By Simon Chinedu Njoku
Wooing Nigerian artisanal refinery operators will become a major policy of the Federal government in the months ahead. The gloomy economic picture of the post Covid-19 era heightened by the huge drop in crude oil price in the international oil market has made the small scale crude oil refiners suddenly important in the reckoning of government.
To a large extent, the huge fall in crude oil price means that supply has surpassed demand, more sellers than buyers. So, government’s revenue projections from crude oil sales have been shattered. Therefore, alternative revenue sources, albeit alternative crude oil markets, have to be discovered. And, charity, people say, begins at home. Government is considering, among others, the low hanging fruits that can be quickly harnessed in the quest to buoy its revenue base.
Globally, small scale businesses are regarded as the engine of growth of an economy. What makes the case of Nigerian artisanal crude oil refining sub-sector peculiar, until now, is that their activities are seen as illegal by government. That explains the relentless war waged by the security agencies especially the Navy, against the operators, targeting and destroying their operational bases and equipment.
Going by a definition by Investopedia, a crude oil refinery is an industrial plant that refines crude oil into petroleum products such as diesel, gasoline and heating oil. A refinery is also described as a facility where raw materials (crude oil) are converted into some valuable substances by having impurities removed. In contrast, an artisanal refinery is a “small-scale or subsistent distillation of crude petroleum over a specific range of boiling points, to produce useable products such as kerosene, fuel and diesel.
Over the years, the activities of artisanal refineries in Nigeria have been considered illegal mainly because they source their raw materials (crude oil) illegally or through unofficial sources. That is, they do not obtain their raw material through the NNPC (the Nigerian National Petroleum Corporation), the government’s agency that oversees the oil and gas sector. Since they do not source their crude oil from the NNPC and do not import, government therefore believes they obtain such through unofficial channels including oil bunkering or pipeline vandalization or outright oil theft.
In a report, titled “Socio-Economic Implications of Oil Theft and Artisanal Refinery in the Niger Delta Region of Nigeria”, Moses Obenabe and Gordon Amangabara noted: “It is estimated that between 200,000 and 300,000 barrels of oil is lost daily to theft. The majority of the stolen crude is taken to large ocean-going tankers waiting offshore, which exports the oil to refineries outside the country, the rest of the oil goes into artisanal refineries, which is the processing of the stolen crude in makeshift individual facilities into low quality petroleum products.”
Similarly, Nigeria’s Ministry of Finance estimates indicated that about 400,00 barrels of oil per day was stolen in April 2012, which led to a fall of about 17 per cent in official oil sales.
The current move by government to woo operators of artisanal refineries is aimed at integrating their operations into mainstream oil refining activity with a view to expanding their output and stem oil theft and bunkering/pipeline vandalization. The Senior Special Assistant to the President on Niger Delta Affairs, Senator ItaEnang indicated as much recently in a resolution following a meeting he had with the management of key line government agencies in Abuja. The resolution indicates government’s resolve to engage “local or illegal or artisanal or modular refineries to produce or refine petroleum products for local consumption in Nigeria”.
“We admit that a large quantum of petroleum products and other bye products are produced or refined and circulated by the operators of local or illegal or artisanal or modular or ‘puu fire’ refineries operating in the Niger Delta States with camps extending to Anambra, Kogi, Lagos and indeed most states where the crude oil pipelines of NNPC traverse,” the resolution stated, adding: “We are also aware that the operators of these refineries are improving in the quality of products they refine and sell to the public.” These, notwithstanding, the federal government, according to Enang, is “meeting with relevant agencies to support the activities of artisanal local refinery operators in the country”.
Why current government’s move should be applauded is because in the medium to long term, the federal government stands to reap huge revenue benefits from the effort, considering the huge amount it currently loses to the unofficial operators in this subsector of the oil and gas industry. If, for instance, going by this conservative estimate, 400, 000 barrels of crude oil is lost to thieves and 200,000 barrels per day (half of it), ends up in the artisanal refining industry, that means in a week of six working days, they will have gotten 1,200,000 barrels, say, at a price of $20 per barrel. In a month, they will have received 4,800,000 barrels at $96,000,000. In a year, they will have received 57,600,000 barrels at $1,152,000,000 or N403, 200,000,000.00 annually. This (it will certainly be more) will accrue to government if it is able to sell crude directly to the artisanal operators.
Moreover,oil and gas analysts, Globadata, indicate that Nigeria expects to increase oil refining capacity from existing and upcoming refineries to 2,135 thousand barrels per day by 2023. As at 2018, for instance, Nigeria’s total refining capacity from the existing refineries was put at 445 mbd. This is the combined refining capacity of the Port Harcourt Refinery (comprising the New Port Harcourt Refinery and the Eleme Refinery) 210 mbd, the Warri Refinery, 125 mbd and the Kaduna Refinery, 110 mbd. However, none of these refineries is producing at installed capacity, even as some may be out of operation for a year or more due to inconsistent turnaround maintenance. But the new Dangote Refinery, Lagos with installed capacity of 625 mbd and the upcoming refineries in Bayelsa and Mashi as well as the expected investments in artisanal refineries, present fresh and bright hope for the nation in the achievement of her crude oil refining targets.
The drastic fall in the price of crude oil in the international oil market, from over $70 in 2019 to about $20 as at March, 2020, the government is, no doubt, in dire straits as its budget bench mark for crude oil sales was pegged at $57 per barrel. Government, therefore, needs additional revenue sources to shore up the huge drop in projected revenue for the funding of the 2020 budget and beyond.
Added to the above is the colossal sum being expended by government in the fight against Covid-19. This has spiked government’s expenditure profile. Therefore, cost cutting and diversification in revenue sources are of utmost priority. Supporting artisanal oil refiners with incentive packages including loan facilities at single digit interest rate for equipment retooling, tax reliefs, easy purchase of crude oil at highly competitive rate among others will encourage government to set rules and targets for the operators, in addition to licensing them.
In terms of product quality, the Standards Organisation of Nigeria (SON) will be available to prescribe necessary standards for the operators.
By empowering the artisanal refineries with funding for necessary equipment among others, government’s objective will be to ensure expansion in their output. That means that a good chunk of the oil that will have been exported will go to them. Also, selling the oil to them at a rate below what oi thieves sell to them will encourage them to look up to NNPC for regular supplies. With time, government will be able to set output targets for them with a view to achieving its overall annual crude oil refining capacity or target.
Again, to achieve its objectives in the artisanal oil refining sub -sector, government should be ready to override pressure from big time petroleum products importers, the multinationals and others. These individuals and organizations are believed to mastermind the frequent harassment of artisanal oil refiners and the destruction of their equipment by security agents.
Ability of government to successfully nurture this relationship will encourage the foray of new entrants, including Nigerians with small oil refineries in neighbouring countries, into artisanal oil refining in the country. Government should promote and encourage healthy working relationship rather than rivalry between the big and small refineries.
With government’s support and proper regulation, artisanal refineries will be able to acquire environment friendly production equipment, expand output and create employment for many jobless citizens. Also, level of oil theft, oil bunkering or pipeline vandalization as well as air pollution arising from the operation of the small scale refiners are likely to decline. Government revenue will be boosted thereby putting it in a strong financial position to weather the post Covid – 19 economic stress.