By Oloruntobiloba Ajani
THE Federal Government and other stakeholders have been advised to invest in modular refineries because of cost effectiveness and flexibility.
PricewaterhouseCoopers (PwC) which disclosed this in its latest report obtained by Vanguard added that the refineries were usually available in capacities ranging from 1,000 to 30,000 barrels per day (bpd).
A modular refinery
It indicated that the refineries provide flexibility and can be constructed in a phased manner, adding that the relatively low capital cost and flexibility for upgrades can make it a cost effective supply option for investors.
‘’Conventional refineries are not as flexible as modular refineries and they require relatively high investment in resources and specialised labour to run, maintain and upgrade.
‘’The economic viability of a refinery is dependent on the interaction of three elements: type of crude oil used the complexity of the refining equipment (refinery configuration) and the desired type and quality of products produced.
‘’Different types of crude oil yield a different mix of products depending on the crude oil’s natural qualities. Crude oil types are typically differentiated by their density (light/sweet and heavy).
‘’Heavy crude tends to produce a larger yield of lower-value products (fuel oils) and also requires significant investment in the refining process. On the other hand, light, sweet produces large yield of higher-value products (transportation fuels) and requires less investment in the refining process.
‘’Nigeria currently produces light, sweet crude, meaning Nigerian refineries may be able to source and process crude at lower rates, increasing the viability of refining assets, particularly modular refineries which have lower feedstock requirements.’’
The company also stated that a key requirement for refining profitability is finding the sweet spot between cost of inputs and price of outputs in a highly volatile environment influenced by global, regional, and local supply and demand fluctuations.
It disclosed that refineries have minimal influence over the price of input and outputs and, therefore, must ensure operational efficiency to improve profitability and gain competitive edge.
‘’This entails reducing operating costs such as labour, maintenance, energy (electricity and natural gas) etc. to the barest minimum. Efficiency is achieved through operational excellence, innovation, maintenance & upgrades and optimisation to produce more output from fewer inputs.
‘’Although refineries share certain similarities, each refining asset is a unique and complex industrial facility, with some flexibility in the crude slate it can process and the mix of product yields it can refine. Factors such as refinery configuration and complexity directly impact refinery end products while location and transportation infrastructure impact energy, labour and compliance costs.’’
The company added that: ‘’Over the last four decades, Nigeria has consistently struggled to keep its refineries functioning optimally. Despite having a nameplate refining capacity that exceeds demand, Nigeria ranks as the 3rd highest importer of petroleum products in Africa, importing over 80% of products consumed. In spite of the setbacks, the inherent opportunity for Nigeria’s erstwhile dormant refining sector holds bright prospects for the future and recognition of key drivers will accelerate the imminent refining revolution.
‘’This paper provides a studious analysis of the current state of the refining sector and the refining revolution we predict will take place over the next 3-5 years. It draws attention to the existing gaps in the supply of refined petroleum products in Nigeria and the West African region and it highlights the sizeable potential for domestic refining of petroleum products.
‘’Importantly, it identifies key drivers that will spur the growth of the refining sector in Nigeria. Lastly, this paper highlights refining asset economics and structural commercial considerations for investors and identifies the modular refinery, an off-the-shelf solution, as the cost effective supply option for investors especially when diesel is the lightest yield. The world is expected to continue to run primarily on fossil fuels to supply its energy in the near to medium term.’’