Crude Supply Drops Due To NNPC’s Delay In Modular Refineries Authorization

Crude Supply Drops Due To NNPC’s Delay In Modular Refineries Authorization

Operators of modular refineries are facing a major setback as they encounter resistance from the Nigerian National Petroleum Company (NNPC) in a bid to secure alternative crude oil supplies.

Nigeria’s position as Africa’s biggest oil producer should logically confer the benefits of ample supply to its local refiners. However, the reality is starkly different.

Leaked memos and extensive interviews with industry insiders showed the state-owned company is foot-dragging on approvals for modular refineries to seek alternative crude oil supplies.

Modular refineries are simplified refineries with significantly less capital investment than traditionally full-scale refineries.

Insiders said the red tape is a death knell for modular refineries struggling to survive amid funding drought, as foreign investors withhold their money due to a lack of guaranteed crude oil supply.

A leaked memo seen by BusinessDay showed AIPCC Energy Limited, owners and operators of the Edo Refinery and Petrochemicals Company Limited (ERPCL), has faced significant operational hurdles due to the persistent lack of crude oil supply despite being a fully functional 1,000 barrels per stream day crude oil refinery located in Ologbo, Edo State.

The company has existing crude oil supply agreements with Seplat and ND Western since 2022, but bureaucratic bottlenecks have prevented the refinery from accessing the much-needed resource.

ERPCL’s letter addressed to Mele Kyari, group chief executive officer of NNPC, alleged the company has been in constant communication, sending letters and having meetings with the NNPC since 2021.

“On 18th August 2021, our team led by our chairman, met with you and your top management team to discuss our intention to buy crude oil from NNPC and we immediately wrote to the NNPC, seeking crude supply,” the letter dated 22 July 2024 said.

It added, “In July 2022, the representatives of NNPC (from HQ Abuja and NPDC Benin) visited our facility for site inspection and to confirm the mechanical completion of the Edo refinery. In September 2022, we were invited for a commercial negotiation meeting with the NNPC Head of terms, after which we sent a follow-up letter identifying the oil fields from which we can offtake crude oil.

“In March 2022, we also wrote to the Ministry of Petroleum Resources, informing it of our refinery status, future projects and our challenges of lack of crude oil supply to our refinery. We had also written to and had a meeting with the NNPC Exploration and Production Limited (NEPL) between November 2022 and March 2023, indicating our severe need for crude oil supply from oil fields where NEPL has equity stakes.”

ERPCL noted that despite these correspondences and communications with NNPC over the past three years on the issues of crude oil supply, it has succeeded.

ERPCL also has a Crude Oil Supply Agreement with ND Western to lift crude oil from the Ughelli Pumping Station (UPS) owned by NEPL and operated by Shoreline.

“We have held several meetings with Shoreline and Heritage Oil and indicated our readiness to make modifications needed to offtake crude oil from the UPS but no progress has been made till date,” ERPCL.

The owners of ERPCL seek Kyari intervention as group CEO of NNPC for NUIMS to give occurrence to the Seplat-ERPCL agreement to enable Edo refinery to start lifting crude oil from Oil Mining License 53.

They also want Kyari’s intervention for NEPL and shoreline to allow Edo refinery to start lifting ND Western’s crude oil from the Ughelli pumping station.

Nigeria currently boasts 25 licensed modular refineries. Five are operational, producing diesel, kerosene, black oil, and naphtha.

OPAC and Aradel have the highest capacities among the five working refineries at 11,000 and 10,000 bpd respectively, while Duport has the lowest at 2,500 bpd. Edo Refinery and Waltersmith fall in between, with capacities of 1,000 and 5,000 bpd, respectively.

About 10 are in various stages of completion, while the others have only received licences to establish. The rest remains stalled due to the unavailability of crude and other issues.

The CEO of another modular refinery, who pleaded anonymity, stated that modular operators had raised concerns severally in the past that some mafias in the oil sector were bent on stopping in-country refining of crude oil for the production of Premium Motor Spirit, popularly called petrol but received no positive feedback, stressing that the chairman of Dangote Petroleum Refinery just re-echoed it last month.

“No modular refinery has received a barrel from NNPC despite engagement since 2020,” he said.

Eche Idoko, the publicity secretary of Crude Oil Refinery Owners Association of Nigeria (CORAN), advised the federal government to treat indigenous refiners right, given that foreign investments are no longer flowing into the sector.

“In the last eight years, no major foreign investments had been recorded,” Idoko said.

He noted that five CORAN members have completed their refineries.

“The others are having a major challenge. This challenge is that the people who are supposed to finance them have not disbursed financing for construction because they want some level of guarantee,” he said.

“A guarantee that if they finish the refinery, they are going to get feedstock, which, of course, is crude oil,” Idoko said.

Industry experts say the economic impact of this inadequate supply is profound.

BusinessDay findings showed that agriculture and manufacturing, which depend heavily on diesel and other refined products, suffer from high operational costs due to exorbitant fuel prices.

The National Bureau of Statistics (NBS) reported a 20 percent increase in food prices over the past year, a trend directly linked to high diesel costs driven by insufficient local refining capacity.

Moreover, the high cost of diesel, which peaked at N1,800 per litre early this year, places a heavy burden on logistics and transportation, further driving up the cost of goods and services. The coming of the Dangote Petroleum Refinery forced the price to N1,200/litre in April.

Last Monday, the Federal Executive Council (FCE) approved a proposal by President Bola Tinubu directing the NNPC to sell crude oil to Dangote Petroleum Refinery and other modular refineries in naira.

Idoko believes this move will boost domestic refining capacity and ultimately reduce fuel prices for consumers. However, he emphasised the need for concrete actions to back up the announcement.

“Regulatory bodies need to provide detailed guidelines for the policy’s implementation,” Idoko said.