Local Firm Plans Major New Refinery In Nigeria

Hopes for a second major private refinery project in Nigeria rose in early December.

Expanding local midstream firm Petrolex Oil & Gas announced the selection of a heavyweight international engineering consultant to conduct studies on a proposed multi-billion dollar facility near Lagos.

While the country’s downstream sector has for years been littered with broken promises by both state and private actors to increase the oil-producing giant’s woeful local provision, the new scheme was lent credibility by being unveiled at an event to mark the inauguration by the putative developer of sub-Saharan Africa’s largest fuel storage facility.

Meanwhile, the government has faced renewed criticism over the latest iteration of plans to rehabilitate the four ageing and dilapidated state-owned refineries – which currently meet a fraction of domestic needs.

In a series of interviews coinciding with the opening of the new tank farm, Petrolex chairman and CEO Segun Adebutu disclosed details of the company’s plans to develop a 250,000 bpd greenfield refinery at the same site. It will be located in the Ibefun area close to the commercial capital, Lagos, in southern Ogun State.

The UK’s Amec FosterWheeler has been selected to carry out the front-end engineering and design (FEED) contract on the proposed facility – which would require investment of US$3.5 billion and is being tentatively targeted for completion in 2021.

Abuja has been attempting to attract investment in private refineries for many years and dozens of firms were granted licences to set up such plants shortly after the accession of President Muhammadu Buhari in 2015. However, the schemes have struggled to attract finance and few have yet proceeded beyond the drawing board.

The glaring exception is the 650,000 bpd refinery planned by locally based conglomerate Dangote Industries – also to be located near Lagos in the Lekki Free Trade Zone – which was conceived earlier in the decade and which is now under construction, scheduled for completion in 2019.

Should the Petrolex scheme proceed, the refinery would become the country’s second largest – exceeding the total capability of the state-owned facilities even were they to be restored to full capacity.

Adebutu said that the project would be funded through a combination of internal funds and debt raised from local and foreign banks. This is a challenge besetting prospective new downstream projects, but was overcome by Dangote in 2013 with a landmark US$3.3 billion international syndicated loan.

An initial public offering (IPO) on the Nigerian Stock Exchange was a longer-term aim, Adebutu said, as were plans to build around 1,500 retail outlets across the continent.

Confidence that the new venture will go ahead where others have failed was engendered by the successful commissioning this month of the 300 million litre Ibefun Tank Farm – at a cost of more than US$300 million. The facility aims to remove 2,000 trucks from the Apapa area of Lagos, reducing congestion by around 60%. Petrolex has noted plans to add capacity at a rate of roughly 250 million litres annually to reach a 1.2 billion litre total.

The storage facility also comprises 30 loading gantries, while a pipeline connects the tanks to an existing oil products pipeline at Mosimi – allowing the fuels to be transported across the country.

Both projects form part of Petrolex’s nascent “Oil City” midstream and downstream hub at the Ibefun site – and are designed to help address the country’s chronic fuel shortages.

So far, 13,000 hectares (130 square km) have been allocated to the wider scheme, with negotiations ongoing for a further 12,000 hectares (120 square km).

Despite producing 1.8 million bpd of crude, Nigeria imports the bulk of petroleum products: refinery throughput of 53,500 bpd in 2016 met less than 20% of domestic consumption averaging 393,000 bpd, according to OPEC’s latest annual statistical bulletin.

Beleaguered Petroleum Resources Minister Ibe Kachikwu has repeatedly stated a goal of eliminating such imports by 2019 – but his only hope of doing so increasingly appears to lie with the Dangote refinery being completed on schedule.

Efforts stretching back many years to restore the four state refineries – two at Port Harcourt and one apiece at Warri and Kaduna – to nameplate capacity of 445,000 bpd have yet to bear any concrete fruit.

The minister faced critical questioning in the Senate in late November over his most recent statements of intent around the problem – which proposed spending US$1.8 billion on a turn-around maintenance (TAM) programme.

MPs reasonably noted that hundreds of millions of dollars had been spent on TAM initiatives in recent years – without significant improvement in the refineries’ performance.

A controversial tendering process is also under way to select private and foreign companies to take on repair-operate-maintain contracts at each of the facilities – to restore capacity and then assume operation and maintenance responsibility for several years to recoup costs.

State-owned Nigerian National Petroleum Corp. (NNPC), which is managing the process, issued an update in September noting that 28 expressions of interest (EoIs) had been received thus far – while also expressing a goal of attracting additional responses by the end of the year, for reasons unexplained.