Nigeria’s Small Modular Refineries: OPEC Anticipates Expansion in the Medium Term
According to the recently launched World Oil Outlook by the Organization of Petroleum Exporting Countries (OPEC), Nigeria is expected to witness the establishment of small modular refineries with a capacity of 20,000 barrels per day each in the medium term.
The report highlights that Africa, as a whole, is projected to experience a medium-term increase in distillation capacity, with estimates suggesting a total addition of 1.2 million barrels per day (mb/d). Notably, a significant portion of this capacity expansion is attributed to Nigeria’s Dangote refinery, which accounts for 650 thousand barrels per day (tb/d).
The Dangote refinery, which was officially inaugurated in May 2023, is set to commence commercial operations this month for diesel and aviation fuel, followed by petrol refining in November 2023. This refinery plays a crucial role in expanding Nigeria’s refining capacity.
Furthermore, the OPEC report states that Nigeria is poised to witness the establishment of several small modular refineries in the medium term, with capacities of up to 20 thousand barrels per day (tb/d) each.
While this projection brings optimism, Nigeria still faces challenges in funding modular refineries and combating incidents of sabotage attacks on oil pipelines and oil theft. These obstacles significantly hinder smooth operations and progress in the sector.
In an interview with Arise News in July 2023, Momoh Oyarekhua, Chairman of the Crude Oil Refineries Association of Nigeria (CORAN), highlighted a potential solution: supporting modular refineries. Oyarekhua emphasized that backing these refineries would lead to more affordable fuel for Nigerians by eliminating various associated costs.
Specifically, he pointed out the expenses incurred when sending crude oil abroad for refining and subsequently importing the refined products. This process involves costs related to clearing refined petroleum products at the terminal, port charges, and the involvement of middlemen in transporting products to Lome before shipping them into Nigeria.
It’s worth noting that the Nigerian National Petroleum Company (NNPC) Limited, as of last week, has resumed being the sole importer of fuel into the country, reversing its previous encouragement for private marketers to import. The reason cited for this policy change is the current unavailability of foreign exchange in the country, which has crippled the ability of private marketers to import fuel despite holding licenses for it.
Chairman Oyarekhua further emphasized the need for modular refineries to purchase crude oil in Naira, aligning with their income generated in Naira from selling products in the Nigerian domestic market. This approach aims to reduce the burden on the foreign exchange market.
To illustrate the point, he presented a scenario where 40 modular refineries, each with a capacity of 10,000 barrels per day, would need to purchase crude oil in USD, resulting in significant monthly expenditures. This underscores the necessity for a streamlined approach that ensures feedstock procurement aligns with the country’s economic interests and stability.