Thursday, June 1, 2017 7:00AM / PwC
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 a 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. This continuous dependence should see countries such as Nigeria focusing on adding value to its natural resources. With oil prices expected to remain relatively low in the medium to long term, the focus on refining should become imperative. This also creates a new opportunity to transform the fundamentals of the downstream sector and shifting from a “net imports” to “net exports” structure is becoming more imminent. We appreciate you taking the time to read this PwC publication.
Refining in Nigeria
Refining in Nigeria began a decade after oil was discovered in the oil-rich Niger Delta region in the 1950s. Initially starting out in 1965 with a refining capacity of 38,000 barrels per day (bpd), Nigeria's refining capacity has grown over the years and is considered the 4th largest in Africa. The nameplate capacity of 445,000 bpd is housed by 4 refineries strategically located in various states around the country: Rivers, Delta and Kaduna. Despite having a nameplate capacity that should meet domestic demand, Nigeria still imports over 80% of refined products to meet its current needs. Unlike the production of crude, the production of refined products has been suboptimal and Nigeria has consistently struggled to keep its refineries functioning optimally. The outlook for refining has been tainted with uncertainty due to the adverse effects of subsidies, poor maintenance, general operational failure and inconsistent supply of feedstock. As a case in point, Nigeria's per capita refining capacity is 0.002 bpd/capita, low even by Africa standards. Libya by comparison is 0.06 bpd/capita, and South Africa 0.01 bpd/capita.
However, recent events such as advancement of the Nigerian National Petroleum Policy and the sustained depression in crude oil prices are ushering in fresh waves of optimism for the sector and we predict a paradigm shift from a “net imports” to “net exports” structure. This shift will see Nigeria become a net exporter of refined products and the refining hub of West Africa by the start of the next decade.
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