Challenges faced by refining in Nigeria

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Challenges faced by refining in Nigeria

ABSTRACT

Oil was struck in the late 50s in the NigerDelta area of Nigeria by British German and Dutch engineers this brought about the building of oil refineries Nigeria currently has four refineries all of which are owned by Nigerian National Petroleum Company NNPC however the oil industry has been seriously impacted by operational problems since inception with production well below capacity This research paper seeks to analyse the challenges of refining in Nigeria with respect to internal setbacks of corruption vandalisms breakdowns and international issues of the global market and OPEC

CHAPTER ONE Introduction

Oil refineries convert crude oil into fuel products lubricating oils bitumen and chemical feedstock There are 43 operating and 4 mothballed oil refineries in Africa which range from small topping and reforming refineries to sophisticated complex refineries which can compare with the best in the world and 4 synfuel plants The total distillation capacity for the continent is approximately 142700 kilotonnes per annum 2854 tbpd or an average of 3400 kilotonnes per annum 68 tbpd per refinery 1

Nigerias first refinery was built at Alesa Eleme Port Harcourt PH I in 1965 boasting a capacity of 38 tbpd which sufficiently met all domestic demand although it was later expanded to 60 tbpd in the 70s it could not meet the demands of quickly growing Nigerian economy The NNPC then built an additional refinery in Warri with a capacity of 100 tbpd which became operational in 1979 technical setbacks and breakdowns for routine maintenance hindered production thereby bringing down total petroleum processed in the plants by the end of 1979 to 89 tbpd about 83 percent of the local demand

The NNPC had to transport considerable amounts of oil to be refined abroad to make up for the shortfall in the late 1970s and early 1980s some oil was also processed in neighboring Ghana Cameroon and Ivory Coast A third refinery with a capacity of 100 tbpd began operations at Kaduna but did not produce at maximum until the mid1980s The fourth refinery was ready for production in March 1989 known as PH II as it is joined with the first refinery in Alesa Eleme increasing Nigerias refining capacity to 445 tbpd At this time domestic petroleum demand was below production so some of the products of the four refineries were able to be exported However by the early 1990s product output was severely below the growing domestic demand to require that the NNPC still go back to refining some petroleum abroad In 1988 about 96 percent of the oil Nigeria produced came from companies in which the NNPC held at least 60 percent of the equity The NNPC also was responsible for 75 percent of total investment in petroleum In the late 1980s the major Western oil companies exploring oil resources in Nigeria were Shell Chevron Mobil Agip Elf Aquitaine Phillips Texaco and Ashland In 198588 11 percent of all extracted oil about 66 percent of domestic requirements was refined in Nigerian refineries where the NNPC owned majority equity shares 2 Nigerias four refineries with a nameplate capacity of refining 445 tbpd of crude were set up almost 30 years ago but the several cases of corruption fire lackadaisical management sabotage and lack of the mandatory turnaround maintenance TAM on the machines has deemed all the refineries inefficient thereby operating annually at about 40 of full capacity 214 tbpd at best

REFINERIES AVERAGE ANNUAL CAPACITY UTILIZATION 1997 2009

Fig 1 and Fig 2 show how the fluctuations and drop in capacity of the refineries as a result of the setbacks mentioned earlier which has consequently caused the ceaselessly irregularities of oil production and strangulating fuel price hikes with the attendant effect on prices of goods services as well as the countrys economy in general

The essence of this research paper is to answer the question why a country like Nigeria which is rich in both natural resources and human capabilities has not been

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