Nigeria wants to bring in illegal refiners from cold

Nigerian state-owned NNPC has backed a government plan to involve illegal refiners in the development of new modular oil refineries.

The plans is aimed at reducing crude theft and insecurity in the Niger delta. New modular refining capacity could also help reduce Nigeria's dependency on refined products imports, especially gasoline and diesel.

"The initiative [on illegal refiners] would help instill sanity and provide the much-needed technical support and framework for the operation of the would-be modular refineries," NNPC said.

There are hundreds of illegal, make-shift refineries scattered across the Niger delta, which process crude stolen by criminal syndicates that tap into pipelines. The Nigerian military regularly destroys these plants, but the activity — and the consequent environmental damage — persists given strong demand for refined products amid regular shortages. NNPC's main oil refineries at Port Harcourt, Warri and Kaduna have a combined capacity of 445,000 b/d but operate at less than 10pc of capacity because of lack of investment and power supply constraints.

Modular refineries typically range in size from around 2,000 b/d to 30,000 b/d in capacity and are less costly than traditional, larger refineries. Nigeria has previously awarded more than 20 licences for the construction of modular refineries, but only two have progressed.

The petroleum ministry has set itself an ambitious target of reducing refined products imports by 60pc by the end of 2018 and for the country to be a net exporter of refined products by 2019. NNPC imported nearly 190,000 b/d of gasoline and dual-purpose kerosene last year under its direct sale of crude oil and direct purchase of oil product (DSDP) contracts.

Financing of the proposed modular refineries involving local communities has not been finalised. Government development agencies, including the Niger Delta Development Commission and the Nigeria Sovereign Investment Authority, have been forwarded as potential backers. Crude could be supplied by NNPC or marginal field operators, according to oil officials.

The Department of Petroleum Resources has previously granted 22 licences for new oil refineries, for a total of 671,000 b/d of potential refining capacity. But few of these have progressed.

Non-NNPC refinery operations centre on Niger Delta Petroleum Resouces' 1,000 b/d topping plant at Ogbele, which the firm wants to expand to 6,000 b/d in 2018.

Some oil communities have previously been given stakes in upstream operations and security contracts in an attempt by government to reduce attacks on oil and gas facilities. Former rebels have received regular payments and job training from the government since a presidential amnesty scheme started in 2009.

The policy of allowing illegal refiners into commercial downstream operations follows visits this year by vice president Yemi Osinbajo to the Niger delta states of Bayelsa, Rivers, Delta, Imo, Akwa Ibom, Edo and Abia. The government is also backing a 2,700 hectare gas-based industrial park in Ogidigben, Delta state for fertilizer, methanol, petrochemicals and an aluminium plant.