearly, therefore, there is sufficient time still to reenact the same feat in the remaining life of this Administration since only upgrade works will be involved. Significantly, all sites have been acquired, surveyed, cleared, and built. All rights-of-way have been acquired. All geotechnical surveys and soil tests have been performed. Most foundations and underground works have been constructed, and water treatment plants constructed, requiring only modifications and extensions. Most storage facilities have been constructed, requiring only additions. Most plant equipment will be reused, requiring mainly internal modifications, and some changes, where necessary. Instrumentation networks will be completely new, while power plants will be substantially modified. Most, if not all pipelines will be new, but depots will have new storage tankage additions. All the works can be completed in 24 – 36 months.
• Connection between Dangote Refinery and Mosimi Depot can be completed within 24 months.
• Determination of private sector interests in equity participation can be completed in 3 – 6 months.

5.  Approval

Approval of Mr. President is of course the starting point. It is widely believed that he is firmly opposed to Subsidy Removal, without which no meaningful progress towards realization of the strategic objectives conceptualized in this memorandum is possible.

Perhaps Mr. President has obtained his Second Mandate for this very purpose! A subsidy policy which in over 33 years of its existence has not only not improved the lot of the poor, but, on the contrary, has only democratized and deepened poverty, needs to go. Subsidy regime has entrenched corruption in the polity. It has all but destroyed the Fuel Production and Distribution Assets whose acquisition the President supervised more than 40 years ago.

Indonesia and Egypt removed subsidy and are better off for it. Our less endowed neighbours in the Sub-Region do not enjoy subsidy, yet they are thriving at their own pace.

6. Prayer

The Presidential Economic Advisory Council is hereby beseeched to study the foregoing memorandum in the knowledge that

• the technical proposals are based on over 45 years of operating and practicing experience in engineering design, project management, construction supervision, plant management, strategic planning, and on-going technical consultancy for the last 7 years for the largest refinery project in Africa, and the largest single train in the world;
• that the economic concepts are based on experience of failed policies which are results of selective implementation of policy recommendations;
• that time may be running out before potential explosive manifestation of youth unemployment and disillusionment;
• that Nigeria can still internally finance her economic development programs if they are well conceived and executed with the discipline of the private sector, and propose to Mr. President that the time has come to finally realize the full benefits of the Structural Adjustment Programme, launched 33 years, that has been shackled by the tying of the Naira to the vagaries of the Global Crude Oil Market through Fuel subsidy. The intent then was to promote acceptability of SAP to the elites by shielding fuel prices from foreign exchange market. All other sectors of were liberalized and the banking sector exploded. But the Naira remains fragile till now.

– Engr. Babajide A. Soyode, Fnsche, Fnae

Telephone: +234 – 803 – 321 – 8001

Email: Babajide.Soyode@gmail.com

Babajide A Soyode, a Nigerian engineer, is the President of Atlas Poligenics Limited, an oil and gas engineering consultancy firm, and chairman of the Board of Directors of Petrodata, the premier Nigerian upstream hydrocarbon databank, which now covers Cloud Storage services, Electronic Document Management Systems, Document Scanning and Digitisation. He began his career in 1970 as a Chemical Engineer with the Nigerian National Petroleum Corporation and rose to become the Group General Manager in charge of Corporate Planning and Business Development. He was also the past President of the Nigerian Society of Chemical Engineers and serves actively as one of the council members.

V Fuels was celebrating the achievement of Factory Acceptance Testing (FAT) for the Cabinda refinery as we rounded up this edition. The fabricator’s message was clear: “We got this”. The first of the three phase 90,000Barrels Per Day crude processing facility to be installed in the enclave in the country’s northwest was inching to completion.

Things were also shaping up on location in Algeria’s Hassi Messaoud, where the joint venture of Técnicas Reunidas SA of Spain and South Korea’s Samsung Engineering has been tasked with engineering, construction, and procurement (EPC) contract for the 110,000BPD Hassi Messaoud III refinery. And of course, we are all aware that the next 12 months are the last 12 months on construction site for the epic 650,000BPD Dangote Refinery in Nigeria.

This last one year has been, for us here, one of the few moments in our 21 years of publishing the African hydrocarbon story, when we could proudly say that the “building is taking shape”.

True, we are not denying that the refining boom has come a tad late. The continent’s industrialization process has dragged. We just don’t want to worry about the negative part of the optics now.

Welcome to the REFINING GAP ANNUAL 2022.

And while you’re checking on the four pages devoted to the theme, be sure to catch up on production data, rig activity, domestic gas market and upstream asset sale in this April 2022 edition of our authoritative trade journal.

The Africa Oil+Gas Report is the primer of the hydrocarbon industry on the continent. It is the market leader in local contextualizing of global developments and policy issues and is the go-to medium for international corporations, local entrepreneurs, technical enterprises or financing institutions, for useful analyses of Africa’s oil and gas industry. It has been published by the Festac News Press Limited since November 2001, and since the COVID 19 season, as a monthly digital (pdf) publication, delivered to subscribers around the world. Its website remains www.africaoilgasreport.com and the contact email address is info@africaoilgasreport.com. Contact telephone numbers in our West African regional headquarters in Lagos are  +2347062420127, +234803652979, +2348023902519.

The Nigerian independent, Niger Delta Exploration & Production (NDEP), has a large wish for the country’s hydrocarbon development.

That wish is to domesticate the consumption of the resources in the country.

Nigeria exports over 90% of its 1.3-1.5Million barrels per day crude oil output and 76% of its marketed 4.3Billion cubic feet per day natural gas production.

“We know that the window that we have for the upstream (oil producing) part is limited”, Gbite Falade, the company’s Chief Executive Officer, told Africa Oil+Gas Report. “We are all aware of the debilitating impact of just extracting fossil fuel alone and we recognize that, ultimately, when you just produce the raw hydrocarbon resources and hand it off to somebody to process it and then you buy it, there is a destruction of value”.

He speaks primarily for NDEP, of course. “Part of our long-term play remains the downstream. Today, we have started that long term play with the downstream refined product. There is even going to be further downstream play in the gas sector and this is about the finished product that you can readily access in the domestic market”.

Falade admits that even for a company like his, whose main asset is a marginal field (the Ogbele field, in the eastern Nigeria), pushing the domestication agenda means walking a tight rope.

NDEP runs one of the country’s two fully functional refineries, both of which, at most, utilize 16,000BOPD.

And whereas there’s a growing queue of large and small crude oil refineries under construction in the country, the enthusiasm for installing even mid-sized gas processing plants is low.  Here, NDEP is an exception. It is in the process of adding 300Million standard cubic feet per day (300MMscf/d) plant capacity to its base 100MMscf/d facility. In Nigeria, where gas sales agreements of 50MMscf/d routinely call for effusive, national media attention, the construction of a 300MMscf/d gas processing plant is big deal.

“The upstream is our starting point. The upstream holds the attraction of value generation and revenue generation that helps to jumpstart the other sectors”, Falade explains. “We are in a phase now where the upstream is the sector that is carrying the midstream and the downstream. What we are doing is evolving our own transition and pivoting to where, without holding down the contribution from the upstream oil, we are doubling down on our gas train sector to where we transition from oil carrying gas but gas carrying oil. We see the longer-term impact and sustainability of gas because it is less intense in terms of carbon footprint but more importantly, when you are looking for ways of jumpstarting the domestic economy, gas has that attraction much more than oil. We see the longer-term relevance of gas and all we are doing now is harnessing the value that we are creating from the upstream to really expand our gas business”.

Crude oil prices have soared well above the $100 a barrel so Nigerian upstream production companies -those who produce optimally without challenges of evacuation-are doing well.

Falade says that a key reason why investors have been very shy of taking decision in downstream refining “is the fact that it is a regulated play and without a clarity around government decision and commitment to release the rein of control especially on pricing, anybody making investment in the downstream was taking a gamble. But government will have to take its leg off the control pad because the hole that is being burnt in our pocket as a nation as a consequence of subsidy, is totally not sustainable. Besides, anybody that has been long about in this industry will recognize the cyclical nature of crude pricing and what your refinery offers you as an upstream producer is a natural hedge against that boom & bust pattern of oil price. Yes, your margins may be well contained when prices are great and if you are typical upstream man, you wouldn’t want to go near the refinery.

“But when you get to those low moments when you are speaking about $30-$40 per barrel, then your refinery helps you to get more value that you otherwise would not have gotten if you stayed strictly as an upstream player. So it is diversification strategy if pursued with care. If handled responsibly, it can be profitable. There will be moments and instances where it is not but for a company like ours, we don’t play on the short term; we take a long term view”.

In spite of the allure of uncomplicated profit taking that full export of crude oil brings, at over a $100 per barrel, Falade remarks: “Our dream is one of full integration where we are able to deploy world class methods for extraction, but we are going to hand it off to a point where we domesticate the consumption of hydrocarbon reserves as much as possible in this country. That is really where the downstream refinery comes in. So, we will continue to maximize the limited window that we have in the upstream to continue to expand ourselves”.