Energy

Fuel importation: Experts fault 2019 target

Emmanuel-Ibe-Kachikwu-1-300x196

By  Ayobami Adedinni

Energy analysts have faulted the recent pronouncement by the Minister of state for Petroleum, Ibe Kachikwu that the country will stop petroleum importation by 2019.

The Minister had last week said that by December, 2018 the country would have reduced importation by 60 per cent.

Head, Energy research, Ecobank, Dolapo Oni said in a recent chat with Nigerian NewsDirect that the success of the target will depend on how fast the refineries are rehabilitated.

In his words, “It really depends on how fast they can move with the rehabilitation of the refineries. If we achieve what we are trying to achieve with the refineries which to me is a bit optimistic, I think to some extent it may be possible but the biggest part of that pronouncement is really a hope that Dangote refinery will be ready by 2019 which again to most of us that are finance people is also a bit optimistic because I have not seen Dangote’s plan.

“The best of my knowledge that I am aware of is that it is a single train. In other words, they are not going to deliver it in phases maybe 200,000bpd in phase 1, and then they add another 200,000. No, it is actually going to be 650,000 bpd at once which could lead to a bit of complication

“For instance, Saudi Arabia with all the resources did 400,000bpd refinery in 5 years. How we are going to do a 650,000 bpd refinery in 3 years at a stretch especially when you look at the Foreign Exchange situation that we have,” he added.

Speaking on the modular refineries, he said it will help the existing refineries to process more because of the new capacity installed.

He said, “Modular refineries would help us achieve the aim but I think they have a plan in NNPC and that plan I hear has not really died off yet which is to put some modular refineries plant the existing refineries. Then the refineries will be able to process more because they would have new capacities that have been installed there. That would be key.”

However, he said because of its high cost and processing ability, it is not a profitable business adding that the investor might struggle.

He stated, “The only problem is that the owners of those refineries will struggle if they are not able to sell to Nigeria. Modular refineries don’t come with a lot of processing capacity in terms of ability to crack very heavy crude apart from Nigeria’s light sweet crude. They must get assurances that they will get Nigeria’s light sweet crude oil. And once they get that assurance, they must also get assurance that it will be sold completely in Nigeria.

“This is because the cost per barrel is a lot more for modular refineries compared to the large scale refineries like Dangote refineries.

But that could work because they can process the Crude Oil especially Nigerian crude Oil,” he said.

According to him, banks may not be willing to provide funds for owners of modular refineries because it is not like a large scale refinery which is more profitable.

He said, “If you work through the economics, most of them would really need to have a lot of equity because I can guarantee you, if you take the model of a modular refinery and give it to a normal banker in Nigeria, and say help me finance this, he will tell you no. This is because it is not a very profitable business. There would be a lot of issues that could make you struggle to make money, pay back among others.

“Overall, I think it is optimistic. I agree it is good to have a target that they are trying to achieve, but it is slightly optimistic,” he added.

 On his part, Lead Research Analyst, Energy Datar, Chijioke Mama described the announcement “that Nigeria will attain self-sufficiency in refined products by 2019 as an ambitious statement and a very tall order for the petroleum ministry.”

According to him, it will be a tough work considering the challenges being faced by the sector especially with the refineries.

In his words, “While we have heard similar statements for several years, it is good for one to reserve his comments in order to give the planners the benefit of the doubt. However, the points to note are; that the growth in product consumption averages 4-6% yearly in Nigeria; full conversion of refineries typically requires long periods for completion and modular refineries do small volumes that a large cluster will be required to achieve meaningful volumes.”

He said, “NNPC’s refineries are not just technically down but they are still run like a public asset with little focus on profitability which in turn harms performance, if this changes then its good news. Dangote’s refinery is the surest addition to refining capacity in Nigeria. So while it is doable it will be a very tough walk,” he added.

Industry watchers believe that the pronouncement by the Minister to identify specific modular refineries backed up by foreign investments working with state governments is aimed at reducing the restiveness in the Niger Delta.

They however cautioned that the arrangement should not be politicized citing the modular refinery that was established in Akwa Ibom and supposed to have begun operation since 2012.

Speaking with one, he said, “there was one of the modular refineries that would have started operations already was the one being set up in Akwa Ibom. If things had gone as planned, that refinery would have been up and running since 2012. But the reason it did not happen was because they fell out with the state governor – Akpabio at that time.

“So, I think I understand where Kachikwu is coming from when he said state government. He is trying to placate the governors by saying we have your interests at heart. We will make sure that these refineries will be somewhere you can have an influence,” he added.

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