A modular refinery strategy needed

THE euphoria following the inauguration of President Muhammadu Buhari’s regime seven months ago .appears dampened by a plethora of economic problems, one of which is the savage return of fuel scarcity, which has been on for two months.

Fuel shortage is a manifestation of multi-dimensional challenges facing the petroleum industry: deregulation of the downstream sector, removal of the petroleum product subsidy, product supply challenges arising from non-functional refineries, illegal artisanal refining business in the Niger Delta, crude oil theft and poor maintenance/management of the more than 5,000km oil pipelines in Nigeria. Corruption is a central player in all these.

The Nigerian public to whom the new government owes accountability does not need to be bothered with this long list of challenges. All they want is to get the petroleum products to run their lives.

Removal of fuel subsidy as indicated by the federal government is a step in the right direction only if it goes with the complement of local refining and supply of the products.

We, therefore, advocate the modular refinery strategy against the backdrop of the massive failures and disappointments we have seen in the conventional refining system Nigeria has run since 1965.

This has become more compelling in view of the slow pace of delivery on the private sector conventional refinery projects with the most serious of them by the Dangote Group projected to come on stream in 2018.

The advantages of the modular refinery option are in its simplicity, low start-up cost and flexibility in adjusting to market demands.

The simplicity of the technology weighs much value in our society that is challenged by poor maintenance culture which is the key problem of the current refineries in the country.

Moreover a conventional refinery will cost a minimum of US$3 billion just to set up a 100,000 barrel per day (bpd) capacity, an amount which can set up 20 modular refineries of between 10 and 20 bpd.

It also takes an average of 18 months to deliver a standard modular refinery which is usually a turn-key compared to about three years it takes a serious investor to start and finish a 100,000 bpd conventional refinery.

It is often argued that since modular refineries are not configured to combine multiple product lines it is less cost-effective on economy of scale.

The product line disadvantage should be addressed by consciously licensing and promoting the modular refineries on product line basis where the petroleum authorities should determine the product lines demand structure in the economy and licence accordingly.

On the economy of scale the authorities can also determine the optimum market size per refinery and guarantee prospective investors of a licensing regime that protects their market share.