NIGERIA'S MODULAR REFINERIES POLICY DRIVE AND THE ALMOST COMPLETED 6,000 BPD EDO MODULAR REFINERY PROJECT

NNPC Group headquarters, Abuja FCT

According to the Nigerian National Petroleum Corporation (NNPC) which is the state-owned oil company through which the government regulates the entire spectrum of oil and gas business in the country, Nigeria has a maximum crude oil production capacity of 2.5 million barrels per day. With this, the country ranks as Africa's largest producer of oil (ahead of Angola) and the sixth largest oil producing country in the world. (Though, in a recent recent report by Reuters, Congo Brazzaville may soon displace Angola from their current second position due to recent oil discovery by Italy's ENI and France's Total oil companies). Nigeria produces only high value, low sulphur content, light crude oils - Antan Blend, Bonny Light, Bonny Medium, Brass Blend, Escravos Light, Forcados Blend, IMA, Odudu Blend, Pennington Light, Qua-Iboe Light and Ukpokiti.

Nigeria owns four (4) oil refineries, namely, Kaduna Refining and Petrochemical Company (KRPC)​​​, Port Harcourt Refining Company (PHRC)​​​​ (which consists of two plants), and Warri Refining and Petrochemical Company (WRPC)​​​. Also, there are two other refineries that are not owned by the government which are the Niger Delta Petroleum Resources Refinery, and the Indorama Eleme Petrochemicals Company Limited, both located in Rivers state, Nigeria (see the full list of refineries currently operating in Nigeria).

However, the decades-long dismal performance of these refineries has continued to make the country heavily dependent on the importation of refined fuel. According to a March, 2019 report in The Guardian, these four refineries operated at just 5.55% of their combined nameplate capacity of 445,000 barrels per day. Also, in a report by The Punch, a Nigerian senator, Rose Oko from Cross River state, lamented that Nigeria still imports about 90% of its fuel. As a result of this, the country is unable to realize the benefits accruing to oil producing nations from high crude prices. When the price of crude is high, oil producing countries which have refining capacity are able to increase their revenue and foreign reserves.

Muhammadu Buhari

In a bid to mitigate this negative trend, Nigeria's federal government recently offered 43 licenses for modular refineries and some large scale refineries also to come on stream. This was a result of the strategy launched by the Muhammadu Buhari-led government in October, 2016 to reposition Nigeria's Oil & Gas industry. The fourth initiative in that roadmap, “Refineries and Local Production Capacity” seeks to transit Nigeria from being an import dependent Nation into a net exporter of refined petroleum products. A key component of this initiative is Government support for the establishment of third-party-financed Greenfield and modular refineries for in-country petroleum products sufficiency that will stimulate products export. It is the intention of government that the refineries should be such that they can easily be expanded or upgraded, and located within refinery clusters for effective operations and minimal environmental footprint.

What is a Modular Refinery?
A modular refinery is a processing plant that has been constructed in such a way that at point of manufacture, each component is made singly and is permanently mounted in a frame or unto rails, or a metal pallet/base. Each structure contains a portion of the entire process plant, and when transported to the refinery's site, through piping, the components link together to form an easily manageable process. The maximum allowable design capacity of a modular refinery is 30,000 barrels per day.

Legal Framework
The process for establishing a Petroleum Refinery in Nigeria is regulated by the Department of Petroleum Resources (DPR) through Polices and Regulations promulgated by the Ministry of Petroleum Resources and the Minister of Petroleum Resources respectively. In May, 2017, the DPR released the General Requirements and Guidance Information for the Establishment of Modular Refineries in Nigeria. The guideline covers all refinery establishment. However, establishment of modular refinery plants shall be with design capacity not more than thirty thousand barrels per day (30,000bpd). When the plant capacity exceeds 30,000bpd, the plant shall be upgraded to a full conventional refinery.

Key Objectives of the Modular Refineries Initiative
1.   To promote availability of petroleum products in the country.
2.   To conserve foreign exchange utilization for the importation of Petroleum Products.
3.   To promote socio economic development in order to stop restiveness, criminal and illegal refinery activities thereby sustaining peaceful coexistence in the Niger Delta Region
4.   To mitigate and eliminate environmental degradation associated with illegal refinery activities, crude oil theft and pipelines vandalism.

Modular Refinery Business Model
Government envisages amongst others, a model that will be private-sector led partnership with equity participation from the state government or its agencies, registered local cooperative societies and the integration of the regional refinery stakeholders, with the private investor having majority equity as well as operate the Joint Venture. State Government contribution could be in the form of land-for-equity and or paid-off shares.

Location and Carrying Capacity of Modular Refinery
The location of a modular refinery should be strategic and influenced by proximity to the source of crude oil, producing marginal fields and tie-in to supply infrastructure or clusters. Government also recognizes that there is a limit on the carrying-capacity in each of the oil producing states, consequently, establishments would be based on the acceptable carrying capacity indices of each state which is determined by the production capacity, access to infrastructure and limit of the environmental degradation.

Investors Category
The Federal Government seeks the participation of credible investors and integration of key stakeholders in the modular Refinery initiative. The size of the investment structure will determine significantly the investor categorization and selection process. Prospective investors will be categorized as follows:
1.   Private Investor with financial and technical capacity, preferably with established Nigerian presence or partnership
2.   Public-Private Partnership with credible participation from relevant stakeholders such as foreign technical partners, State Government, MDAs, Local Govt. Council, organized private organizations, cooperative societies, community equity contribution etc.
3.   Regional refinery stakeholders involved in artisanal activities with focus to converting the vocationally acquired skills to cognitive technical skills. They shall be considered for equity partnership with technical and financial partners.

Qualification Requirements
A sustainable and transparent framework is provided for the selection of potential investors, and

shall take cognizance of the existing guidelines and objectives of the Refinery Expansion plan. The licensing processes as prescribed in the guidelines for the establishment of Hydrocarbon Processing Plant in Nigeria by Department of Petroleum Resources (DPR) are in three phases, namely:
1.   License to Establish (LTE),
2.   Authority to Construct (ATC)
3.   License to Operate (LTO).
To qualify and move between phases requires certain criteria to be satisfied. Section 9 and 10 of the guideline presents some of the key general and technical criteria which interested investors must satisfy.
Notably, an applicant shall not be allowed to relocate a refinery that is older than Ten (10) years in
operation from the date of establishment. Where the refinery has not been in operation since establishment and has been well preserved, subject to verification, it should not be older than 15 years from the date of establishment. DPR will provide a plant technical audit checklist for this purpose.

Government Support and Fiscal Incentives
The Federal Government's assistance in the establishment/conventional of a modular refinery will
include:
1.   Facilitation of crude commercial agreements from marginal and other oil fields.
2.   Facilitation of Ownership-joint venture investment vehicles with organized host communities and State Governments.
Modular Refineries being midstream oil and gas processing facilities shall qualify for all incentives enumerated under section 39 of the Companies Income Tax Act CAP. 60 LFN 1990. Incentives include initial tax-free period of three years, accelerated capital allowances after the tax free period to include an annual allowance of 90% with 10% retention for investment in plant and machinery, and an additional investment allowance of 15 percent.

Mr. Godwin Obaseki (Left) in a handshake with Mr. Jim Ovia (Right)

The 6,000bpd Edo Modular Refinery
The Edo Refinery and Petrochemicals Limited, a project partly sponsored by the Governor Godwin Obaseki-led administration in Edo State, and being developed by AIPCC Energy Limited at Ologbo, Ikpoba Okha Local Government Area of Edo State, will commence operation before the end of the year. The project's Technical Director, Mr. Tim Tian, said the fabrication of the refinery has been completed in China and is awaiting inspection and approval by the Department of Petroleum Resources (DPR) before it will be shipped to site in Nigeria. According to him, on arrival, final touches will be made to the fabrication and installation will follow, after which the refinery will commence operation. He said the refinery will get its feedstock (crude) from the Nigerian Petroleum Development Company’s (NPDC) facility – oil mining lease (OML) 111, near Benin City. When operational, the refinery will produce from its feedstock 50 per cent of diesel (500,000 liters), 25 per cent of naphta (300,000 liters) and 20 per cent of fuel oil (200,000) liters. This means that the main product that the plant will offer is diesel. It is very likely to use the fuel oil it produces to power heavy machinery and equipment at the plant. Producing PMS is not profitable to most modular refineries because it is highly regulated in Nigeria. To process PMS, they need to process naphta (which has octane number 65) to octane number to 92 which is Nigeria’s specification. Hence, the plant will likely not offer PMS but will sell their naphta to other full-scale refineries where technology is available to increase its octane number to yield PMS.
According to Mr Tian, the company will also build a mini LNG plant that will capture some flared gas, which will be processed into LNG and be used as fuel to power the power plant that will be used to operate the refinery.