Why modular refineries are gasping for last breath 

Despite the optimistic stance of the Crude Oil Refinery Owners Association of Nigeria (CORAN) regarding the current landscape for investing in modular refineries, emerging signals suggest that pouring more money into this fuel energy sub-sector might be a gamble. 

 This prevailing skepticism arises as evolving technology and shifting government policies threaten to make these refineries obsolete. 

CORAN, through its Deputy Chairman, Mrs. Dolapo Kotun, recently said many of the refineries could not take off hitherto because of the unfavourable economic conditions such as the pricing of products, which were regulated.  

Modular refineries were once touted as prospective viable alternatives and life wire to Nigeria’s comatose fuel energy industry in the face of an utter lack of local production.  

In Nigeria, modular refineries are crude oil processing facilities with capacities of up to 30,000 barrels per day and are being built as part of plans to curb oil theft and promote peace in the oil-producing region of the Niger Delta. 

In 2018 when the defunct Department of Petroleum Resources announced that it had issued 25 licenses for modular refineries; only four had been successfully completed including OPAC Refinery, Duport Edo Refinery, Walter Smith Refinery, and Niger Delta Refinery. 

All of Nigeria’s operational modular refineries are designed to produce only diesel; not a centiliter of premium motor spirit (petrol)has been produced from any.

Hence, to remain viable investments, there must be a steady demand for diesel. 

But that demand for modular refineries’ diesel is under threat, which may asphyxiate existing refineries over the next few months and put paid to any effort by investors to build more. 

For one thing, the demand for diesel as a fuel source is shrinking due to alternative sources of power such as solar.

Apart from that, heavy users of diesel are converting to the use of gas to power their trucks. For example, a major stakeholder in the energy industry, the chairman of the Nigeria Gas Expansion Program (NGEP), Dr. Mohamed Ibrahim, recently revealed that Dangote has a CNG plant in Obajana that services 15,000 of his trucks.

All the fleets in Coca-Cola today are running on CNG. All the fleets in La Farge in Sagamu are running on CNG. The more trucks converting to gas as a cheaper fuel source, the less the demand will be for diesel.  

Besides, when the long-awaited Dangote Refinery comes on stream and starts producing diesel as a source of fuel energy, Dangote will enjoy economies of scale far above the capacity of the modular refineries.

However, depending on the crude production capacity, the modular refineries may become starved of raw materials unless the country tackles the challenges of oil theft in order to meet the agreed production capacity.  

It is noteworthy that the Dangote Refinery is set to start diesel and jet fuel refining operations by October 2023 and petrol refining by November 2023.

Nairamtrics reports that the NNPCL will supply some crude at knockdown prices due to its equity stake, a possible cost disadvantage to the modular refineries. 

Ibrahim noted that currently, most of the long-haul vehicles are now running on CNG, but NGEP is trying to introduce LNG to go further.

However, the chief executive of XCID Global Solutions, Kayode Ayeni, commenting, said Dangote Refinery is not only targeting the Nigerian market but is also targeting the West African subregion and other neighbouring countries.

Therefore, there will still be space for the modular refineries in Nigeria to play in. 

He noted that the modular refineries are usually close to the source of their raw materials, which, in the case of Nigeria, is the Niger Delta region. 

Engr. Oyelere Oyeyemi, a natural gas specialist, also told ThePressNG that in the context of the licensed refineries that are already operating, the market’s dynamics are determined by supply and demand.

He acknowledged that gas would play a significant role in the energy transition mix but also emphasized that there would be a continuous supply of equipment that will always depend on fuel in the foreseeable future. 

He noted that with the preliminary start date of Dangote Refinery now established, the existing modular refineries are operating and producing small volumes into the market.

He emphasized that competition would arise among producers of refined petroleum products within the country, all vying for their market share. 

It is noteworthy that before now, many of the licensed modular refineries could not take off because of unfavourable economic conditions.