The Nigerian National Petroleum Company (NNPC) is posing a significant obstacle to modular refinery operators as they attempt to secure alternate sources of crude oil.
Nigeria should benefit from an abundance of oil supplies given its status as Africa’s largest oil producer and refiner. The reality, though, is far different.
According to leaked papers and in-depth interviews with industry insiders, the state-owned business is taking too long to approve modular refineries’ requests for alternate sources of crude oil.
Compared to conventional full-scale refineries, modular refineries are much simpler and need a substantially smaller initial expenditure.
According to insiders, foreign investors are withholding their money from modular refineries struggling to survive due to a lack of assured crude oil supplies, and the red tape is killing them.
Despite being a fully operational 1,000 barrels per stream day crude oil refinery located in Ologbo, Edo State, AIPCC Energy Limited, the owners and operators of the Edo Refinery and Petrochemicals Company Limited (ERPCL), has encountered significant operational challenges due to the ongoing lack of crude oil supply, according to a leaked memo seen by The News Chronicles.
Since 2022, the company has had contracts with Seplat and ND Western for the delivery of crude oil; however, administrative obstacles have made it impossible for the refinery to get this vital resource.
In a letter to NNPC Group Chief Executive Officer Mele Kyari, ERPCL said that since 2021, the business has maintained continuous interaction with the NNPC through meetings and letter writing.
The letter, dated July 22, 2024, stated, “On August 18, 2021, our team, led by our chairman, met with you and your top management team to discuss our intention to buy crude oil from NNPC. We immediately wrote to the NNPC, seeking crude supply.”
It said, “In July 2022, NNPC representatives (from HQ Abuja and NPDC Benin) visited our facility for a site inspection and to check the mechanical completion of the Edo refinery. In September 2022, we were invited for a commercial negotiation meeting with the NNPC Head of terms, after which we sent a follow-up letter identifying the oil fields from which we can offtake crude oil.”
“In March 2022, we also wrote to the Ministry of Petroleum Resources, informing it of our refinery status, future projects and our challenges of lack of crude oil supply to our refinery. We also wrote to and met with the NNPC Exploration and Production Limited (NEPL) between November 2022 and March 2023 to express our urgent need for crude oil supply from oil fields in which NEPL has an equity participation.”
ERPCL stated that it has been successful in addressing the challenges of crude oil supply with NNPC over the previous three years, despite these letters and conversations.
Additionally, ERPCL and ND Western have a crude oil supply agreement that allows ERPCL to extract crude oil from the Ughelli Pumping Station (UPS), which is run by Shoreline and owned by NEPL.
“We have held several meetings with Shoreline and Heritage Oil and indicated our readiness to make modifications needed to offtake crude oil from the UPS but no progress has been made till date,” ERPCL explained.
In order to allow the Edo refinery to begin extracting crude oil from Oil Mining License 53, the owners of ERPCL are requesting Kyari’s intervention as group CEO of NNPC for NUIMS to give effect to the Seplat-ERPCL agreement.
Additionally, they want Kyari to step in for NEPL and shoreline so that Edo refinery can begin removing crude oil from ND Western’s Ughelli pumping station.
There are now 25 licensed modular refineries in Nigeria. There are five that are in operation, producing naphtha, kerosene, black oil, and diesel.
Out of the five refineries that are now in operation, OPAC and Aradel have the largest capacities at 11,000 and 10,000 bpd, respectively, while Duport has the lowest at 2,500 bpd. In the middle are the 1,000 and 5,000 bpd capacities of Edo Refinery and Waltersmith, respectively.
Ten or so are almost finished, while the remaining ones have only been granted permission to open. Because of the shortage of crude and other problems, the remaining work is still on hold.
The CEO of a different modular refinery, who asked to remain anonymous, said that although modular operators had previously expressed concerns, they had received no encouraging response. The chairman of Dangote Petroleum Refinery had only reiterated these concerns last month. The CEO claimed that some mafias in the oil industry were determined to stop refining crude oil domestically to produce Premium Motor Spirit, also known as gasoline.
“No modular refinery has received a barrel from NNPC despite engagement since 2020,” he stated.
Given that foreign investments in the industry are no longer coming in, Eche Idoko, the press secretary of the Crude Oil Refinery Owners Association of Nigeria (CORAN), encouraged the federal government to treat local refiners fairly.
“No significant foreign investments had been reported in the previous eight years,” Idoko stated.
Five CORAN members have finished building their refineries, he said.
“The others are facing a significant obstacle. The problem is that the people who should be funding them haven’t released funds for building because they require a certain amount of assurance”, he continued.
“A guarantee that if they finish the refinery, they are going to get feedstock, which, of course, is crude oil,” Idoko explained.
The economic consequence of this insufficient supply, according to industry analysts, is significant.
The News Chronicles’ research revealed that high fuel prices cause significant operating costs for industries like manufacturing and agriculture, which rely significantly on diesel and other refined products.
According to the National Bureau of Statistics (NBS), food prices have increased by 20% in the last year. This increase is directly related to high diesel costs, which are caused by a lack of local refining capacity.
In addition, the cost of goods and services is further increased by the high cost of diesel, which reached a height of N1,800 per liter early this year and heavily burdens logistics and transportation. The Dangote Petroleum Refinery’s arrival in April drove the price up to N1,200 per litre.
A proposal by President Bola Tinubu instructing the NNPC to sell crude oil to Dangote Petroleum Refinery and other modular refineries in naira was accepted by the Federal Executive Council (FCE) on Monday.
Idoko thinks that by taking this action, local refining capacity would increase and consumer fuel prices would eventually go down. But he underlined that the declaration needed to be supported by real, tangible measures.
