While South Africa moves a step closer to realising its dream of owning Africa’s biggest oil refinery, Nigeria, Africa’s largest oil producer, is yet to manage its four refineries for optimal production.
South Africa, which recently signed a partnership with China’s Sinopec Petroleum for the building of a modern refinery, might displace Nigeria as key anchor of Africa’s oil and energy market, analyst have said.
South Africa’s $10 billion Mthombo refinery project at Port Elizabeth’s Coega industrial development zone, is expected to pump about 400,000 barrels a day, which analysts say will likely compete intensely with, or take over Nigeria’s oil market.
Already, it is forecast to create 27,500 direct and indirect jobs at the height of its construction and 18,000 direct and indirect jobs when it starts operating. The 400,000-barrel-a-day plant would almost double the country’s current combined capacity of 497,000 barrels from its four refineries, according to data from the South African Petroleum Association. PetroSA conceived of the Mthombo project when diesel and gasoline imports rose on the back of economic expansion, with demand exceeding local refinery output for the first time in 2007.
On the other hand, Nigeria still relies heavily on imported refined petroleum products, despite owning four refineries (Port Harcourt Refining Company I and II, Warri Refining and Petrochemical Company Limited, and Kaduna Refining and Petrochemical Company). The four refineries have a combined capacity of around 445,000 barrels per day (bpd) or 70.75 million litres per day, but because they are running below capacity, the country imports much of its refined fuel demand at world prices, which is then sold to the domestic market at a discount.
It would be recalled that in the wake of the June 2012 anti-subsidy protests, the Federal Government announced plans to build refineries which it said would be sited in Kogi, Lagos and Bayelsa states, but the projects are yet to take off.
Not long after ( in June to be precise) the Federal Government again signed a memorandum of understanding with a United States and Nigerian Joint Venture, Vulcan Petroleum Resources Limited and Petroleum Refining and Strategic Reserve Limited, for the construction of six modular refineries with a combined capacity of 180,000 barrels per day.
One of the modular refineries was expected to refine 30,000 barrels of crude oil per day, producing five million litres of petrol, diesel, kerosene and LFPO and was estimated to gulp N697.5 billion ($4.5 billion). The refineries were scheduled to be completed within 12 months and to be located in areas where there are crude oil pipelines, in collaboration with the Nigerian National Petroleum Corporation (NNPC). Till date, these projects have not taken off.
“The inability of Nigeria’s ailing refineries to reach full production capacity has been linked to poor maintenance, insecurity and sabotage on crude pipelines feeding refineries, as well as theft and fire,” says Jimi Ogbobine, analyst at Consolidated Discount Limited.
“In 2009 and part of 2010 particularly, low refinery operations forced the country to import about 85 percent of its fuel needs. In 2011, the operational capacity at the refineries averaged 24 percent, slightly higher than the 22 percent in the previous year, according to U.S. Energy Information Administration,” Ogbobine told BusinessDay.
He said it was a shame that government continued to make promises, while other African countries like Niger, Ghana and South Africa are taking the initiative.
BusinessDay learnt that between 2002 and 2004, the Federal Government ,through the Department of Petroleum Resources (DPR) issued nine licences to private investors with a total refining capacity of 464,000 bpd, but none of the refineries has come on stream, as the enabling environment is said to be lacking.
Industry watchers are in doubt as to government’s seriousness on the issue of the Greenfield Refineries. Pointers to this arose last July, when China State Construction Engineering Corporation (CSCEC) was forced to extend by one year, a Memorandum of Understanding (MoU) signed in 2011 with the NNPC ,for the construction of three Greenfield Refineries and a Petrochemical plant in Nigeria.
According to a recent Business Monitor International (BMI) report, the construction of more refineries could help decrease the country’s imports of refined products and ease the country’s huge fuel subsidy bill. The report however stated that regulatory environment and security risks could delay efforts to build the facilities, adding that increasing Nigeria’s refining capacity could help the government in combating corruption in its fuel subsidy schemes.
Over the years, there have been calls from several quarters for government to privatise the refining industry in order to revive it from its present moribund state, but government has not heeded the calls.