Challenges encountered by refining in Nigeria

ABSTRACT:

Oil was 'struck' in the later 50's in the Niger-Delta part of Nigeria by British, German and Dutch technicians, this caused the building of oil refineries. Nigeria currently has four refineries, which are held by Nigerian Country wide Petroleum Company (NNPC), however the petrol industry has been really impacted by operational problems since inception with production well below capacity. This research newspaper looks for to analyse the difficulties of refining in Nigeria regarding interior setbacks of problem, vandalisms, breakdowns and international issues of the global market and OPEC.

CHAPTER ONE: Introduction

'Oil refineries convert crude petrol into petrol products, lubricating natural oils, bitumen and chemical substance feedstock. A couple of 43 operating and 4 mothballed olive oil refineries in Africa starting from small topping and reforming refineries to advanced complex refineries which can compare with the best in the globe, and 4 synfuel plants. The total distillation capacity for the continent is around 142, 700 kilotonnes per annum (2, 854 tbpd) or an average of 3, 400 kilotonnes per annum (68 tbpd) per refinery'.

Nigeria's first refinery was built at Alesa Eleme, Dock Harcourt (PH I) in 1965 boasting a capacity of 38 tbpd which sufficiently attained all local demand, though it was later expanded to 60 tbpd in the 70's it could not meet up with the needs of quickly growing Nigerian market. The NNPC then built an additional refinery in Warri with a capacity of 100 tbpd which became operational in 1979; specialized setbacks and breakdowns for daily habit maintenance hindered creation thereby bringing down total petroleum processed in the plants by the finish of 1979 to 89 tbpd, about 83 percent of the local demand.

The NNPC got to transport considerable amounts of olive oil to be processed abroad to make up for the short-fall in the past due 1970's and early 1980's, some oil was also refined in neighboring Ghana, Cameroon and Ivory Coastline. One third refinery, with a capacity of 100 tbpd, began operations at Kaduna but didn't produce at maximum before mid-1980s. The fourth refinery was ready for development in March 1989 (known as PH II as it is joined with the first refinery in Alesa Eleme); increasing Nigeria's refining capacity to 445 tbpd. At this time, domestic petroleum demand was below development so a few of the merchandise of the four refineries could actually be exported. However, by the first 1990s product outcome was severely below the growing local demand to require that the NNPC still get back to refining some petroleum in another country. 'In 1988, about 96 percent of the engine oil Nigeria produced originated from companies in which the NNPC held at least 60 percent of the equity. The NNPC also was in charge of 75 percent of total investment in petroleum. In the later 1980s, the major Western oil companies discovering essential oil resources in Nigeria were Shell, Chevron, Mobil, Agip, Elf Aquitaine, Phillips, Texaco, and Ashland. In 1985-88, 11 percent of all extracted petrol (about 66 percent of domestic requirements) was processed in Nigerian refineries, where the NNPC owned bulk equity shares'. Nigeria's four refineries, with a name-plate capacity of refining 445 tbpd of crude, were create almost 30 years back but the several cases of corruption, flame, lackadaisical management, sabotage and lack of the mandatory turn-around maintenance (TAM) on the machines, has deemed all the refineries inefficient, in so doing operating each year at about 40% of full capacity; 214 tbpd at best.

REFINERIES AVERAGE Total annual CAPACITY Usage %: 1997 - 2009

Fig. 1 and Fig. 2 show the way the fluctuations and drop in capacity of the refineries consequently of the setbacks stated earlier which has consequently brought on the ceaselessly irregularities of olive oil production and strangulating gas price hikes, with the attendant effect on prices of goods, services as well as the country's economy generally.

The essence of this research newspaper is to answer fully the question why a country like Nigeria which is rich in both natural resources and individuals capabilities is not able to increase the use of its refineries for the general benefit of the nation. Nigeria is not the only real country with refining obstacles both in Africa and around the world but its main hurdles are those which can be easily prevented or better been able without too much stress. A whole lot money is being spent on the turn-around-maintenance of the obsolete refineries instead of building new technologically advanced ones that will be more productive and durable, the security of the country is nearly non-existence as constant militant uprisings have set back any advancements the government attempts to make in establishing regular network of the pipelines and seed of problem runs deep in the government, effectively hindering any economical progress of the refineries while also the politics with the OPEC can be an concern which we will address in this research paper.

CHAPTER 2: Obstacles of Refineries

2. 1 Incompetence and Corruption

The Slot Harcourt refinery plant's cracker was halted in its operations due to a major accident in-may 1997, which resulted in a serious scarcity of way to obtain gas and so only the crude petrol distillation column was functional by mid-1998. Shell that was predominant in those days was asked to do the fixes but it's bidding price was deemed increased by the tender committee and so the work was awarded to a 'less certified' organization to do the task as a result the refinery had not been in a position to meet maximum production for some time. Inside the Warri refinery, on August 13 2002, the NNPC granted N3bn ($23m) turn-around and maintenance deal to DPN Entrepose Engineering of Italy. Work was done in early on 2003, however the refinery happens to be un-operational. 'The Kaduna refinery with a capacity of 110 tbpd was sealed down in overdue July 1997 credited to an accident. Total in overdue August 1997 triumphed in a three-year contract value about $200m to correct the plant, however in May 1999 the NNPC dismissed Total as a builder, saying that its work was limited'.

Corruption is nothing at all new in the coal and oil industry in Nigeria, the most controversial, but still triggering ripples, is the one that happened in the routine of Standard Ibrahim Babangida where in an 'oil windfall' of $12. 2bn, understood during the Gulf war problems, has been unaccounted for till time.

These incidences are just but a few out of a large number of the unscrupulous routines of those charged with leading in the united states. 'Nigeria will need to have earned up to $340 billion in every of our own more than forty-four years of discovering essential oil. Yet an essential oil wealth which should have been changed into substantial and sustained economic development has instead led to very costly internecine strife (e. g. in the Niger-Delta), a dollar-a-day citizenry, and in many instances a culture of formal corruption in a distorted market'. Nigeria has four refineries albeit they are jogging below capacity, but it could easily established newer ones or at least managed the prevailing ones better than it has now. Corruption I really believe is the largest task Nigeria has and it is the heart of all setbacks in oil improvement in right from the start. It really is impossible to get an accurate amount of how much has been embezzled in the essential oil sector in Nigeria but if and when problem is swept out of the government then your country will indeed commence to see better economic progress.

2. 2 Mechanised Breakdowns, Fires, Militants and Vandalism

In the previous ten years, there were more than 15, 000 situations of pipeline breaks (typically vandalism and less than 8% is due to deterioration) and over 400 conditions of fireplace outbreaks in the refineries which have amounted to unfathomable monetary deficits to the industry.

'In October 2005, a pipeline fire in Delta Condition led to the deaths around 60 people. This is followed by a December strike, in which equipped men in swiftness motorboats blew up Shell's pipeline in the Opobo Route. In January 2006, a pipeline invasion from the Brass Creek domains to the Forcados terminal forced Shell to announce a make majeure on Forcados commitments to February-end. Additional episodes made on the pipeline and the Forcados terminal in February made it necessary for Shell to increase the make majeure beyond the end-February day. Shell approximated that 455, 000 bbl/d of its Engine oil production was shut-in due to attacks. A February 2006 assault on the Escravos pipeline, that supplies engine oil to the Warri refinery, triggered the refinery to shutdown. Nigeria got re-commissioned the Excravos-Warri pipeline in January 2005 after 18 months of restoring the damage caused by sabotage through the 2003 Niger Delta Crisis'.

Nigeria has also been plunged into insecurity due to the arbitrary kidnappings of both petrol personnel in the Niger Delta region particularly the expatriates. Since December 2005, Nigeria has lost around 16 billion us dollars in export profits scheduled to shut-in essential oil production. Shell has incurred the majority of shut-in oil development (477, 000 bbl/d), accompanied by Chevron (70, 000 bbl/d) and Agip (40, 000 bbl/d). Militant problems on oil infrastructure also have crippled Nigeria's local refining capabilities. 'In January 2006, four overseas employees of Royal Dutch Shell were kidnapped and then presented for 19 days before released on 'humanitarian grounds'. In Feb 2006, nine additional olive oil personnel were kidnapped in your community and the Motion for the Emancipation of the Niger Delta (MEND) required responsibility for the kidnappings and for blowing up a Crude Petrol pipeline owned and managed by Royal Dutch Shell'. In Dec 2006, providers shutdown Nigeria's two Dock Harcourt refineries for just two months anticipated to technological problems. The Niger Delta rebel group (MEND), and other militia organizations in search of monetary payment and/or politics leverage are the ones behind the attacks. In addition to abductions, thousands of foreign workers and their own families have gone the Niger Delta credited to extended hostilities. At least three companies, including a pipeline laying and private drilling company remaining the country. MEND has stipulated numerous conditions to the Nigerian government that it wishes met if not it includes vowed to continue the attacks. Main on the list of conditions is better revenue sharing of the petrol riches, increased local control of engine oil property, the discharge of tribal prisoners, and transparency of authorities budgets.

In 2007 Nigeria withdrew the licenses given to local and foreign companies to set up engine oil refineries because the companies did not start up any work after five years. 'The NNPC had handed licenses to 18 companies in 2002 to make private olive oil refineries in a major restructuring of the country's downstream petroleum sector launched by the government to boost home supply of petroleum products'. Most of the foreign investors stated that it was because of the unrest in the Niger-Delta; kidnappings and destruction of property that discouraged them from further investment in the region. Pipeline vandalism and disruption of engine oil development activities regrettably are now essential part of oil and gas procedure in Nigeria.

The vast olive oil infrastructure erected in the Niger-Delta region points out their vulnerability; there are currently 600 oil fields of which 360 are onshore and 240 offshore with over 3, 000 kilometres of unprotected pipelines crisscrossing the region linking some 275 circulation channels to various terminals. It must be noted that these spills caused by pipeline vandalism has continued to be challenging, with most happenings along major pipelines and manifolds.

In January 2010, the NNPC reported that the refineries at Warri and Kaduna were ready for operation but cannot commence due to the destruction of pipelines. These pipeline destructions can be attributable mainly to the militants who I strongly believe that are being sponsored by our corrupt administration official in view of their own personal gain of bunkering engine oil therefore they fall into line their pockets while the entire market suffers. The cases of breakdowns and fires aren't not used to the essential oil industry but in the case of these in Nigeria, poor safety measures and sick trained staff are the key causes of these dangers nonetheless insurance plan on such equipment can put the crops back in procedure in good time but you may find out that even prices may not have been paid to the insurance provider to this result, it could have been diverted to 'some ones' pocket.

2. 3 OPEC regulations

One major question that has been asked in recent past is whether Nigeria's regular membership with OPEC is a good package or not: Would Nigeria be better of leaving OPEC? This arises from the actual fact that the OPEC's regulation of oil development of its participants hasn't favoured Nigeria to increase it creation.

The OPEC was founded in Sept 1960 by Venezuela (as lead instigator), Kuwait, Saudi Arabia, Iran and Iraq. Yet another five countries: Qatar, Libya, Indonesia, United Arab Emirate, Algeria joined before Nigeria performed in 1971. Ecuador and Gabon became a member of afterwards but soon taken out and in 2008 Indonesia used suit (Ecuador later went back in 2008). Since 1982, members of OPEC have often arranged upon a standard oil production cover and individual creation quotas but the OPEC has never provided a typical for attaining these computations, it simply has been relying on an adhoc basis. Reuters latest survey of OPEC output shows Nigeria pumped 2. 19 million bpd in Oct 2010, up from 2. 17 million in September 2010 but under the implied arrangement with OPEC, Nigeria's goal quota is 1. 67 million bpd meaning that the united states 'cannot' turn an excesses of 500 tbpd into 'petrodollars' for its financial development. So except for historical and profound politics reasons, why would Saudi Arabia with a people of about 28 million (about 7. 5% of OPEC total inhabitants) have a quota of 8. 014 million barrels each day (about 30% of the total crude engine oil quota), while Nigeria with a human population of 156 million (42% of OPEC total), have a quota of 1 1. 704 million barrels (6. 8% of total quota) each day remains a secret. Even UAE with a people of just over 6 million people (1% of OPEC total populace) has a higher quota (2. 226 million or 8. 9% of total quota) than Nigeria.

Nigeria's society is greater than that of Saudi Arabia, but Saudi's bigger reserve degree of crude oil debris means that its creation quota is often bigger than that of Nigeria's in line with the OPEC. This means that Saudi Arabia is able to generate plenty of petrodollars for its financial development while Nigeria is fixed to less quota that produces lowest export income. Olive oil is the main export item of Nigeria, Nigeria must make the most by increasing its creation and exportation because there were several information of other discoveries of crude about the world, of what use will our crude be when there exists low or even no demand for this? Up to now OPEC's cartel has turned into a barricade for effective and efficient flow of international trade and economic development to Nigeria from its oil reserves. It would appear that Nigeria's left over in OPEC has hindered its refineries because due to the economies of scale process, Nigeria is not increasing its production due to quota enforced by the OPEC. But there is the underlying question whether Nigeria can produce more petrol if given higher quota by the OPEC given its difficulties of under-production of its refineries. I feel that with the ongoing petrol reforms in Nigeria, an increased quota will be welcome and duly exploited; Nigeria will be able to use the 500 tbpd as increased income that will help boost the economy, this may not appear like too much but it'll only pave method for more negotiations of increased quota as the revenues will be re-invested into maintenance or building of new refineries.

There is also the challenge experienced by Nigeria's refineries by the threat of the growing market of other African exporting countries like Angola and Algeria. On December 2010, the NNPC declared that due to the disruptions of creation of oil scheduled to refinery breakdowns, OPEC disclosed that Nigeria lost a few of its market to Angola.

CHAPTER 3: The Way Forward

A sustained solution to the problem is to truly have a situation where all the refineries work. For example, take Singapore doesn't have any petrol but more than a 1 / 4 of the world's consumed fuel is sophisticated there, even Venezuela and Indonesia boast up to 18 refineries that are public and run by the federal government.

Firstly, corruption within and beyond your system, political and ethnic sentiments while considering appointments, and lack of dedication and determination on the part of those entrusted with the maintenance and success of the refinery must be checkmated. The competence of these billed with maintenance of the refineries must be credible and they must be incurred with operating in an efficient, responsible and transparent manner. To deal with the issue of militancy, the government, in June 2009 offered an Amnesty contract to the militants on the health of full immunity for surrender of the hands and cessation of all criminal activities of kidnapping and vandalism; this, has been a striking step and has significantly reduced the violence on the sector and the areas.

Secondly, the move for the liberalising of private petroleum refining must be adhesively used through. In the regime of former President Key Olusegun Obasanjo, the BPE released that the four refineries were for sale and the federal government would welcome any investments both foreign and domestic into the refining sector and in 2009 2009 the positioning was made more attractive when the Federal Government removed the non-refundable $1 million first deposit requirement for potential private refiners, it has been a terrific plus as so far today, other countries and international celebrations show serious intentions of transforming the refining sector. The neighborhood company 'Blue Celebrity Petrol Services' which is held by important Nigerian tycoon Alhaji Alhaji or Al-Hajj (Arabic ˜˜˜˜˜) is a term of value used to handle female man who may have completed one of the Five Pillars of Islam by taking place the Hajj, or spiritual pilgrimage to Mecca. Aliko Dangote Aliko Dangote is a businessman located in Nigeria. He's the owner of the Dangote Group, which includes procedures in Nigeria and several other countries in Western Africa. A prosperous supporter of erstwhile Leader Olusegun Obasanjo and the ruling People's Democratic Party (PDP), Dangote in May 2010 received 51% stakes in Nigeria's biggest refining organic at Port Harcourt (hr`krt, -krt), city (1991 est. pop. 362, 000), SE Nigeria, a deepwater dock on the Bonny River in the Niger delta. (210, 000 b/d) for $561m and the Kaduna refinery (110, 000 b/d) for $160m, thus wishing to combine its grip on the country's refining sector. Also in the foreign scene, in May 2010, Nigeria and China signed a Memorandum of Understanding that would permit the Chinese government to construct 3 refineries and a petrochemical complex in the country. As at August 2010, there have been 9 certified private refineries and petrochemical plant life.

Finally, Nigeria's regular membership to the OPEC has been relatively of your burden than a gain to its monetary development. Based on the NNPC, Nigeria pumped 2. 19 million bpd as at October 2010 as against 1. 67 million bpd quota imposed by the OPEC and scheduled to high assets manufactured in the refining sector in recent times, production is likely to more than two times by 2012 and this is merely for crude. Nigeria has 188 trillion cu feet in gas reserves, the seventh largest in the world, and it designs to make the change to a gas-producing country instead of a crude producing country within the next 2 yrs, since we've a lot more gas reserves than we've crude so maximum development will be required from the refineries. However I am firmly inclined to say that Nigeria should demand a more substantial creation quota from OPEC or consider pulling out.

CHAPTER 4: Conclusion

It is important to notice that research has in no way exhausted all technological and basic questions which must be solved with regards to obstacles of refining in Nigeria. You may still find some questions that must be determined to be able to raised understand the hindrances and potential customer of the refining industry: there are issues of potential environmental concern; the question of refining capacity and the implications on downstream market basics, is there sufficient demand potential and possibility of over-supply; question on sustainability, product specs and quality especially for international requirements; and previous but not the lowest, the price and profitability of the refineries. Other setbacks include discrepancies in data, for example, Nigeria Energy Brains; (Oct 2009 model) mentioned that Nigeria's total petroleum products use was put at over 300 tbpd, as the NNPC's statistical data shows that total amount of petroleum to be about 240 tbpd.

However for Nigeria to beat these challenges, that i believe that it is on the right span of doing, an in depth plan and then for refining capacity focuses on must be set out, understood and adhesively adopted through and backed up by transparent national and international procedures.

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