By Adewale Sanyaolu
Last week’s pronouncement by the Federal Government about plans to convert illegal refineries into modular plants has raised fresh concerns among stakeholders, who argue that the move may not eventually solve the problem confronting the midstream sector of the oil and gas industry.
But the Federal Government believe that the overall damage from piracy, theft and fraud for Nigeria’s crude oil, estimated at about $1.5 billion a month, according to the US Deputy Ambassador to the United Nations, Michele Sison, who cited a Chatham House report, could actually be reversed.
The Presidency had, two weeks ago, disclosed plans to convert illegal refineries to modular projects.
Senior Special Assistant on Media and Publicity to the Vice President, Mr. Laolu Akande, in a statement said the plans are part of President Muhammadu Buhari’s new vision for oil-producing communities in the Niger Delta.
According to him, modalities are now being worked out to explore how some of the illegal refiners and the local communities in the region can become shareholders in the proposed modular refineries concept of the Federal Government.
A modular refinery is a refinery comprising smaller and mobile parts – skid-mounted – that are more easily fabricated and can be more quickly transported to site. They come in different sizes with varying capacities normally lower capacity than conventional refineries with more elaborate and complicated set-up.
Under the plan being considered in the presidency, government could supply crude to the local refineries at a reasonably concessioned price, as an incentive to stop the current practice where illegal refiners vandalise and steal the crude. The concept would also prevent the environmental degradation of their area. This also means that marginal field operators can supply crude to the new modular refineries that would have the illegal refiners integrated.
But some industry experts in separate interviews with Daily Sun, expressed mixed feelings saying while the initiative remained a laudable one, such move would eventually place additional burden on the Federal Government in the area of training and certification for the operators of the new modular refinery.
Refineries of trouble
The activities of illegal refiners is causing the Niger Delta communities and, by extension, the country, untold hardship in terms of huge revenue loss to government and environmental degradation.
In May 2012, men of the 3 Battalion, Effurun, and Joint Task Force (JTF) in the Niger Delta in Isaba, Warri South West Local Government Area of Delta State, said they destroyed over 1,500 illegal oil refineries and arrested three persons.
The raid, according to the army, came barely two weeks after it destroyed 600 illegal refineries in a similar exercise, which led to the discovery of illegal refineries at Esaba community in Ughelli-South Local Government Area of the state.
In February 2017, the JTF in the Niger Delta, Operation Delta Safe, said it destroyed three illegal oil refineries in Delta and Rivers states. The troops also said that during the raid, the outfit impounded 11 metal tanks, five dug pits with about 1,750 tonnes of substances suspected to be crude oil and 170 tonnes of illegally refined automated gas oil and in March 2017, it again destroyed 80 illegal refineries across Delta, Bayelsa and Rivers state.
The breakthrough was contained in a press statement signed by Major Abubakar Abdullahi, Coordinator, Joint Media Campaign Centre in Yenagoa. According to him, in Bayelsa State, troops patrol around Obhoyohan and Ngiri Creeks of Nembe Local Government Area discovered and destroyed seven illegal refineries containing 150,000 litres of suspected crude oil and arrested three suspects in connection with the illegalities, while in Delta State, troops patrol around Sara Abileye Swamp in Warrior South Local Government Area discovered a network of six illegal refineries consisting of four storage tanks, two dug out pits filled with products suspected to be stolen crude oil, just as additional patrol at the axis of Ajoloso Creek in Elume community destroyed a camp housing eight illegal refineries.
Similarly, troops destroyed nine illegal refineries comprising four ground pits and three metal tanks filled with products suspected to be stolen crude oil at Katu Camp 5 in Warri South West Local Government Area in addition to seven illegal refineries earlier destroyed around Opunami Creeks.
Economic loss
The Nigerian National Petroleum Corporation (NNPC) report indicated that N12.754 billion was lost to crude oil, petroleum products theft and vandalism in November 2016.
The Corporation in its monthly Financial and Operations Report for November 2016, disclosed that of its N133.81 billion total earnings from domestic crude oil and gas sales, N11.786 billion was spent on pipeline repairs and management compared to N12.34 billion in October 2015.
In the same vein, its General Managing Director, Mr. Maikanti Baru, had earlier disclosed that Nigeria lost N51.2 billion to oil theft in 2015.
Baru made the disclosure when he led a delegation of NNPC top management on a courtesy call to the Chief of Defence Staff, General Gabriel Olonishakin, at the Defence Headquarters, Abuja, to appeal to the Nigerian military to help secure critical oil and gas infrastructure and curb losses incurred by the corporation due to the nefarious activities of pipeline vandals and oil thieves.
The revenue loss, according to Baru, was due to the activities of pipeline vandals. He added that over 3,000 vandalism incidents were recorded every year from 2010-2015, while in 2015 alone, pipeline losses of petrol volume of over 643 million litres were incurred.
‘‘From January to May this year, almost 1,447 cases of pipeline hacking were recorded, resulting to a loss of 109 million litres of petrol and 560,000 barrels of crude oil to refineries, posing a great threat to the nation’s economy and the 2016 federal budget.
A case for private refineries
According to a public commentator, Mr. Luke Onyekakeyah, the move by the Buhari administration to legalise the so-called “illegal” refineries in the Niger Delta into modular refineries is a positive step in the right direction, adding that it has been the desire of patriotic Nigerians to have the refineries licensed and controlled rather than having them destroyed with severe consequences.
Onyekakeyah explained that as the refineries were being destroyed, the militants became more vicious and blew several oil facilities, which drastically reduced oil production, stressing that it has been a lost battle on both sides. He maintained that neither the Federal Government nor the militants were gaining from the fight, which he said, justifies the need for a shift in position.
He canvassed that the first step towards ensuring inclusiveness in resource management in the country is to remove the legal strictures that make it impossible for people to utilise their God-given resources, advising that communities and states should manage the resources in their domain while the Federal Government should be paid appropriate taxes.
And to make the dream of the Federal Government a reality, the Federal University of Petroleum Resources (FUPRE), Effurun, Delta State, said it was determined to make history as the first educational institution to build and run its own mini-refinery in the country.
FUPRE equally said it had concluded plans to modify all the illegal facilities that dot the oil-rich Niger Delta region by building safer modular and affordable refineries with the backing of government.
According to the Vice Chancellor, Prof. Akii Ibhadode, the hazard posed by the unlicensed facilities compelled the institution to assemble its team of engineers to develop a cleaner, safer and affordable modular refining system that could be assembled with local materials.
He advocated a drastic restructuring of the national mindset so that the fledgeling technologies deployed by illegal refiners could be modified for the good and development of the country.
Stakeholders react
However, an industry expert and one-time Manager (Strategy and Planning), Chevron Nigeria, Mr. Yemi Emiko, noted that the capital-intensive nature of a refinery might make it a tall dream for a Nigerian university to develop one. According to him, the project would be possible if designed and built on a manageable scale. He stressed that the facility requires constant maintenance even at completion to allow for continuous and efficient functioning.
Oh his part, Head of Energy Research, Ecobank Transnational Corporation, Mr. Dolapo Oni, said the idea of the illegal bunkers now switching to paying for crude may be a major disincentive, which they may not likely embrace, considering the fact that their profit margin will be drastically reduced.
“Remember, these are guys that have been used to getting crude oil for free over a long period of time, now asking them to come and pay for crude either at the international market price or slightly below, may be a change they may neglect,’’ he said.
Dolapo equally pointed out that the issue of maintaining standards is an area which the illegal refiners have not adhered to for a long time, thereby producing substandard products. In this instance, Oni wondered how government intends to set standards for them and ensure they are met. And that, according to him, leads to the burden of building capacity for the bunkers.
Oni maintained that for the illegal refiners to attain a level of producing standard petroleum products, they must be trained. And if they must be trained, who picks the cost of such training? he queried.
‘‘So how do you get payback for that investment? Is government planning to do this for free? Are they going to expect payback from the refineries? Who is going to own the refineries? Is it the government or the guys? Those are issues that need to be answered by the plan. I will like to see how that addresses the issue,’’ he asked.
The Ecobank analyst equally pointed out that economics of scale and research have proven that products from modular refineries are not cheaper than those from the conventional refineries, pointing out that such refineries cannot compete with others around the globe.
In his submission, Director, Centre for Petroleum, Energy Economics and Law, University of Ibadan, Prof. Adeola Adenikinju, said the conversion of the illegal refineries to modular plants cannot meet the domestic energy demand of the country.
He explained that what the country needs are medium to large sized refineries that are privately run by those who have the technical capability to manage such refinery so that the country is not just meeting local needs but exporting refined petroleum products.
‘‘We have done that in the past and we can still do it again. That is one way we can reduce the volatility that crude prices translate in our economy. I think government must provide incentives for the right environment to ensure that private sectors go into refining, including the oil companies, who should ensure that a larger chunk of their crude are refined locally.”
However, the don said the initiative of the Federal Government will achieve certain objectives but not the overall objective of self-sufficiency for refined products, adding that it’s a step in the right direction in the sense that it will provide an opportunity to develop the processing of crude to refined product.
He said the end product of the illegal refineries has not always met acceptable, not just international standard, but the requirement for vehicles and other equipment that will use those products.
‘‘So if government brings them together, they have to link them with universities, experts and professionals in the area who would be able to ensure that what they are doing follows proper technology or science, so that the output from those refineries can become standard. That will provide employment for those who are involved and other students who will key in thus becoming a legitimate source of income,’’ he advised.