Nigeria's modular refinery projects run into hitches on funding concerns

Nigeria's bid to bolster its local crude refining capacity through the construction of modular refineries has run into a hitch due to a number of factors, including funding challenges and rising cases of sabotage attacks on pipelines and oil theft, according to officials familiar with the projects.

State-run Nigerian Content Development and Monitoring Board and the Nigerian Upstream Petroleum Regulatory Commission, which are jointly managing the construction of the modular refineries along with private promoters, had listed three of such facilities to come on stream by the end of December 2021.

The facilities located in Niger Delta states of Edo, Rivers and Bayelsa with a combined capacity to refine 32,000 b/d of crude were at several of stages of completion in 2021.

Modular refineries are crude oil processing facilities with capacities of up to 30,000 b/d, and are being built as part of plans to curb oil theft and promote peace in the country's main oil-producing region.

"They could not commence production as scheduled due to some operational issues," an official at the NCDMB told S&P Global Platts.

"Because many of the project promoters are non-producers, they needed to engage and reach agreement with producers for the supply of crude feedstock and these are yet to be finalized," the official added.

Representatives at NUPRC said funding challenges encountered by the project owners, as well as concerns over the rising cases of pipeline breaches in the Niger Delta, halted progress work on the modular refineries.

"Even though two of the facilities scheduled to be commissioned in December [2021] were actually on test-run, but there were fears over the integrity of pipelines being vandalized almost on daily basis, which have threatened the viability of the projects," a NUPRC official said.

The three facilities were among more than 20 licenses issued by the Nigerian government to private investors.

State-owned Nigerian National Petroleum Co. Ltd. in data released December 2021 said it recorded a rise in pipeline attacks, which affected crude oil deliveries to Nigeria's Forcados, Bonny, Odudu, Brass, Yoho, Erha, Ajapa and Aje oil export terminals.

In October 2020, Nigeria's first modular oil refinery, built by Waltersmith Petroman Oil and NCDMB, began production with an initial capacity to refine 5,000 b/d of crude.

All of Nigeria's refineries are currently offline due to technical and operational problems.

Gasoline subsidies

This has come a few days after officials at Nigeria's 650,000 b/d Dangote refinery said the plant, which is set to be Africa's largest, is undergoing test runs and should be fully ready for operations sometime in the second half of the year.

The coming on stream of the modular refineries and an increase in local oil products supply was one of the conditions laid down by Nigerian labor unions and rights group before backing the government's decision to abolish subsidies on imported gasoline, slated to be implemented in the second half of 2022.

"We are not able to refine our crude locally. The modular refineries that can be built in 12 months or 18 months, the government has not been able to do that," the president of the Nigeria Labour Congress Ayuba Wabba said Jan. 24 ahead of a planned warning strike by the union slated for Jan. 27 to protest against the removal of the fuel subsidy.

In a bid to forestall the workers' protest, the government has put on hold its plan to abolish subsidies on imported gasoline, Finance Minister Zainab Ahmed announced Jan. 24.

"The timing [of ending subsidy] is problematic; there is still heightened inflation, hence the removal of subsidy will rather worsen the situation, thereby imposing more difficulties on the citizens," Ahmed said in a statement.