Exploration for crude oil commenced in Nigeria in 1937 when Shell D’Arcy was granted the sole concessionary rights over the whole territory of the country’s Nigerian National Petroleum Corporation (NNPC).
Crude oil was first discovered in commercial quantity in Oloibiri in present-day Bayelsa State in 1956 when Shell D’Arcy drilled the first successful well and that same year, Shell D’Arcy changed its name to Shell-BP Petroleum Development Company of Nigeria Limited.
It continued development activities in 1957 and the first shipment of crude oil from Nigeria took place in 1958.
The first cargo of crude oil was shipped in February 1958 through the oil tanker ship Hemisfusus to Britain” and as the economy of the nation grew, demand for petroleum products was met by importation.
Shortly after independence, the Shell-BP Petroleum Development Company saw an opportunity to meet the product needs of the country.
It embarked on a project to build the first refinery in the country near Port Harcourt. The 38,000 barrels per day (bpsd) Shell-BP Refinery was completed and commissioned in 1965. It was a simple hydro-skimming plant.
The Federal Government then acquired 50 per cent shareholding under a participatory agreement with Shell-BP. It was registered as the Nigeria Petroleum Refining Company (NPRC) in 1972 when the government of Nigeria increased its shareholding to 60 per cent, but it remained as a JV Company under private sector control and management (NPRC Company reports 1972).
The premier refinery was debottlenecked in 1972 and a Naphtha Catalytic Refining Unit (CRU) added.and the capacity was increased to 60,000 bpsd. The plant met all the normal petroleum product needs of the country except for bitumen which was still imported. The refinery was a fully private company and sold its products directly to the marketing companies in Nigeria under an arrangement in which they paid for stated capacities of crude supplied, lifted products realisable from those capacities, and paid the refinery a processing fee accordingly. It was a very efficient and profitable arrangement for all parties involved. The federal government earned tax revenue and excise duty.
The federal government acquired the remaining 40 per cent shares in 1978 under an outright buy out, and renamed it NNPC Refinery, Port Harcourt. It was thereafter fully Nigerianised and came under government control. This acquisition occurred just a year after the formation of the Nigerian National Petroleum Corporation (NNPC) in 1977. The NNPC was created as a merger of the Nigerian National Oil Corporation (NNOC) and the Ministry of Petroleum, and was manned mainly by professionals who were recruited from the private sector International Oil Companies (IOCs) to grow capability for Nigeria to be an active player in the fast developing oil industry in Nigeria.
By the mid-1970s, projections by the economic surveillance unit of the NNOC indicated that at the rate the economy was growing, demand for petroleum products would outstrip production by NPRC.
Thus, the NNOC commenced work on a project to build a second refinery to be sited in Warri. The Warri Refinery Project was completed in December 1977, and commissioned early in 1978. It was a 100,000 bpsd conversion plant, complete with a naphtha catalytic reforming unit (CRU) and a Fluid Catalytic Conversion unit (FCCU) for gasoline. Again all the petroleum product needs of the country were being fully met from both existing refineries.
Economic activity was growing in the northern as well as in the southern parts of the country. Products were being delivered by long haul trucks to the North as well as rail. Kano and Kaduna were experiencing rapid growth, as well as sections of the middle Belt. Projections again indicated that by the mid-1980s, demand would outstrip the production capacity of the two existing refineries. It was, therefore, decided to build a third refinery and locate same in Kaduna closer to the high demand areas in the North.
The Kaduna Refinery was completed and commissioned in 1980. Like the Warri Refinery, it was a modern conversion refinery, but had two parts: a 50,000 bpsd Fuels Plant with a CRU and an FCCU; and a 50,000 bpsd Lubes Plant for production of lubricating oil blendstocks and waxes and bitumen. Waxy crude required as feedstock for the Lubes Plant was imported from Saudi Arabia and Venezuela as all Nigerian crudes were napthenic.
Again the Kaduna Refinery was successfully commissioned by NNPC and ran at full capacity utilization
Unfortunately, the decline in the performance of the local refineries started in the early 1990s after the military Government ordered NNPC to close its accounts in commercial banks and transfer them to the Central Bank. NNPC lost its autonomy.
It became increasingly subjected to interference and directives by politicians and it could no longer ensure prompt maintenance of the refineries. Most importantly, decisions on when to carry out turnaround maintenance and which contractor to execute it came under the influence of the government rather than by the professionals within the corporation. Things very quickly went downhill thereafter as a result.
Today the Organisation of Petroleum Exporting Country, OPEC, has identified Nigeria, a leading African oil producer, as the least refining member with an average equivalent of 10,600 barrels per day, bpd in five years.
The nation refined an equivalent of 33,000 bpd, 8,000 bpd, 1,000 bpd, 5,000 bpd and 6,000 bpd in 2018, 2019, 2020, 2021 and 2022, respectively, according to the latest OPEC Annual Statistical Bulletin 2023.
Meanwhile, Nigeria continues to import petroleum products from the global market, a development, experts attributed to inconsistent policies, lack of long-term funds, and difficulties associated with sourcing foreign exchange and feedstock required to support the construction of new refineries.
Dr. Muda Yusuf, the Chief Executive Officer, of the Center For The Promotion Of Private Enterprise, CPPE, while reacting to the recent information that the Port Harcourt refinery will return to production before end of the year said, “These days, it is better to manage expectations. We have learnt to relate more to outcomes rather than promises.
He continued, “If what the minister said materialises, that would be great.
One of the biggest burdens on the Nigerian economy is the importation of petroleum products. Over 10 billion dollars is spent annually on fuel importation. This is in addition to the numerous missed opportunities in quality jobs and other multiplier effects inherent in domestic refining of petroleum products.
As an oil producing country, committing billions of hard currency to fuel importation is our biggest economic tragedy.
One can only hope that we get it right with the present administration.”
Challenges Of Private Refiners
The public refineries are not the only assets facing challenges as Modular Refinery operators are equally facing some hiccups.
Recently the Chairman, Board of Trustees of the Crude Oil Refiners Association of Nigeria (CORAN), Captain Emmanuel Iheanacho, called for greater investment in the establishment of modular refineries in Nigeria, as a step towards improving the oil and gas downstream sector.
Iheanacho, who is also the Chairman of Eko Refineries and Integrated Oil & Gas Nigeria Ltd noted that having efficient crude oil refining capacity in modular refineries would address a core energy needed to support transportation and businesses that require energy for their daily operations.
Making an analogy with the United States of America, Iheanacho said “Modular refineries are a logical way to go. Let me start by comparing ourselves to America for instance. America is a huge country; it is about one and a half times the population of Nigeria. It has 139 fully functional refineries while Nigeria has four refineries that are not working. Again, let us look at Texas, which is about the size of Lagos. How many refineries does it have? Thirty-Two! How many refineries does Lagos have? None.
So, we have a long way to go. It means we must have means of refining petroleum products, so that we can provide transportation to move goods and services and provide the energy resources to power our industries. These are the basic things that we need.
“If we suspend them and give priority to other areas of our economy, we would not get the benefits that we are entitled to. So, first and foremost, provide energy resources, provide the lighting. These are the things that modular refineries can do.
“The government should actually take into considering the need to have more modular refineries to work in tandem with the Dangote Refinery when it begins to produce because government refineries in Warri, Port Harcourt and Kaduna have not been working. This is why we need the private sector input in the conception of modular refineries and the operation of these facilities.”
Commending President Tinubu’s removal of fuel subsidy, Iheanacho described the subsidy regime as “a total waste.” He said the subsidy regime failed to benefit the poor masses.
“Let’s talk about the subsidy issue; it was a total waste. Subsidy was maintained because the masses were supposed to benefit from cheap transportation as a result of subsidy on petroleum products. But the truth of the matter is that the poor people were not benefitting from it at all.
“So, those who drove into a fuel station in their private cars and bought as much as they wanted were the ones who benefitted from the fuel subsidy. The poor masses who were stuck in buses that could buy a maximum of like 100 litres did not benefit from it. And nothing compelled the private car owner to give people a ride because he had bought government- subsidised fuel,” Captain Iheanacho added.
Iheanacho disclosed that his 20,000 bpd modular refinery project on Tomaro Isalnd, Lagos, was far gone, but seeking further financing to begin construction to which authority had been granted.
“Our modular refinery proposition has gone as far as it can go. Modular refineries are highly capital intensive facilities. We have articulated this. We have done engineering studies. We have done the detailed engineering studies, and we have achieved the authority to construct. But we are still at the point where we are trying to raise financing. This is the key drawback. It is very similar to the problems people have with owning ships. It is highly capital intensive,” Iheanacho said.
He used the opportunity to raise the issue of challenges in financing such capital-intensive projects without support of the Central Bank of Nigeria (CBN).
He said, “Unless you have some specialised financing mechanisms set up by the Central Bank, so that people can borrow money from it, it would be difficult for these things to be actualised.
Dangote Refinery Project
Dangote Refinery, the world’s largest refinery, is set to start production in Nigeria. This refinery is an achievement for the Nigerian economy and for all those international initiatives that participated in the achievement of this endeavor.
