In this report, OKECHUKWU NNODIM discusses the impact of prolonged subsidies on Premium Motor Spirit (PMS) and other factors that have hindered the development of modular refineries in Nigeria.
Nigeria’s reliance on imported petroleum products could have significantly diminished if all licensed modular refinery operators had successfully developed their facilities. Modular refineries are simplified and require considerably less capital investment compared to traditional full-scale refineries. These facilities typically consist of a Crude Distillation Unit that simplifies crude oil into low-octane naphtha, diesel, kerosene, and residual fuel oil.
In Nigeria, modular refineries with capacities of up to 30,000 barrels per day have been introduced as part of efforts to combat oil theft and promote peace in the Niger Delta, a major oil-producing region. In May 2018, the Department of Petroleum Resources (DPR) announced that licenses for modular refineries had been granted to 25 investors.
However, since that announcement in 2018, only about four modular refineries have been completed successfully. These include the OPAC Refinery, Duport Edo Refinery, Walter Smith Refinery, and Niger Delta Refinery.
One of the main reasons for the delay in the establishment of modular refineries has been the unfavorable economic conditions. Subsidy policies, which regulated and capped product prices, affected the profitability of these ventures. Additionally, many license holders struggled to secure foreign funding for their projects, as expenses were in foreign currencies while products were sold in the local currency, the Naira.
The subsidy on petroleum products, especially Premium Motor Spirit (PMS), existed for an extended period and had a detrimental impact on the launch of modular refineries. In April 2023, the Nigeria Extractive Industries Transparency Initiative (NEITI) disclosed that over N13 trillion (approximately $74 billion) had been spent on subsidizing PMS between 2005 and 2021. This amount was equivalent to the entire budgets for health, education, agriculture, and defense over the past five years.
The removal of the fuel subsidy and the deregulation of the downstream oil sector have created a more favorable environment for modular refinery investments. Consequently, many investors in this space are now returning to kick-start their projects. Currently, four modular refineries are in production, with several others in various stages of development.
Modular refineries are still viable alongside larger refineries like the Dangote Refinery, which is expected to produce 650,000 barrels of crude daily. These smaller refineries are localized in multiple sites across the Niger Delta region, enabling them to supply refined products locally and potentially export any surplus.
To facilitate the growth of modular refineries, access to intervention funds, guaranteed feedstock supply, and support from regulatory bodies are essential. Additionally, the government should waive fees, provide security against vandalism, and ensure that waivers and benefits given to larger refineries are also extended to modular refinery operators. These measures, along with the removal of subsidies, will contribute to reducing Nigeria’s dependence on imported petroleum products and addressing fuel scarcity issues.