2021: End of the bad times?
With 125,000, 210,000, and 110,000 barrels per day production capacity for WRPC, PHRC, and KRPC respectively, the refineries have been a bright spot for the NNPC. However, in 2019, the refineries continued their losing streak of N167bn and only WRPC processed any oil. In April 2020, all three refineries shut pending rehabilitation to have them at 90% of capacity by 2023.
Is the pain of rehabilitating comatose oil refineries a window into the future for Nigeria’s oil and gas industry? For decades, the NNPC has unsuccessfully attempted to revamp the oil refineries. Last year, in December, NNPC’s Managing Director, Mele Kyari, said the corporation had opened a bid round for a contract to rehabilitate the Port Harcourt refinery. Kyari also said that private companies would run the refineries once they were rehabilitated.
In March 2021, the Federal Executive Council (FEC) approved $1.5 billion for the immediate rehabilitation of the Port Harcourt refinery.
According to the Minister of State for Petroleum Resources, Timipre Sylva, the rehabilitation, which was awarded to an Italian company, Tecnimont SPA, will be done in 3 phases of 18, 24, and 44 months.
What does this tell us about the future?
Many industry analysts expect Nigeria’s crude oil production to be broadly flat in coming years due to concerns among investors about the capacity of the refineries. Low (or no) production of Nigeria’s crude oil means that bottlenecks will appear to threaten future Nigerian oil demand and consequently, profitability.
A shrinking domestic market also portends growing competition from oil refineries in other countries. New sophisticated refineries with significant upgrading capacity continue to open in major oil-producing countries. The bad news has an impact.
While global crude oil prices and refined petroleum products are expected to increase and bolster revenue growth, revenue from Nigeria’s oil refineries continues to fall as the capacity of existing facilities has not upgraded to handle higher production volumes. The steep drop in production annually means that Nigeria’s refineries are in dire need of rehabilitation, reduced processing costs, or temporary halts to operations to save money spent on administrative expenses and improve profitability.