Oil & Energy
Modular Refineries And N’Delta Dev
The Niger Delta region has undergone a chequered history of socio-economic development in Nigeria.
The region has within the past years been at the centre stage of national discourse, as it is rife with consistent agitations over perceived development neglect and adverse environmental degradation as a result of the exploitation of its natural resources for the development of the country.
This unbridled quest for development attention on the part of the Niger Delta has no doubt remained Nigeria’s greatest albatross.
Several interventionist policies and programmes of successive governments to assuage the demands of the Niger Delta has unfortunately failed to abate the impending crisis of development in the area.
The latest of their palliative measures is the decision of the federal government to establish modular refineries in the Niger Delta.
The Federal Government’s position on the establishment of modular refineries in the Niger Delta was made explicit by the Vice President of Nigeria, Prof Yemi Osinbajo, then acting president, during a working visit to the region.
Addressing stakeholders in the Niger Delta, the Vice President disclosed that licences will be issued for the establishment of modular refineries to provide a more regulated and sustainable economic activity as a credible alternative for those who found solace in bunkering and illegal refining of crude oil as a major occupation in the region.
According to the Vice President, the decision was part of moves to stem the growing spate of crude oil theft and wanton destruction of oil facilities in the region, which has resulted into monumental economic loss to the federal government and untold damages to the natural environment.
The Federal Government’s policy on establishment of modular refineries has, however, formed the nucleus of contentious debate among experts and stakeholders.
While some stakeholders believe that the establishment of modular refineries will impact positively on the economic development of the Niger Delta, others are of the opinion that the policy is unrealistic and therefore unpracticable.
A workshop on Nigerian content, recently organised by the Port Harcourt branch of the Nigerian Society of Engineers, (NSE) and the Nigerian Content Development and Monitoring Board, (NCDMB), provided a platform for stakeholders and experts in the oil and gas industry to discuss the prospect and implication of modular refineries for the development of the Niger Delta.
Speaking on the sub-theme: Nigerian Content and Diversification of the Economy in the Proposed Modular Refineries Sub-Sector, a Chemical Engineer and University Don, Dr Awajiogak Ujile faulted the concept of modular refineries as proposed by the federal government.
Ujile, an Associate Professor and lecturer in the Rivers State University, said the idea of using modular refineries to replace “crude oil cooking” in the Niger Delta was not feasible because the operators of the illegal refineries lacked the technical capabilities to operate modular refineries.
He pointed out that the management and operations of conventional refineries in Nigeria over the years has been a dismal failure as a result of political interest and the deliberate isolation of experts with the requisite technology to drive the refineries.
According to him, the modular refineries will be no exception. “Will the modular refineries be built for the host communities, the state, or those involved in crude oil cooking. The truth is that the policy is not practicable. The demand for domestic consumption of petroleum in Nigeria is 60 million litre per day, and a modular refinery can only produce one thousand litre per day. That can not bridge the gap in consumption need, there is need for an integrated approach, government should bring experts into its policy making”, he stated.
Dr Ujile, who is also the Chairman of the Port Harcourt chapter of the Nigeria Institute of Chemical Engineers, also raised alarm over the activities of those involved in raw “cooking of crude oil”.
He said the indiscriminate burning of the energy reserves in the Niger Delta, pollute the entire stretch of Rivers and creeks destroying aquatic creatures and depriving the people of their natural means of livelihood.
Apart from the damage to the environment, he said, the activities of illegal bunkering has obvious health implications, for the people of the Niger Delta.
The expert who advocated for the privatisation of all refineries in Nigeria said, the privitisation policy should be devoid of political manipulations, but experts should be made to drive the policy for sustainability.
He urged the Federal Government to extend its amnesty programme to pipeline vandals and bunkerers, and get them reintegrated into the society through the acquisition of functional skills.
Dr Ujile also called on the National Orientation Agency (NOA) and other relevant bodies to embark on mass sensitisation campaign against the ills of illegal oil bunkering.
On his part, a Professor of Petroleum Engineering, Joel Ogbonna, decried the lack of full value chain in the Nigeria oil gas sector.
He said establishment of modular refineries was not a solution to the diversification of the Nigerian economy as there were no incentives for its optimal operations.
Prof. Ogbonna, who is the Head of Department, Gas, Engineering, and Director, Centre for Petroleum Research and Training, Institute of Petroleum Studies, University of Port Harcourt, listed the challenges in the Nigeria oil and gas sector to include; aging oil production facilities, lack of enabling environment and poor technology.
He called on the Nigerian Content Development and Monitoring Board (NCDMB) to encourage Nigerian professional and indigenous companies in the promotion of Nigeria local content, through the provision of enabling policies and laws.
For sustainability in the production of petroleum product for domestic consumption and enhancing the value chain in the oil and gas sector, Prof Ogbonna recommended that every oil production company should have a refinery attached to its platform. He noted that the persistent decline in the price of oil in the international oil market was an ominous indication of the obsolesce of fossil oil in the near future, and advised that Nigeria should diversify into other sectors of economic development.
In his presentation, a technocrat and development expert, Elder Elkanah Hanson, attributed the problem of technological development in Nigeria to the lack of vision in improving inherent potentials and total dependence on foreign technology.
For the proposed modular refineries to succeed, he said the local technologies invented in the creeks of the Niger Delta should be improveed upon.
“There is nothing like illegal refineries in the Niger Delta, what we have is the first stage of Niger Delta refineries, the only thing illegal in the operation is the process of acquisition of the crude, the Nigerian Content Development and Monitoring Board should partner with the operators of the so-called illegal refineries to improve their local inventions to adulthood and ICT stage. We can’t talk of local content development when we gloss over the potentials in our local technology”, he stated.
He called for the restructuring of the present federal structure of the country to reflect the ideals of fiscal federalism and the concept of comparative economic advantage, where natural potential in the various parts of the country are fully harnessed for economic development.
Earlier in his keynote address, the Executive Secretary of the Nigerian Content Development and Monitoring Board, Engr Simbi Wabote, had stated that the theme of the workshop; “Nigeria Content and the Diversification of the Economy”, was very apt, as it was in line with the Economic Recovery and Growth Plan (ERGP) launched by the federal government.
He said the policy was a 10-year vision and strategic initiative, targeted at achieving structural economic change with a more diversified economy, focused on six priority sectors; agriculture, manufacturing, solid mineral, services, construction, real estate and oil and gas.
The Executive Secretary, who described the Niger Delta Region as critical to the development of the Nigerian economy, said before the Nigeria Oil and Gas Industry Content Development (NOGICD) Act was signed into law in 2010, all fabrication, engineering and procurement were done abroad, resulting in estimated capital flight of about $380bn in 50 years.
Over two million job opportunities were also estimatedly lost in the Niger Delta region. The consequence was protracted development crisis in the area. He pointed out that the vision of establishing modular refineries in the Niger Delta was part of the initiatives of using local content as a key development imperative in the Niger Delta.
According to him, the estimated $28bn spent every year and $76m spent every day to import fuel in the country was huge economic burden that would have been appropriately channeled for the development of social amenities and creation of jobs for the teeming youths in the region.
He pointed out that the federal government’s strategic initiative in correcting the unsustainable business model, was to achieve 100% local fabrication of modular refineries for production of 10% of our local needs. “Part of our Nigerian oil and gas park scheme layout has been set aside for training local modular refiners for fabrication of the units. The parks which will be operated as sites and services scheme will also host manufacturing and oil and gas service providers, we are currently working on 5 of the parks in Akwa Ibom, Bayelsa, Cross River, Delta and Imo States. We need to move away from pride in export of crude oil to pride in export of refined products”, he stated.
With the 2019 deadline for the stoppage of importation of petroleum products in Nigeria, Engr Wabote, said the NCDMB, was working hard to ensure that the objective is achieved.
Taneh Beemene
The Federal Government has expressed optimism in attracting more investments by International Oil Companies (IOCs) into Nigeria to foster growth and sustainability in the energy sector.
This is as some IOCs, particularly Shell and TotalEnergies, had announced plans to divest some of their assets from the country.
Recall that Shell in January, 2024 had said it would sell the Shell Petroleum Development Company of Nigeria Limited (SPDC) to Renaissance.
According to the Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, increasing investments by IOCs as well as boosting crude production to enhancing Nigeria’s position as a leading player in the global energy market, are the key objectives of the Government.
Lokpobiri emphasized the Ministry’s willingness to collaborate with State Governments, particularly Bayelsa State, in advancing energy sector transformation efforts.
The Minister, who stressed the importance of cooperation in achieving shared goals said, “we are open to partnerships with Bayelsa State Government for mutual progress”.
In response to Governor Douye Diri’s appeal for Ministry intervention in restoring the Atala Oil Field belonging to Bayelsa State, the Minister assured prompt attention to the matter.
He said, “We will look into the issue promptly and ensure fairness and equity in addressing state concerns”.
Lokpobiri explained that the Bayelsa State Governor, Douyi Diri’s visit reaffirmed the commitment of both the Federal and State Government’s readiness to work together towards a sustainable, inclusive, and prosperous energy future for Nigeria.
While speaking, Governor Diri commended the Minister for his remarkable performance in revitalisng the nation’s energy sector.
The Federal Government has assured investors in the nation’s gas sector of the security and safety of their investments.
Minister of State for Petroleum Resources (Gas), Ekperikpe Ekpo, gave the assurance while hosting top officials of Shanghai Huayi Energy Chemical Company Group of China (HUAYI) and China Road and Bridge Corporation, who are strategic investors in Brass Methanol and Gas Hub Project in Bayelsa State.
The Minister in a statement stressed that Nigeria was open for investments and investors, insisting that present and prospective foreign investors have no need to entertain fear on the safety of their investment.
Describing the Brass project as one critical project of the President Bola Tinubu-led administration, Ekpo said.
“The Federal Government is committed to developing Nigeria’s gas reserves through projects such as the Brass Methanol project, which presents an opportunity for the diversification of Nigeria’s economy.
“It is for this and other reasons that the project has been accorded the significant concessions (or support) that it enjoys from the government.
“Let me, therefore, assure you of the strong commitment of our government to the security and safety of yours and other investments as we have continually done for similar Chinese investments in Nigeria through the years”, he added.
Ekpo further tasked investors and contractors working on the project to double their efforts, saying, “I want to see this project running for the good of Nigeria and its investors”.
Earlier in his speech, Leader of the Chinese delegation, Mr Zheng Bi Jun, said the visit to the country was to carry out feasibility studies for investments in methanol projects.
On his part, the Managing Director of Brass Fertiliser and Petrochemical Ltd, Mr Ben Okoye, expressed optimism in partnering with genuine investors on the project.
Crude oil prices recently logged their second monthly gain in a row as OPEC+ extended their supply curb deal until the end of Q2 2024.
The gains have been considerable, with WTI adding about $7 per barrel over the month of February.
Yet a lot of analysts remain bearish about the commodity’s prospects. In fact, they believe that there is enough oil supply globally to keep Brent around $81 this year and WTI at some $76.50, according to a Reuters poll.
Yet, like last year in U.S. shale showed, there is always the possibility of a major surprise.
According to the respondents in that poll, what’s keeping prices tame is, first, the fact that the Red Sea crisis has not yet affected oil shipments in the region, thanks to alternative routes.
The second reason cited by the analysts is OPEC+ spare capacity, which has increased, thanks to the cuts.
“Spare capacity has reached a multi-year high, which will keep overall market sentiment under pressure over the coming months”, senior analyst, Florian Grunberger, told Reuters.
The perception of ample spare capacity is definitely one factor keeping traders and analysts bearish as they assume this capacity would be put into operation as soon as the market needs it. This may well be an incorrect assumption.
Saudi Arabia and OPEC have given multiple signs that they would only release more production if prices are to their liking, and if cuts are getting extended, then current prices are not to OPEC’s liking yet.
There is more, too. The Saudis, which are cutting the most and have the greatest spare capacity at around 3 million barrels daily right now, are acutely aware that the moment they release additional supply, prices will plunge.
Therefore, the chance of Saudi cuts being reversed anytime soon is pretty slim.
Then there is the U.S. oil production factor. Last year, analysts expected modest output additions from the shale patch because the rig count remained consistently lower than what it was during the strongest shale boom years.
That assumption proved wrong as drillers made substantial gains in well productivity that pushed total production to yet another record.
Perhaps a bit oddly, analysts are once again making a bold assumption for this year: that the productivity gains will continue at the same rate this year as well.
The Energy Information Administration disagrees. In its latest Short-Term Energy Outlook, the authority estimated that U.S. oil output had reached a record high of 13.3 million barrels daily that in January fell to 12.6 million bpd due to harsh winter weather.
For the rest of the year, however, the EIA has forecast a production level remaining around the December record, which will only be broken in February 2025.
Oil demand, meanwhile, will be growing. Wood Mackenzie recently predicted 2024 demand growth at 1.9 million barrels daily.
OPEC sees this year’s demand growth at 2.25 million barrels daily. The IEA is, as usual, the most modest in its expectations, seeing 2024 demand for oil grow by 1.2 million bpd.
With OPEC+ keeping a lid on production and U.S. production remaining largely flat on 2023, if the EIA is correct, a tightening of the supply situation is only a matter of time. Indeed, some are predicting that already.
Natural resource-focused investors Goehring and Rozencwajg recently released their latest market outlook, in which they warned that the oil market may already be in a structural deficit, to manifest later this year.
They also noted a change in the methodology that the EIA uses to estimate oil production, which may well have led to a serious overestimation of production growth.
The discrepancy between actual and reported production, Goehring and Rozencwajg said, could be so significant that the EIA may be estimating growth where there’s a production decline.
So, on the one hand, some pretty important assumptions are being made about demand, namely, that it will grow more slowly this year than it did last year.
This assumption is based on another one, by the way, and this is the assumption that EV sales will rise as strongly as they did last year, when they failed to make a dent in oil demand growth, and kill some oil demand.
On the other hand, there is the assumption that U.S. drillers will keep drilling like they did last year. What would motivate such a development is unclear, besides the expectation that Europe will take in even more U.S. crude this year than it already is.
This is a much safer assumption than the one about demand, by the way. And yet, there are indications from the U.S. oil industry that there will be no pumping at will this year. There will be more production discipline.
Predicting oil prices accurately, even over the shortest of periods, is as safe as flipping a coin. With the number of variables at play at any moment, accurate predictions are usually little more than a fluke, especially when perceptions play such an outsized role in price movements.
One thing is for sure, though. There may be surprises this year in oil.
lrina Slav
Slav writes for Oilprice.com.
