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Community Convos: On Nigerian Refineries

After taking over the 35,000-barrel per day Shell-BP Refinery established in Port Harcourt in 1965, the Nigerian National Petroleum Corporation (NNPC) was founded on 1 April 1977, as the country’s own oil company. The corporation was granted powers and operational interests in refining, petrochemicals, commodity transportation, and marketing, in addition to its exploration activities, and thus, between 1978 and 1989, NNPC constructed refineries in Warri, Kaduna and Port Harcourt.

For context, the Kaduna Refinery has a production capacity of 110,000 barrels per day, the Port Harcourt refinery a capacity of 210,000 barrels per day, while the Warri Refinery can deliver 125,000 barrels per day, according to the NNPC. Together, Nigeria’s four refineries have a combined capacity to process 445,000 barrels of crude per day, a total of which the Dangote Refinery, which is under construction, is set to surpass, with expected production of 650,000 barrels per day. Meanwhile, “the aggregate demand [for] petroleum products in Nigeria as at 2017 was equivalent to 750,000 bpsd”[1]. Therefore, because in the interim, its refining capacity exceeds demand, Nigeria imports over 80% of the petroleum products which it consumes, a situation that has remained an uncomfortable reality for Nigerians.

The Dangote Refinery has thus been heralded with great enthusiasm, as it has the potential to not only meet local demand, but to serve the needs of neighbouring countries. A plus is that the refinery will be run by a privately-owned business thus connoting efficiency.

For a petrol-importing and resource-dependent country like Nigeria, any change in the international price of oil can result in decreased economic growth, inflation, and in dire circumstances, a recession, as happened during the COVID-19 pandemic when oil prices dropped to $-3 per barrel. The effect is all-encompassing, impacting on household budgets and livelihoods, with producers passing on production costs to customers, resulting in an even more impoverished population of which just under half live below the poverty line. Clearly, speed and focus is the order of the day as the global economy’s focus strays towards cleaner fuel sources acquired within their local contexts.

Before the advent of the Dangote Refinery, which is expected to save the day like a tropical matador, Nigeria’s refineries have been plagued by low-capacity, even redundancy, due to their antiquated nature. According to a 2016 Daily Trust report, “the Federal Government has invested more than N264 billion on refinery maintenance since the return [to] democracy in 1999”, and although the Federal Executive Council on 17 March 2021 approved yet another sum of $1.5 billion (almost N600bn) for the rehabilitation of the Port Harcourt Refinery, they have yet to perform up to Nigerians’ expectations.3 This has caused experts to recommend the establishment of new refineries, instead of unaccountable investment of billions more naira into rehabilitating Nigeria’s more-than-four-decades-old refineries.

Nigeria’s refineries’ history would be incomplete without the constant threat of the sabotage of pipelines, crude oil theft, illicit refining activities – which has caused for a government push for the establishment of modular refineries – pipeline vandalism and piracy. According to PwC’s Nigeria’s Refining Revolution, between January and April 2016, pipeline vandalism cost Nigeria over NGN50 billion and several efforts by the government and oil and gas firms to reduce insecurity in the Niger Delta region has failed to produce the desired results.

The sabotage by various militant groups, particularly within the Niger Delta, has posed a significant security threat to the oil and gas industry, and restoring security and safety would necessitate a multi-pronged approach involving a range of realistic and committed steps. Some of these requirements are what the Petroleum Industry Bill (PIB) would address should a robust version including quality governance and administration and clear delineations of the roles of government, business and community, be passed into law. But history keeps on repeating itself on the matter of engagement within communities pre or post-conflict.

For instance, there has anecdotal evidence for decades that oil theft is the pastime of not only community persons, but businesses through underreporting or rogue staff in cahoots with community anarchists and unpatriotic government personnel. Mediations that are done through community warlords or unrecognised or selfish leadership, without iterative engagement with the broader society, have continued to be an ill-advised approach by operators, an approach which has yet to yield long term positive benefits. The commitment to see through community issues for the benefit of all parties involved has been elusive. When remediation is approved for community lands and waters, outcome profiteers who would apply every arsenal within their reach to hamper progress should they not be awarded major contracts, and worse still, in short course, indigenes who are employed by multinationals to mend fences and build stronger linkages, ultimately take on the persona of Napoleon, the protagonist of George Orwell’s Animal Farm; becoming unequal amongst equals. Sadly, all of these dangers are ill-checked by a near moribund Ministry, underfunded, and by far the poorer patriarch of the agencies which it is expected to wield power over, compounded by the absence of a substantive Minister of Petroleum Resources to steer the ship.

“It is the role of government to balance competing objectives to the benefit of all stakeholder interest, it should be responsible for overseeing the success of the process, protecting all interest groups and mediating when issues arise”, we recommend in our Community Engagement Standards published in 2019. Truth be told, starting from the tenure of Ibe Kachikwu, the immediate past Minister of State for Petroleum Resources, the government introduced multiple measures to balance out and stimulate peace within the Niger Delta, but these actions have yet to be properly evaluated for success and so are being re-examined & fine-tuned.[2]

Despite the problems plaguing Nigeria’s refineries, NNPC Managing Director, Mele Kyari, remains steadfast to a proposal to upgrade the plants, which, if successful, could remove the need for fuel imports by 2023. This is good news, but considering the country’s track record, this restored ’hope’ has been met with scepticism.

 

Author ~ Bekeme Masade-Olowola

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References

[1] Ogbuigwe, A. Refining in Nigeria: history, challenges and prospects. Appl Petrochem Res 8, 181–192 (2018). https://doi.org/10.1007/s13203-018-0211-z

[2] https://www.pwc.com/ng/en/assets/pdf/nigerias-refining-revolution.pdf