Modular refineries, modular problems? Business of illegal oil refining in Niger Delta

EBENEZER ADUROKIYA looks at the issue of illegal refinery in the Niger Delta and how modular technology can ease the country’s perennial fuel shortage.

IN February, the vice -president, Professor Yemi Osinbajo,  during his visit to the Niger Delta, in his capacity as acting president, promised on behalf of the Federal Government that the issue of  illegal refining of stolen crude in the region would be creatively tackled reviewed with the introduction of  modular refinery. The then acting president  also promised to work with  the operators of illegal refineries by engaging youths from the region in legal, profitable business of refining petroleum products.

“Our approach to that is that we must engage those (illegal refiners) by establishing modular refineries so that they can participate in legal refineries. We have recognised that young men must be properly engaged,” Osinbajo had said.

That statement marked a major policy shift of the Nigerian Government on issues relating to oil theft, pipeline vandalism and illegal refining of stolen crude oil in the region. For months, the option had been to completely wipe out what the authorities perceived as a menace and the brains behind despoliation of the nation’s wealth.  Thus, modular refinery became  the latest addition to the lexicon of oil business in Nigeria.

Oil theft and illegal refining of stolen crude have been a booming business in the Niger Delta. With a  make-shift installation, stolen crude is  refined and sold to the public, which is always in shortage of the product.   But despite a heavy clampdown  by government, those behind the illicit trade have not be deterred. Rather the business continues to grow in remote parts of the creeks . For as many of such crude installation the military joint task force destroys, many of such refining contraptions spring up in other places as replacements. The thinking in official quarters before now was that the brains behind such refineries were economic saboteurs, who should be dealt with, thus the heavy security build up and surveillance in the Niger Delta, prompting in many instances, deadly confrontations and destructions of the shabby refineries.

Refining oil illegally is a very risky business, in fact, dangerous. But, those engaged in it are determined to continue basically because they have little or no other means of survival. Sometimes, the illegal refineries go up in flames. Most of the time, they are exposed to terrible heat that affects them physically. Add this to that mandate of the Navy to rout them from the creeks through massive bombardment.

Statistically, it is reported that in 2015, Nigeria lost about several million barrels of oil, amounting to N60bn to oil theft, a major source of raw materials for the operators of illegal refineries, which are sometimes located just a stone throw from either military house boats, or multinational oil companies, who usually turn a blind eye to the illegal activity.

 

A country  in need of petrol

Nigeria is perennially in short of the product it has in abundance but has not been able to fully refined for consumption. But since Professor Osinbajo’s statement, many experts who spoke with Sunday Tribune have continued to applaud the government’s policy shift, though expressed worry over the rapid implementation of the initiative.

According to experts, the country has an estimated 35.3 billion barrels of hydrocarbon both onshore and offshore assets mostly in the Niger Delta basin. Therefore, “mini refineries are ideally suited for remote locations and are viable for investments by private and public sector groups as a source of rapid production of primary fuel products and raw materials for Petrochemical Downstream Industries.”

Mr Kayode Adeoye, a Lagos-based energy expert, who defined a modular refinery as “a prefabricated processing plant that has been constructed on skid-mounted surfaces with each structure containing a portion of the entire refining process plant connected together by interstitial piping to form an easily manageable process,” said its introduction would ease a lot of the pressure on the system.

Ikenna Ifedobi,  an economist and consultant with the American Petroleum Institute (API), in a report entitled, Modular Refining as Alternative in Emerging Economies, elucidates on the technology of modular refineries and its advantages stressing that because of its manageability, a modular refinery is better suited for the Nigerian environment. “Its key advantage lies in its size, cost differential and flexibility. It is constructed in a controlled environment and properly tested before being shipped out. It is relatively easier to fabricate and erect,” Ifedobi wrote in the report.

 

Benefit of small, cheap, cluster  refineries

According to Professor Samuel Arokoyu ,the establishment of modular refineries would  check the activities of oil thieves and environment pollution  in the Niger Delta region. Arokoyu of the University of Port Harcourt spoke against the background of the air pollution threatening the residents of the oil rich city, saying government has enough will to solve environmental problems in the country.

“However, there is rather a lack of support from the citizen. This is demonstrated by the body language of the citizen which tends to support environmental violators. The right policy to stop the incident of black soot is the government efforts to stop illegal refinery activities, that is, artisanal refineries generating incomplete combustions of hydrocarbons. We need modular refineries to take over artisanal refineries. An immediate solution to stopping the black soot will involve combating the major source of the problem: the artisanal refineries. He explained further that air pollution arising from the black soot is a threat to health of the people.

“Black soot being hydrocarbons in origin causes respiratory diseases; the benzene content has been found to deplete red blood cells, cause cancer in mammals, damage bone marrow and can trigger genetic mutations in living organisms,” adding that investing in moduloar refinery is the right way to go. If implemented, the policy will greatly improve the environment of the Niger Delta.”

Mr Adeoye, on his part, also spoke on the potentialities of a modular refinery: “The key advantages of a modular refinery lie in its size, cost differential and flexibility. It is constructed in a controlled environment and properly tested before being shipped out. It is relatively easier to fabricate and erect. Also, when an area becomes unsuitable for business, it can be disassembled and reassembled faster.

“For areas with non-cohesive geopolitics like Nigeria, modular plants can be scattered throughout the country to serve the needs of the various regions of the country. The maintenance cost is low considering that it processes 2,000 barrels per day, BPD to 150,000 BPD of mainly light sweet crude, routine turnaround maintenance and on stream inspections would require less personnel and downtime,”  Adeoye said, adding, “modular plants are easier to secure because of the reduced surface area and perimeter, issues of internal monitoring of equipment and external acts of sabotage can be better policed given the smaller area of operation and in a situation where one plant suffers a downtime, the other smaller plants scattered all over the country can still be operational. The impact on the environment is nothing compared to a large scale refinery.”

A former commissioner from Ethiope West, Okpe and Sapele local government areas of Delta State, Chief Henry Ofa, is of the opinion that if the modular refinery model is adopted by the Federal Government, “pipeline vandals would be engaged meaningfully,” and that the “Nigerian market is big enough to consume the products and export surpluses.”

Ofa, who advised the government to go ahead with the plans and involve all stakeholders in the project without prejudice, said modular refineries if introduced would “reduce the importation of refined crude oil products and expand the country’s refining capacity” as well as “temporarily boost foreign exchange.”

Coordinator of the Centre for Peace and Environmental Justice (CEPEJ), Comrade Sheriff Mulade and the National President of the Foundation for Human Rights and Anti-Corruption Crusade (FHRACC), Alaowei Cleric Esq., told Sunday Tribune that there are benefits to reap if modular refineries are introduced in the Niger Delta.

He said the idea, if crystalised, “will create legitimate employment opportunities thereby reducing poverty within the Niger Delta Region; reduce criminality, as youths will be gainfully employed, get busy in legitimate business and think less of being involved in illegal bunkering and criminality thereby creating a peaceable environment for enterprise to thrive.”

Mulade, who is also chairman of Kokodiagbene community in Gbaramatu Kingdom of Warri South West Local Government Area of Delta State, added that the idea would “create basis for expertise, professionalism and further training in the oil and gas industry, reduce the abuse and degrading of the Niger Delta environment, while government will earn more revenue through tax and increased production of both crude and refined oil.”

Cleric, while describing the adoption of modular refineries as the best approach to tackling illegal oil bunkering, stated: “This has been the suggestion of the Niger Delta people, that instead of clamping down on the local refinery operators or destroying the local crude oil reservoirs, as well as their camps to further degrade the environment, let the government give licence to the illegal bunkerers to operate.”

According to the environment activist, other benefits include halting the deregulation crisis in the oil and gas industry. “There will be surplus of petroleum products in the country to the extent that we may not even need to depend on the imported products. Niger Delta will turn out to be Apapa Wharf, where marketers will throng to buy the products.

“We are very certain that if the government legalises bunkering in the region, it will, no doubt, address youth restiveness.

“The menace of sea piracy in the creeks will also be curtailed if the government allows the local operators to participate in crude oil production. That, of course, also means equal participation by the indigenous communities in the petroleum industry and it will go a long way in dousing the tension in the region,” he noted.

Chairman of the Bayelsa Traditional Rulers Council, King Alfred Papapiriye Diete Spiff, who is also the Amayanabo of Twon Brass, described the gesture as a welcome development, adding that illegal bunkering would stop naturally. He added that jobs would be created, while oil spillage that has desecrated farmlands and polluted the ecosystem would stop. Other advantages, he said, included more tax being paid to federal government drop in importation of fuel and sustained peace in the region which would lead to boost in forex revenue for the federal government.

 

Cost of modular refinery

The technology is not as intricate as most people imagine. It utilises the basic scientific process and procedure, but at little cost in comparative terms.

Speaking on the cost generally, Acting Director of Centre for Research Innovation, Federal University of Petroleum Resources (FUPRE), Effurun, Delta State, Dr. Princewill Igbagara, who is spearheading one at FUPRE, said it is cost intensive, but added that if government could build the Warri, Port Harcourt and Kaduna refineries, then it could build modular refineries.

“These are refineries that private initiatives can bring about. They are cheaper than what you’ll need to build the types we have in Warri and other places.

“For example, if I want to produce just petrol, all I need is my furnace where the crude is heated, then the crude distillation unit (CDU), that is the column will trace and other ancillary components that distil the crude based on the boiling point of the different crude factions.

“So, you can easily get petrol, diesel and kerosene from the atmospheric distillation. That’s the two main components in the main mini refinery.”

The cost of building a modular refinery, he added, also depends on what the owner wants.

“That’s why in the design of a distillation unit, the first step is product specification. But conservatively, if I want to build a single distillation column, that’ll be for a mono product. For instance, there’s a refinery in Port Harcourt that produces only diesel.”

But, what are the basic infrastructure or hardware to start such a refinery? According to Igbagara, “No matter how mini it is, you need a power-generating plant, a steam generation, because all the systems use steam. You need a water-cooling system; you need an effluence treatment plant; so only the utilities will cost you a lot of money.”

Experts put the cost of a 10,000 bpd modular refinery under $10m, but a 100,000 bpd refinery could cost between $500m and $10 billion. A modular refinery belonging to a Nigerian company, Integrated Oil and Gas Ltd. at Tomaro Island port, off Takwa Bay, Lagos, with a capacity of 20,000 bpd is said to cost $116 million.

 

Likely impediments to the proposal

But the idea is also not without its own problems. For instance, how would the illegal refiners be incorporated in the scheme? Are they going to be allowed to operate their ramshackle refinery or given licence?

There are also fears that the project may be hijacked by powerful interests in the region, owing to insecurity, oil theft, vandalism and militarisation of the region.

Dr Igbagara, who has seen the creek boys at work in their illegal refineries outlined how the boys could be useful in the scheme of things.

“I’ve met a number of them. What is distillation, they don’t know. What is vapour, they know not. So incorporating that man cannot be at a very high technical level. They can, however, be trained as operators and all of that.

“First, the government should look for the expertise in the Niger Delta, because the concept is primarily for the engagement of the youth, so we must bring all of these boys engaged in illegal refineries so that you don’t put them out of occupation.

“Secondly, having got experts, more experts should be sourced from Niger Delta, nationally and internationally. For a start, the government should determine how many (modular refineries) should be built, number of the boys to be engaged then we look at proximity, source of power, raw materials etc. We can locate the refineries near well heads,” he averred

Both  Mulade and Cleric advised that the Federal Government should stay on course and be committed to the proposal. They also advised that insecurity within the region should be addressed by reducing the continued presence of security agents, some of whom they accused of being major beneficiaries of stolen crude oil.

The Commander, Nigerian Navy Ship (NNS DELTA), Commodore Ibrahim Dewu, when contacted, however, declined to comment on the issue. “That is above me to comment. Only the Chief of Naval Staff can talk for now. Thanks for your support,” he stated.

An operator of illegal refinery in Ogboinbiri in Southern Ijaw LGA, Pius Alaowei, said he was elated by Professor Osinbajo’s declaration, adding that they were looking forward to the government’s gesture and how they would be incorporated into the scheme. According to him, government should know that  illegal operators “are  in the business to eke out a living, not minding the risk”, admitting that indeed many of had died due to failure that led to explosion. Like Alaowei, Priest Ebiyerin Ayebaesin, another illegal refiner operating in in Igbomotoru area of Bayelsa, said  many of them are ready to quit operating the illegal refineries and partner with the federal government to replace it with modular refineries, whenever the programme begins.

—Additional report from AUSTIN EBIPADE.