Nigeria’s DPR publishes list of private refining licences

The Department of Petroleum Resources this week announced which refining plants have valid permits, illustrating the trend towards modular refining.

What: A total of 23 projects either have valid permits or have crossed the 50% construction prerequisite for a licence to no longer be required.

Why: Nigeria has a history of announcing major private refining projects that never materialise, while the public sector has an equally patchy reputation.

What Next: The rise of modular refining has brought tangible progress and while the current 23 projects are unlikely all to be completed, the modular approach is already improving the planned-to-commissioned ratio.

Nigeria’s Department of Petroleum Resources (DPR) this week published a list of valid operating permits for private refineries in the country.

Publication of the list, which includes the 650,000 barrel per day (bpd) facility being developed by Dangote Group at Lekki, led to consternation in local press owing to the omission of 32 licences, leading to claims that the DPR had revoked these permits, forcing the organisation to clarify that these licences had actually expired.

Capacity drive

Of the 23 valid licences, construction has only begun on five, four of which are modular units with a nameplate design capacity of 5,000-7,000 bpd, the other being Dangote.

The relative low cost and convenience of modular refineries has seen them become an attractive solution in Nigeria, where buy-in from local communities is key to avoiding pipeline vandalism and reducing illegal refining, which is costly to operators and environmentally damaging, not to mention dangerous to those involved.

With that in mind, 16 of the 23 permits are for refineries with a capacity of 12,000 bpd as field developers seek to process crude close to the wellhead to avoid transport woes while controlling sales in the local market.

This should come as little surprise given the significant control exerted by fuel marketers, partially stemming from the chronic failure of the four large state-owned refineries operated by the Nigerian National Petroleum Corp. (NNPC) at Port Harcourt (x2), Kaduna and Warri. While a project to restore useable capacity at Port Harcourt first to 90% then to the full 210,000 bpd is kicking off despite misplaced controversy in media and opposition circles, NNPC has admitted its own struggles with refining, with all of these units currently fully offline.

NNPC’s issues in operating the refineries are well documented, with the company saying in 2019 that it had failed to carry out turnaround maintenance for four decades.

The valid permits cover plans for 1.09mn bpd of capacity, with only the 5,000 bpd modular unit developed by Waltersmith Petroman at Ibigwe in operation. Given Nigeria’s track record in bringing such projects to fruition, the chances of such a capacity rise being fully realised are almost zero; however, the progress shown by the modular units is a shot in the arm for the sector and provides major encouragement for the development and expansion of Nigeria’s downstream industry.

Speaking to Downstream MEA (DMEA), Ian Simm, principal advisor at consultancy IGM Energy, said: “It might not sound like much, but achieving construction completion at 23,000 bpd of refining capacity is a major step forward for Nigeria’s refining sector. The Dangote unit is clearly the one everyone is waiting for, but companies like Waltersmith have started the ball rolling on an approach that sets achievable targets and brings tangible benefits for the local communities.”

Expired permits

Following the publication of the valid licences, media reports suggested that the DPR had revoked 32 permits for private companies to build refineries. This prompted the DPR’s head of public affairs Paul Osu to make a statement of clarification: “We wish to clarify that DPR did not revoke any refinery licence.”

He added that those not included in the published list had expired. “Refinery licences, like our other regulatory instruments, have validity periods for investors to attain certain milestones. This implies that after the validity period for the particular milestone, the licence becomes inactive until the company reapplies for revalidation to migrate to another milestone.”

“This does not in any way translate to revocation of licence of the company,” Osu noted.

Of those no longer valid, seven were intended to be built in Niger Delta, four in Akwa Ibom and three in each Edo, Lagos and Rivers.

With so many refineries having been proposed, the DPR’s short two-year window for starting work is understandable. A history of unfulfilled promises has given rise to a newfound scrutiny on the downstream sector.

Permits for products

Given the transformative potential of the Dangote project, the company has a unique opportunity to use its influence to bring improvements to Nigeria’s industry legislation.

Last month, the company called for a clause to be included in the long-awaited Petroleum Industry Bill (PIB) that allows only companies with an active refining licence to import petroleum products, arguing that this would encourage private investment in refining.

During a presentation to members of the National Assembly’s PIB joint committee, Dangote’s chief strategy officer, Aliyu Suleiman, recommended a backward integration policy be applied in the downstream sector to encourage investment in local refining.

According to Nigeria’s Punch daily, he said: “Nigeria is exceptional in being a major oil producer with near-zero refining capacity”, adding that while the Dangote unit will help address this, there may be shortfalls during maintenance or amid a growth in demand.

“To support this, a licence to import any product shortfalls should be assigned only to companies with active refining licences. Import volume to be allocated between participants based on their respective production in the preceding quarter. Such import will be done under the [direct sale-direct purchase] scheme,” he suggested.

In support of this recommendation, Suleiman said that imported fuels are generally very low in quality, noting that imported petroleum products must conform to the 50 ppm sulphur Afri-5 standard.

However, with 55 private refining licences either valid or having recently expired, such a regulation may only serve to add to the number of planned plants that never come to fruition.