All posts tagged refining gap


Nigerian New Refinery Sits Idle as NNPC Wrings its Hands Over Feedstock Supply

By Jo Jackson Mthembu, in Asaba

The newly constructed 10,000Barrels Per Stream Day (BPSD) capacity Omsa Pillar Astex Company (OPAC) Refinery, located in Kwale, in Nigeria’s Delta State, has been unable get sufficient crude oil to refine as the company doesn’t operate its own oil producing field.

The refinery is sitting idle three months after the regulator signed off on its Licence to operate.

Planned products include Diesel (AGO), which is in high demand, Naptha, Kerosene and Fuel Oil.

OPAC is depending on crude supply from the state hydrocarbon company Nigerian National Petroleum Company (NNPC) Ltd, based on the government’s assurance to support modular refineries with feedstock, as documented in the Petroleum Industry Act (PIA).

OPAC and NNPC have been engaged in discussions since 2019 and OPAC has submitted documents to NNPC, for review.

NNPC officials had been expected to visit the refinery but they haven’t.

The question: Why the delay? Perhaps NNPC is wary of signing off 10,000Barrels of crude a day for payment in local currency Naira. Perhaps? NNPC sources declined to comment. NNPC officially, didn’t respond to inquiry from Africa Oil+Gas Report.

The facility has passed all reliability tests and won the approval of the Nigeria Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) after a refinery and an effective refinery commissioning exercise. It had been okayed to receive crude for refining and it has the approval to sell products, documents sighted by Africa Oil+Gas Report indicate.

Nigerian hydrocarbon companies, whether operating upstream or downstream, do not take on NNPC in public, so comments from companies who have challenges with NNPC are always difficult get on record.

OPAC is the first functional modular refinery without its main promoters being operators of a producing oilfield, serving as guaranteed feedstock even though it is strategically located close to the MIDWESTERN Crude/Gas Gathering Facility in Kwale, where a combined 30,000 Barrels of Oil Per Day (BOPD) is gathered from several marginal fields and sent to the Brass and Forcados terminals.

The two fully functioning modular refineries in the country, completed before OPAC, are the 11,000BSPD Ogbele Refinery, (owned by Niger Delta E&P) supplied by the Ogbele field and the 5,000BSPD Waltersmith Refining & Petrochemical facility (built by Waltersmith Petroman), primarily supplied by the Ibigwe field.

Indeed, the Walter Smith Refinery receives 2,000Barrels of crude every day from SEPLAT Energy operated Ohaji South field, nearby, as the Ibigwe field does not deliver up to 3,000BOPD of its own currently. In any case, the entire crude produced in SEPLATS’s Ohaji South (about 7,000BOPD)  is processed in a SEPLAT owned Early Production System (ELPS), sitting right inside the Ibigwe field Flow station, so there’s extremely beneficial relationship between SEPLAT Energy and Waltersmith.

OPAC has a contractual agreement

 


Modernizing Nigeria’s Petroleum Fuels Supply and Distribution Assets

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.
  1. 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.

  1. 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.

  1. 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 26th 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.
  1.  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.

  1. 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.

 

 

 


Angola’s 30,000BPD Cabinda Refinery Passes Milestone Tests in Houston

PARTNER CONTENT

The new Cabinda Oil Refinery in Angola successfully passed milestone tests in Houston at the VFuels facility in Houston yesterday.

The Factory Acceptance Testing (‘FAT’) helps verify that newly manufactured and packaged equipment meets its intended purpose before it is delivered to its intended destination, a significant step in the process of developing major refineries and similar plants.

The Cabinda Refinery will be 60,000 barrels a day (b/d) facility once fully operational. The full project is expected to represent an investment of $1Billion in three phases, with the first phase being $350Million. Phase 1 will feature a 30,000BPD crude distillation unit, desalinator, kerosine treating unit, pipelines, and a more than 1.2Million barrels of crude oil storage terminal. Phases 2 and 3 will add another 30,000BPD of crude processing capacity, as well as units for catalytic reforming, hydrotreating, and catalytic cracking that will transform the site into a full-conversion refinery. Once fully operable, the Cabinda refinery will produce gasoline, diesel, LPG, fuel oil, Jet A1, and kerosine.

Work on the Cabinda Refinery has created over 500 jobs in Houston while achieving the construction of a 30,000BPD modular crude distillation column – the largest throughput to date by VFuels, and the largest single-train modular crude distillation unit built to date globally. In Angola the project is expected to create 1300 jobs in total.

The project is being seen as a key step in the economic development of Angola because increasing domestic crude processing capacity helps reduce the country’s dependence on expensive imports of refined products, which also will have a positive environmental impact. It is also an important example of international development cooperation and of U.S. technological expertise in the space.

Angolan State Minister of Petroleum Diamantino Pedro Azevedo and Sonangol Chair & CEO Sebastião Gaspar Martins and other members of the board toured the VFuels facility as part of the proceedings.

Gemcorp Holdings Ltd and Sonangol are sponsors of the project and Odebrecht is the main EPC contractor.

 

 


Cabinda is Near, Dangote is Coming and Hassi Messaoud is in Progress. What Else?

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.

 

 


Refinery equipment liquidation

PARTNER CONTENT

Due to a refinery construction project that has been stopped, a lot of equipment and materials are available to be sold worldwide. The equipment belonged to an O&G Spanish multinational company and it is located in Andalusia, in the South of Spain, near Algeciras port to make loading and shipping easy.

The company in charge of the sale is Surus Inversa, a Spanish company working since 2008 with the most important energetic companies, looking for a second life for the assets these companies do not need anymore. The sale is being carried out through the company website, Escrapalia. Some of the assets can be bought by presenting direct offers and others are sold at online auction.

The price of these specific equipment is very interesting, around 15% of the purchase price, which makes this material an opportunity for other businesses in need of similar products. All the equipment is unused, properly stored and can be visited by contacting the company.

Some of the most relevant equipment are these big items, but more will be for sale very soon:

– Nuovo Pignone compressor (Baker Hughes): type 4HG/2-1 reciprocating compressor driven by electric motors, 4 cylinders, 3 stages. It consists of two compressor units operating in parallel. Designed to compress H2+CH4+HC+H2o+H2S. Make-up and recycle gas. Made in 2019.

– Dresser-Rand compressor (Siemens Energy): centrifugal and axial sour gas compressor, model DO6R7S. Designed to compress H2S+HC+H2 at more than 11.300 kg/h, it consists of a motor and a gear box. Made in 2019.

– Pumps: 6 Flowserve API 685 pumps (condensate, rich amine, flare drum, skim oil, potable water and water jockey) and 9 API 610 Klaus Union pumps (fresh solvent, lean solvent, quench water, rich solvent, sour water, degassed sulfur, fresh amine, amine regeneration and lean solvent).

– Metering pumps: 6 LEWA pumps

– Valves: 25 EMERSON Fisher™ valves (ES, EZ, ET, EWT).

– Piping: up to 1230 Tn of various thicknesses and sizes.

Burners: 11 Coolstar John Zink Hamworthy burners.

In case of interest in visiting the equipment or buying some or all of it, it is necessary to contact the chief of this sale, Jesús Santos, via email jsantos@surusin.com or on the phone 0034 699743943.

LINK to the website with more information about the equipment.


Reining in the Collapse of The Nigerian Oil Industry

By Austin Avuru

In 1990, Nigeria’s average daily oil production was about 1.85Million barrels and rising, having recovered from a low of 1.3Million barrels in 1983. Oil reserves at the time stood at about 16Billion barrels.

The then Petroleum Minister, Jibril Aminu, a professor of Medical Sciences, announced his intention to, not only replace the increasing production volumes but increase the reserves to 20Billion barrels of oil. He backed up his intention with a definite and measurable action plan … he opened up Nigeria’s deepwater terrain by awarding deepwater blocks (in water depths of more than 200metres) to existing International Oil Companies, like Shell, as well as newcomers like Statoil and Exxon and indigenous companies like Famfa and Allied Energy Resources. New and more generous Production Sharing Contract (PSC) terms were negotiated and approved to govern these deepwater exploration and development activities. At the same time, a new Memorandum of Understanding (MOU) was negotiated and executed (in 1991) with NNPC’s Joint Venture Partners to stimulate further exploration and development activities in the traditional onshore/shallow water terrains. By 2000, deepwater exploration and appraisal activities had discovered some Six Billion barrels of 2P reserves. This, plus incentivized spending and reserve revisions in the traditional terrains meant that, in ten years, we doubled our 2P reserves to 32Billion barrels. Buoyed by this success, the massive interest in the Nigerian Petroleum Sector and the attendant inflow of investment capital, a new target of 40Billion barrels reserves and 4Million barrels of oil production per day was set and captured in the vision 2010 report. Twenty years down the road from the height of our excitement, however, the industry has taken a definite, almost predictable downward slide to the point where our production today is only slightly higher than half of what it was then.

In 2000, an Oil and Gas Industry Implementation Committee (OGIC) was set up by the then Adviser on Petroleum Resources, Dr. Rilwanu Lukman, to carry out a comprehensive review of the industry laws and regulations and come up with a globally competitive regulatory and fiscal framework that would support the planned boost in reserves and production. This was the beginning of our twenty-year journey in producing an appropriate Petroleum Industry Bill (PIB). Four regimes in the intervening period produced four variants of the PIB, in the process creating so much fiscal and regulatory uncertainty that potential investors (and even old and well-entrenched operators within the country) decided to tow the path of extreme caution. Investments dried up. Thus, after the 6 – 8Billion barrels discovered in the first decade of activity, the deepwater stagnated with no additional exploration or appraisal activities, no new discoveries and no new development!

Timipre Sylva, Nigeria’s Minister of State for Petroleum (above): “The current flip-flops on pricing and commercial structure of the gas business cannot stimulate investments in the sector”.

In the meantime, over this period, disruptive crises in the Niger Delta had escalated. Infact, in 2008 and 2016, Shell shut down its entire Western operation for over six months and twelve months respectively. Thus, by the time the PIB was finally signed into law in 2021, two new realities had emerged.

The global advocacy for energy transition from fossil to cleaner fuels meant that International Oil Companies (IOCs), came under tremendous pressure to reduce their carbon footprints and rationalize their fossil fuel investment portfolios. It was, therefore, becoming terribly embarrassing where IOCs that were struggling to justify any additional investments in the Nigerian Petroleum patch were actually being slammed with scandalous judgments and huge fines on environmental pollution cases. Add this to the crisis situation in the Niger Delta with attendant increases in operating costs and huge losses of produced crude oil along the export pipelines, every investment scenario they ran suggested that it was time to divest and leave this terrain. The Petroleum Industry Act (PIA) had become irrelevant in the face of these new realities.

With eyes fixed on divestments and exit, the IOCs have not made any meaningful investments in the last fifteen years. The result has not just been declining production. Much worse, the entire export pipeline network has been surrendered to vandals and illegal bunkerers. Thus, the phrase “Crude theft” which crept into the industry about 2010 has taken on a new meaning. There are some pipeline systems now (particularly in the East) where 80% (eighty per cent) of production injected therein does not make it to the terminal! Almost every producer is now cooking up “alternative evacuation” schemes that cost four to five times what pipeline export would normally cost!

The stark reality today is that the IOCs are leaving. Their decision to leave is outside our control as a nation. In fact, over the last twelve years, Shell and Chevron have divested from a total of twenty-one blocks. It is now public knowledge that Shell, and ExxonMobil are now exiting the onshore/shallow water altogether. In fact, my projection is that, by Christmas day of 2025, TOTAL would be the only IOC in J.V with NNPC.

The situation is the same with domestic gas delivery. Even though we are weaving all the right slogans about the future of gas in Nigeria, in the past five years, I can only point at a couple of Nigerian independents who are investing in gas development and processing for the domestic market.

NNPC Towers in Abuja, ‘headquarters of the Nigerian oil industry’: Just standing back and intervening by pre-emptive acquisitions cannot be a sustainable solution to the question of retreating IOCs

The state of the Nigerian Petroleum Industry is a National Emergency. Oil production is down to about 1.4Million barrels per day and declining and this includes about 600,000BOPD from the deepwater. Domestic gas production has stagnated at about 1.2Billion cubic feet (Bcf) per day over the past five years at a time when projected production should have been 3.5Bcf per day. The collateral impact of course, is the low level of power generation which itself has stagnated at about 4,000Mega watts per day since 2015.

So, what do we do?

The full impact of the current oil production level can only be imagined when oil prices return to the $60 per barrel level. I dare repeat that the situation has to be treated as a national emergency.

Between the upstream regulator (the commission) and NNPC, they need to set up a “war room”, some form of an effective task force to develop a blueprint for returning the industry to full bloom. The responses we hear today to the myriad of problems outlined above have been ad-hoc, knee jerk and in some cases only self-serving. Here is a guide to issues that must be addressed.

  • When IOCs leave a matured petroleum patch, independents, whether local or international, usually move in to inject fresh capital, run a nimble efficient operation and maximize production and reserves addition. A well-organized transition driven by a clear policy direction, from the retreating IOCs to a crop of efficient independents with the requisite resources will have to be implemented. Just standing back and intervening by pre-emptive acquisitions cannot be a sustainable solution proffered by NNPC.
  • There has to be a deliberate policy-driven return to the traditional onshore/shallow water terrains. Eighty per cent of our remaining reserves are still in this belt. To do this, we have to address the twin problems of reliable pipeline evacuation and community restiveness. These problems have become heightened, not because there is no solution, but because we have abandoned every attention to them in the last fifteen years. When these two problems are tackled, plus a strict application of the “drill or drop” provisions of the new PIA, huge investments in drilling and facilities revamp will flow again into this terrain.
  • Finally, we have to match our gas slogans with effective, measurable, policy actions to drive investments in domestic gas supply. The current flip-flops on pricing and commercial structure of the gas business cannot stimulate investments in the sector.

This industry will not wake up by God’s miracle. We have to wake up and design the stimulant that will revitalize it.

Austin Avuru

March 15, 2022

Avuru, Founder/ Executive Chairman AA Holdings and Vice Chairman Platform Petroleum, was the founding Managing Director/CEO of Seplat Energy. He is he author of two books: Politics, Economics & the Nigerian Petroleum Industry (Festac Books, Lagos, 2005) and My Entrepreneurship Journey (Radi8, Lagos, 2022).

 


NDEP Wishes for Full Domestication of Hydrocarbon Consumption in Nigeria

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”.


NNPC Mulls a 50,000BPSD Refinery on Kolmani River

By Macson Obojemuinmoin

The NNPC Ltd, Nigeria’s state hydrocarbon company, has proposed a condensate refinery as part of the ‘development’ of the Kolmani River field in the north of the country.

In the said proposal, NNPC clearly notes that it…

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Ibigwe: An Industrial Park Grows on the Back of a Marginal Field

When the Nigerian independent Waltersmith Petroman, concludes a well it is currently drilling on the Ibigwe field in the east of the country, it will deliver the entire daily production from the new probe into its refinery in the vicinity of the field.

The company runs a 5,000Barrels of Oil Per Day (BOPD) modular refinery.

It is the only company, which processes its entire upstream output in a local facility, which is itself the first phase of a much bigger complex.

The Waltersmith Refinery complex started life in a grand style with a commissioning witnessed by over 300 oil and gas executives, most of them airlifted from Lagos and Abuja for the event, and a speaker line-up that included President Muhammadu Buhari, who directly addressed the gathering virtually from the State House, witnessed the commissioning.

Sitting in that glittering gathering, almost a year ago, cramped for space in a vast canopy, you could be forgiven for assuming that the country was launching the grand project itself: the 650,000BOPD Dangote Refinery, under construction for the past six years.

But this modest hydrocarbon processing project is part of an ambitious journey that began as a marginal oil field, estimated at no more than 20Million Barrels of crude in recoverable reserves.

The destination is an Industrial and Innovation Park, with a 50,000BOPD refinery complex and a 3,000MW gas-fired power plant as the centrepieces of a hub that will provide energy to 118, 000 households and 27, 000 commercial and industrial users.

The park is designed to be spread over 100 hectares of land initially, of which 65 hectares of land has been acquired. The Power Plant will supply power to nearby industries or industries which come to locate themselves in the hub. Waltersmith was awarded electricity generation license by the Nigerian Electricity Regulatory Commission (NERC) in 2017.

The 5,000BOPD plant, with planned optimum output of about 271Million litres of refined petroleum products (Diesel, Kerosene, Heavy Fuel Oil-HFO and Naphtha) per annum, is thus the first of a three phase complex comprising a 20,000Barrel per day condensate refinery and a 25,000 crude oil refinery, planned for completion by 2022.

To fund this starter project, Waltersmith Petroman formed a Joint venture (JV) with the Nigerian Content Development & Monitoring Board, a Government parastatal which holds 30% to its 70%. The JV, named Waltersmith Refining and Petrochemical Company, got funding support from the African Finance Corporation (AFC), a pan-African Multilateral Development Financial Institution.

Even if the project is halted at this first phase, it is already an exception in the country.

As a rule, private Nigerian owned E&P companies do not aspire to be integrated entities.

Waltersmith is only the second company, out of over 20 Nigerian independent crude oil producers, to get into the business of running a refinery. It is instructive that the first: Niger Delta Petroleum Resources, also built its refinery on the back of a marginal oil field.

Established in 1996, Waltersmith Petroman acquired the Ibigwe Marginal Field (OML-16) license in 2004 and delivered first oil in 2008. It grew production to over 7,000BOPD, built a 15,000 BOPD Flowstation at Ibigwe to process crude from the Ibigwe Field and the neighbouring NNPC/ SEPLAT JV Ohaji South Field in OML-53. Anticipating additional growth in production from the vicinity, Waltersmith is expanding this facility to handle 20,000BOPD by the end of 2020.

Two intractable challenges that confront small producers like Waltersmith in delivering crude oil to the market are the incessant vandalism of export pipelines and high charges paid to both pipeline and terminal facility owners. At one point for Waltersmith was losing between 25% and 30% of the output before the crude got to the terminal. Then again, the company was paying as much as $8 per barrel on pipeline and terminalling charges.

The idea for the refinery came primarily from thinking to mitigate production losses. But gradually, what started as a route out of economic challenges started taking the shape of a higher calling.

“WE HAD BEEN PRODUCING OIL NOW FOR OVER A DECADE and of course, we had our own unique locational challenges but I then asked the question, is this it for our nation?”, wondered Abdulrazaq Isa, Waltersmith’s Chairman and co-founder. “Producing and exporting oil? Is this it for us, is there a way we can do something better?”

The company decided it was going to start small and build a modest modular refinery,“but side by side, we started asking the question, what can we do with the gas that we are producing, from which we had been generating about 1.2MW of electricity for ourselves on our site? I started asking why can’t I provide electricity for some other people?”

Razaq said that, as the refinery project started taking shape, “the next wave of thinking in our company was how to create an industrial infrastructure where we then begin to provide other services to other people. We can acquire a significant amount of land within our area: we are building a refinery, we are providing electricity for ourselves, we are providing water for ourselves, we are providing security for ourselves so why can’t we scale that up and do that with other people? Why don’t we create the same enabling environment within our area for those of us who are operating within that area and provide these same services to them?

That way, we can create jobs for people, people can co-locate factories and industries where we are and that way, we can impact the economy directly and begin to create an industrial base for the production of other things. That was the kind of thing that we are beginning to think about but that is in addition to expanding our refining capacity and our upstream business will of course continue to grow because we will continue to look for assets. We see our upstream business as an enabler for doing things. We in this business, must look at other sectors of the economy and continue to intervene in them because we earn significant resources from the E&P segment of our business”.

By 2018, Final Investment Decision (FID) had been taken and in October 2018 the groundbreaking ceremony was done, effectively kicking off the construction phase in November 2018.

FEED STOCK FOR THE EXPANSION

The 5,000BOPD refinery utilises own operated crude as feedstock, but negotiations are ongoing with both SEPLAT and NNPC on Crude Sales and Purchase agreements for the over 7,000BOPD NNPC/SEPLAT OML-53 JVO haji South production processed at Waltersmith’s Ibigwe Flow station. There is also ongoing conversations, for some commercial arrangement with other parties who either hold positions in, or operate, fields sited within 30-km of the Ibigwe Marginal Field.

Front End Engineering Design (FEED) for the 25,000 Barrels Per Day (BPD) Phase 2 Condensate Refinery was completed in Q1 2020, with feasibility study concluded in Q2 2020 and the EPCIC Contracting process has been initiated with Final Investment Decision planned for Q4 2020 and the delivery expected by Q4 2022.

Phase 2 will output about 1.4Billion litres per year of refined petroleum products (Premium Motor Spirit – PMS, Diesel, Kerosene, Aviation Jet Fuel and HFO) when completed, in addition to the 271Million litres from the Phase 1. “The combined products expected at full capacity, from the three phases, is about 2.7BIllion litres of products per annum. “This represents 10% of the total refined products consumption in Nigeria”, Isa said. The groundbreaking ceremony for 2nd and 3rd  Phases of the refinery complex was done in conjunction with the commissioning of the 5,000BOPD Phase 1 Refinery last November.

THE LINEUP OF SPEAKERS AT THE commissioning ceremony comprised, largely the CEOs of the companies expected to provide condensate and crude oil feedstocks for the next two phases.

One of the first speakers was Roger Brown, CEO of Seplat, operator of OML 53, the condensate rich asset on which the 300MMscf/d ANOH gas project, promoted also by Seplat, was being constructed. “This plant means that crude oil from this area will be refined in this area and sold to people from this area”, Brown gushed. “And this is what the future is got to be. It’s got be utilized within our areas and states. I’m delighted to say the crude stock from our OML 53 production will be refined here and sold in Imo State”.

Waltersmith also has eyes on crude oil from Egbema field (operated by NPDC, an NNPC subsidiary) and Egbema West (held by Shell Petroleum in JV with NNPC). The assets, “located in nearby OML 20, are excellent sources of crude oil feedstock for our refinery”, Isa told the gathering.

Chike Nwosu, CEO, Waltersmith

This is what Osa Okunbor, Chair of Shell Companies in Nigeria, referenced when he spoke. “This project sits very, very close to several of our land assets and there’s a lot of room for collaboration to ensure that the required feedstock is obtained”, Okunbor said.

“I want to reaffirm this commitment working with our partners in the SPDC JV in particular, the GMD of NNPC to see how we can fulfill this commitment we made to support this project with the required feedstock.”

One sticky point in Waltersmith’s negotiations for feedstock from these nearby fields, sited within 30-km of the Ibigwe Marginal Field, is NNPC’s own development plans.

The state owned firm’s decision to site a condensate refinery, right in the Assa North- Ohaji South (ANOH) field area, had been as ore headache in the planning for Waltersmith’s 2nd Phase Condensate Refinery.

Waltersmith had been in discussion with Seplat Petroleum, to have the latter inject the condensate from its ANOH field gas project to the refinery. But NNPC too, as Seplat’s partner on the asset, is angling for a condensate refinery in the vicinity. NNPC wants to construct four condensate refineries of 30,000BPD capacity each, and site one of them in the ANOH area. Its primary feedstock is the same gas condensate from ANOH that Waltersmith is seeking to take from Seplat.

Waltersmith has been negotiating with NNPC to either merge its plans into the Ibigwe Phase 2 Refinery, or for the two of them to find some other middle ground. This is why Waltersmith’s press releases and its several public statements in the past year have repeatedly contained the line: “Critical to the success of these projects is the Federal Government’s support, through NNPC, to conclude on advanced discussions to grant Waltersmith access to nearby Condensate feedstock in Assa North / Ohaji”.

Of critical importance, then, was the speech of Mele Kolo Kyari, the NNPC’s Group Managing Director, at the commissioning.

“We have engaged Waltersmith severally and we have assured them that between us and our partners, we will make feedstock available to this refinery” Kyari declared. “ NNPC will continue to collaborate with other investors to establish more refineries”.

THE HUB, THE COMMUNITY

As putative feedstock providers were providing verbal guarantees of crude condensate and gas supply for the refinery, the basic blocks of the larger industrial park were also being assembled.

Isa, the Chairman of WalterSmith Group, announced the “ground breaking of the development of our Industrial and Innovation Park with the flagging of the Technical Support Agreement with United Nations Industrial Development

Organisation (UNIDO) and United Nations Economic Commission for Africa (UNECA)”.

Chike Nwosu, Waltersmith’s Chief Executive Officer, said that once the company “can provide the basic needs of manufacturers which is around energy, we expect them to be attracted to these areas and we expect that to begin to create commercial hub around the Ibigwe area where the inherent entrepreneurship of the people of that area will be given the juices for them to grow and so, you will see small and medium enterprises growing along with the larger industrial manufacturers”.

Nwosu has heard so much talk about companies’ ability to pay for the industrial park services, especially provision of power.

He has a response: “Waltersmith has a paradigm shift”, he explained. “The ability to pay conversion is about delivering power, you don’t deliver power because the end users don’t have the ability to pay. Why don’t you create that ability to pay through a couple of steps? The first step is creating the environment for customers who can pay which is the industrial complex.

“There is need to create an industrial complex where manufacturing companies who can pay for the energy because it is cheaper for them and who you can provide with access to ports.

For instance, Port Harcourt is near us, Onitsha is near us including the Port Harcourt airport and other airports within our jurisdiction.

There are exit routes to export anything that you want to do. This should be created for the manufacturers, bring them because they have the ability to pay”.


OPAC Refinery: “We Thought We Were the First in Nigeria”

By Foluso Ogunsan and Akpelu Paul Kelechi, in Lagos

The OPAC (Modular) Refinery, located in Kwale, in the Niger Delta basin, has taken so long (Four years) from conception to completion, largely because of the bureaucracy of constructing a hydrocarbon processing facility in Nigeria, in the opinion of Momoh Jimah Oyarekhua, the refinery’s CEO.

“We had various issues, because we were more or less like pioneers, we had to fight for waiver and that meant going through processing, going through the Ministry of Petroleum, going through the Ministry of Finance, going through Customs. At some point it was now gazetted by the Presidency,” Oyarekhua discloses. “While we were waiting for waiver, which took us eight months, we had some of our equipments stolen at the port. Our intention was to complete the refinery by the end of 2018, or maybe if it spills over, in 2019. But we had some of our equipment missing, some of that equipment had to be reproduced, which opened us to cost because we were at the forefront”.  

Oyarekhua’s use of words like “pioneer” and “forefront” would suggest that the OPAC Modular refinery is the first in the country. In truth, as the 10,000BOPD OPAC refinery undergoes commissioning stages, there are already, on ground, two such facilities fully functional: the Niger Delta E&P (NDEP) owned, three- train 11,000BOPD Ogbele Refinery in Ogbele, in Rivers State and the Waltesmith Petroman owned 5,000BOPD Ibigwe refinery in Imo state, on the eastern flank of the Niger Delta basin. 

But this is how Mr. Oyarekhua frames his narrative of OPAC being a pioneer:

“When we were conceiving the idea of this refinery, (in 2017), I truly would say that I did not know any other refinery existed in Nigeria. When we asked around we were only aware there was a one thousand barrel a day topping plant owned by NDPR stripping out the gasoil in their crude. When in 2017 were thinking of actually building a Modular Refinery. Before then, there were licenses and all that. It began to dawn on us that there was a space that we could play”.

Records at the Department of Petroleum Resources (DPR), the country’s regulatory agency, indicate that the ‘authority to construct’ (ATC) a refinery was only granted to Waltersmith Petroman in March 2017, whereas OPAC refinery received its own ATC, six months after, in September 2017. It’s also true that, as of that time, NDEP was only running its first train, a 1,000BOPD (crude oil to diesel) topping plant-a valid refinery itself no doubt- but had not been granted licence to increase the complexity of the unit to the 11,000BOPD refinery it is running today. DPR records show that ATC for NDEP’s second train 5,000BOPD refinery and third train 5,000BOPD refinery, were both granted in December 2018. 

From DPR’s records, then, Oyarekhua’s claim of being a pioneer, despite “meeting” two refineries on ground, is not necessarily wrong. 

But OPAC had other challenges that ensured the facility’s delay in delivery.

“This project is financed by equity, there isn’t debt. When there are variations, we go back to the drawing table trying to raise money. It’s different from the WalterSmith one that government through NCDMB gave money and all of that. Our models are different, we could be struggling at some point, but they already had everything well worked out”. 

The full interview with Momoh Jimah Oyarekhua, CEO of OPAC Refinery, can be read in this link.

Local Refining Can Consume $Billions of Scarce Nigerian Forex

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