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Mini Refineries Lead Nigeria’s Quest to Process Own Crude Oil

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On a river bank deep in the Niger Delta a local contractor is building one of a growing number of mini refineries that the Nigerian government hopes will finally help wean Africa’s biggest economy off foreign fuel.

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(Bloomberg) — On a river bank deep in the Niger Delta a local contractor is building one of a growing number of mini refineries that the Nigerian government hopes will finally help wean Africa’s biggest economy off foreign fuel.

The continent’s most prolific oil producer has almost no refining capacity, so for decades it has shipped its own crude abroad for processing, while importing and subsidizing the finished product. That eats away at the budget, especially when oil prices rise and sales dip. The government aims to end the practice primarily via billionaire Aliko Dangote’s 650,000 barrel-a-day complex near Lagos and rehabilitating its own inoperative facilities. 

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But it has also promoted much smaller modular plants, like AIPCC Energy Ltd.’s 30,000 barrel-a-day Koko refinery that’s being fabricated in China and will be installed in the southern Delta state. With Dangote’s refinery beset by delays, these mini projects are at the forefront of the country’s efforts to cut billions of dollars from its annual import bill.

“We are aiming for 20% of the total diesel market in Nigeria,” Daghe Osime, executive director of AIPCC, a joint venture between a Nigerian firm and a state-owned Chinese company, said at an oil storage facility where the refinery is being built. 

He estimates that the plant will generate around 400 billion naira ($867 million) per year from selling diesel into the local market, while bringing in about 230 billion naira shipping naphtha and fuel oil through an agreement with Singapore-based Mercantile & Maritime Energy Pte. 

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AIPCC opened a 1,000 barrel-a-day “proof of concept” refinery in Edo state in 2021 and intends to start work on doubling capacity at its Koko site once it starts producing early next year.

Out of dozens of firms such as AIPCC that were awarded licenses, four have managed to build facilities that can process a combined 27,000 barrels of oil a day. That amounts to only 2% of output by Africa’s largest crude producer, but the companies intend to double capacity by the end of the year and eventually increase it by almost six times.

OMSA Pillar Astex Company Ltd, or OPAC, can produce 10,000 barrels a day, while Niger Delta Petroleum Resources Ltd aims to double its 11,000 barrel-a-day capacity by 2025. Waltersmith Petroman Oil Ltd. plans to increase production ten-fold to 50,000 barrels a day. 

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The scale pales in comparison to Dangote’s development, which at $20 billion has cost more than double the amount originally projected and missed multiple deadlines for completion. Still, the giant plant will benefit from securing about half of the oil supply it needs from the Nigerian National Petroleum Corp., which has a 20% stake in the business. The NNPC said in August that Dangote’s company will finally begin production by the middle of this year.

Sourcing a reliable inflow of crude is a key issue for the modular players. Some built plants near their own oil fields, but they’ll need to lock down third-party supplies as they expand. OPAC has encountered difficulties in sourcing enough crude because it sells domestically in the local naira currency and independent domestic producers prefer payment in dollars.

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“We are not producing up to capacity,” OPAC Chairman Momoh Oyarekhua said in an interview. “We should be able to pay for the crude we are refining in naira because the purpose of this refinery is to substitute locally produced product for imported product,” he said. 

Nigeria’s crude output has also been suppressed by rampant theft on much of the delta’s pipeline network. “As a local refinery, we are an alternative for marginal field producers facing pipeline vandalism,” Osime said. AIPCC has concluded a supply deal with one local producer and is in advanced discussions with London-listed Seplat Energy Plc over further deliveries, he said.

The refineries can help Nigeria stop spending its scarce foreign exchange on buying fuel from abroad and support other “auxiliary businesses,” according to Oyarekhua, an oil product trader by background. “I’ve seen the inefficiency in that system of importing product.”

—With assistance from Gina Turner.

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