{"id":23689,"date":"2022-03-11T09:12:45","date_gmt":"2022-03-11T09:12:45","guid":{"rendered":"https:\/\/research.reading.ac.uk\/research-blog\/?p=23689"},"modified":"2023-02-23T11:18:06","modified_gmt":"2023-02-23T11:18:06","slug":"nigerias-fuel-crisis-smaller-more-flexible-refineries-arent-the-full-answer","status":"publish","type":"post","link":"https:\/\/research.reading.ac.uk\/research-blog\/2022\/03\/11\/nigerias-fuel-crisis-smaller-more-flexible-refineries-arent-the-full-answer\/","title":{"rendered":"Nigeria\u2019s fuel crisis: smaller, more flexible refineries aren\u2019t the full answer"},"content":{"rendered":"

Nigeria\u2019s growing population of over\u00a0200 million<\/a>\u00a0people is facing an\u00a0ever-growing<\/a>\u00a0fuel crisis despite its\u00a0vast oil reserves<\/a>.<\/p>\n

The shortage of refining capacity at existing oil refineries is the main driver of Nigeria\u2019s fuel crisis, which hampers the socio-economic development of the country. It places a\u00a0high subsidy burden<\/a>\u00a0on the government and has long made Nigeria\u00a0dependent<\/a>\u00a0on imported petroleum products. The country uses little renewable energy.<\/p>\n

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The fuel crisis has also led to the proliferation of artisanal refineries in the oil-producing Niger Delta region, with\u00a0huge environmental and health challenges<\/a>.<\/p>\n

The recently signed\u00a0Petroleum Industry Act<\/a>\u00a0(PIA) 2021 aims to pave the way for increased investment in Nigeria\u2019s crude oil refining capacity.<\/p>\n

It also seeks to address the grievances of oil-producing communities: unemployment, lack of socio-economic development and environmental pollution. The Act made a provision for a less cumbersome process for granting operational licenses to investors in the downstream oil operation, which could increase investment interest in modular refineries.<\/p>\n

Recently, there has been increased interest from the Nigerian government\u2019s\u00a0petroleum ministry<\/a>\u00a0in modular refineries as a means of addressing the deficit of petroleum products.<\/p>\n

Modular refineries<\/a>\u00a0are simplified crude oil refineries with capacities ranging from 1,000 to 30,000 barrels per day. They are well-suited for remote areas.<\/p>\n

Over\u00a030 licences<\/a>\u00a0for modular refineries were issued in 2015 by the Department of Petroleum Resources (now Nigerian Upstream Petroleum Regulatory Commission).<\/p>\n

But\u00a0very few operate effectively<\/a>, because of inconsistencies surrounding policy and regulations in\u00a0Nigeria\u2019s investment space<\/a>. There is however no clarity in the petroleum industry Act to remedy these inconsistencies.<\/p>\n

Currently, modular refineries are considered useful to help meet energy demand in the country. But in view of the global call for the reduction of greenhouse gas emissions, they are a short term solution.<\/p>\n

At the 2021 climate change conference in Glasgow, Nigeria\u2019s President Muhammadu Buhari pledged to achieve\u00a0net zero emissions by 2060<\/a>. This would mean de-carbonising the\u00a0oil and gas sector<\/a>.<\/p>\n

Modular refineries as a solution<\/h3>\n

The modular refinery technology has appeal on several fronts. It is simple and easy to replicate.<\/p>\n

These refineries<\/a>\u00a0can be constructed within 12 to 20 months. They can be built in phases at a low cost and provide flexibility for upgrades based on an investor\u2019s preference.<\/p>\n

They can pay for themselves in one to five years, depending on the type of refined products.<\/p>\n

Nigeria refines almost none of its own crude oil. The cost of importing refined petroleum products exceeded petroleum exports by\u00a0US$43.56 billion in 2020<\/a>. If modular refineries reduced or eliminated fuel importation, they would save money spent on importation and subsidies and reduce pressure on foreign exchange.<\/p>\n

The refineries are normally sited close to oil production facilities. This creates opportunities for more Nigerian firms, which are the main players in the onshore marginal oil fields.<\/p>\n

Local people could be engaged in making, installing and operating the refineries. This would provide employment, which is much needed in the oil-bearing communities. The low technology requirement allows local engineers and technicians to participate.<\/p>\n

The\u00a0Nigerian Content Development and Monitoring Board<\/a>, promotes local content in the oil and gas industries, has envisaged\u00a070% of the fabrication<\/a>\u00a0activities within the modular refinery space will be done locally.<\/p>\n

The reduced pipeline network requirement has the potential to increase direct jobs in the form of truck drivers, sales support and other support services, which will be required to deliver the refined products to the last mile.<\/p>\n

The sector could also drive petrochemicals research and development in the local universities.<\/p>\n

Challenges<\/h3>\n

Although modular refineries may help in meeting Nigeria\u2019s growing demand for petroleum products and have a number of other potential benefits, they bring challenges too.<\/p>\n

Policy and regulations:<\/em>\u00a0There is a lot of uncertainty and inconsistency surrounding policy and regulations in Nigeria\u2019s investment space. This has been blamed for a\u00a0US$15 billion loss<\/a>\u00a0annually in foreign investments.<\/p>\n

This experience could discourage investors and may be the reason\u00a0many modular refinery licences have expired<\/a>.<\/p>\n

Social challenges:<\/em>\u00a0Lack of integration of the existing illegal artisan refineries into the mainstream of the modular refineries could create tension and result in oil theft and armed conflict.<\/p>\n

Carbon emissions:<\/em>\u00a0Oil refining contributes about\u00a05% to 10%<\/a>\u00a0to global total emissions. It could increase with the proliferation of modular refineries, which are\u00a0less efficient<\/a>\u00a0than conventional refineries. Nigeria\u2019s emissions commitments might require the modular refinery operators to introduce greening technologies.<\/p>\n

Technical challenges:<\/em>\u00a0Premium motor spirit, or petrol, is the product in greatest demand in Nigeria. Making it in a modular refinery requires catalytic reformers and\u00a0fluid catalytic cracking unit<\/a>\u00a0or hydro-cracker units. These units present most of the technical challenges in existing refineries in Nigeria.<\/p>\n

Solutions<\/h3>\n

Some of the identified challenges could be addressed as a short term solution to the energy crisis.<\/p>\n

Steps might include:<\/p>\n