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Project Synopsis - Modular Refineries

Feb 11, 2017

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  • Project Synopsis

    The Socio-Economic Case for Mini / Modular Refineries in the Niger Delta

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    Definition & Characteristics

    Small capacity (+/- 6,000 to 10,000 barrels) crude oil processing capability.

    Simple design, easy operation, and expandable by addition of more fractionating units.

    Expected Output per day: +/- 530,000 880,000 litres of petrol; +/- 280,000 470,000 litres of diesel; +/- 70,000 120,000 litres of kerosene. * Lower values correspond to the minimum capacity, while higher values correspond to the higher capacity refinery. The higher case values represent 27 trucks of petrol, 14 trucks of diesel and 4 trucks of kerosene per day. One truck capacity being 33,000 litres.

    Purpose & Objectives

    To deliver a prototype modular mini refinery of an optimum capacity with supporting facilities and off-sites, integrating with existing adjacent crude oil production facilities.

    Utilize and add value to the abundant crude oil resource of the State.

    Why?

    Provide direct employment to +/- 300 skilled people, with employment inter-linkages to over 5000 persons via contractors and sub-contractors, solving other socio-economic problems.

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    Reverse the imminent migration of jobs out of the Niger Delta by providing employment opportunities to youths who would otherwise be tempted to engage in militancy, thereby enhancing security and prosperity for all. Be a catalyst for development.

    Guarantee profitability in a short time frame: a small initial investment pays out in just its second year.

    Ensure availability of much needed petroleum products in the immediate vicinity.

    Be a catalyst for prosperity, industrial growth and manpower development in the wide petroleum sector.

    Possesses tremendous scope for replication in many places, as demand for petroleum products in region is high,

    which cannot be met by the existing epileptic refineries, while reducing supply logistics and complexities. Discourage establishment of illegal refining operations (plagued by inefficient, unsafe and environmental

    degradation issues) as its operations are legal, cheaper and safer.

    (The dangers of illegal and primitive refining operations)

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    Foster cooperation between industry and communities as all stakeholders are to be consulted and able to part-take in its establishment and operation.

    Be designed to be simple to operate, as to lay a good foundation for training indigenous manpower in technical

    and managerial skills required for more complex projects in the oil and gas sector.

    Exploit synergies with improvement of local communities via provision of fire fighting capability, clinic, water and electric power supply and other community assistance projects.

    Be politically expedient to establish a petroleum-based industry as a quick-win investment vehicle, and exploit

    further synergies and increased demand for basic petroleum products.

    The Sponsors profitability is guaranteed. In any case the State Government receives royalties and taxes plus employees and traders transactions taxes including VAT. Expansion can therefore be financed from within. Such revenues can also be used by the benefitting local government in off-setting educational, health and infrastructure project costs.

    Key Success Factors The main driver for this project is to monetize oil reserves in a selected area of the Niger Delta, involving implementation of a simple technology-based production project, with inter-linkages to local economic participation. Oil was discovered in the Niger Delta in 1958, but there are no facilities that encourage indigenous participation, majorly due to size, sophistication and other non-viable socio-economic factors. A modular mini petroleum refinery is a simple, short duration project with linkages to encourage local participation, with good payout even in the short term, and capable of ensuring availability of scarce basic petroleum products in the immediate vicinity.

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    Furthermore, phased development that would leverage on economics of scale, improved investment profile and revenue are seen as the economic justification for this novel and prototype project. It is easy to replicate. Development of a green-field oil refinery is a capital-intensive venture; hence the execution of a proper feasibility study is an imperative first step. A refinery feasibility study assesses the operational, technical and economic merits of the proposed refinery development project: to assess crude oil production potential, refinery size; refinery configuration; development framework single stage, multi-stage; location; financing options; social and environment assessment; market survey of refined products; petroleum products demand analysis; attendant infrastructure; financial analyses; impact of refinery development on local economy and environment. Revenue & Profitability

    Capital Expenditure: US$ 65 million over 2 years.

    Operating Expenditure: US$ 15 million per annum for the 1st five years, (and US$ 30 million par annum thereafter, if capacity is doubled from revenues i.e. without external funding).

    Annual sales of US$ 160 million are generated, based on the regulated prices of petroleum products.

    Project Internal Rate of Return (IRR) is good, with a positive net cash flow from the 2nd year after plant start-up.

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    Cash Flow Analysis I

    This scenario allows for plant availability at 95%; crude oil obtained at discounted rate i.e. at local rate, not international crude benchmark price.

    Year0 Year1 Year2 Year3 Year4 Year5 Year6 Year7 Year8 Year9Series1 -30 -65 6.5 77.9 149.4 220.8 292.3 363.7 435.2 506.7

    -100

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    illions

    High through-put Case (discounted feedstock cost)

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    Cash Flow Analysis II

    This scenario allows for plant availability at 85%; crude oil obtained at international crude benchmark price. This is the worst-case scenario.

    Year0 Year1 Year2 Year3 Year4 Year5 Year6 Year7 Year8 Year9Series1 -30 -65 -27.5 10.0 47.6 85.1 123 160 198 235

    -100

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    CashFlowin

    $m

    illions

    Low through-put Case (high feedstock cost)

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    In either case, the investment can be amortized in a relatively short time, through prudent financial management. Such that expansion can be funded from within, and without loans. The ultimate target is to have a fully functional refinery of about 40,000 barrels per day processing capacity within 10 years! Assumptions

    The refinery is to be sited close to an existing and producing oil flow station or a major crude oil delivery pipeline, to keep infrastructure cost to the minimum.

    Notwithstanding engagement with the owner of the identified crude oil flow station via the Oil Producers Trade

    Section (OPTS); the main crude oil feedstock is to be obtained at a reasonable fixed period rate below the international Bonny Light (or Forcados Blend) benchmark price.

    Products are to be sold locally, at gate, with off-take via road tankers or river barges. Albeit water-borne

    transportation is preferred, with minimal on-site storage facilities, to reduce capital expenditure.

    Products prices will be unregulated, even as initial economics had been predicted on a regulated prices environment.

    Potential Risks & Mitigations

    The key risks associated with the total project life cycle will be assessed in a specially organized Risk Workshop, culminating in developing a Risk & Opportunity Register, a Risk Assessment Report and/or Matrix and a Major Risk Summary. Notwithstanding, the key risk to this endeavor are:

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    o Funding availability and timeliness

    o Changes to government legislation with respect to securitization of investment

    o Social issues (indigenous peoples involvement management)

    o Security

    The aforementioned are all surmountable, and mitigation means exist. For example, social issues can be tackled by:

    o Formulating an Indigenous Affairs Management Plan (IAMP), to encompass detailed measures to manage

    indigenous affairs and achieve indigenous participation through employment, training and engagement in subcontracted work;

    o Instituting share holding scheme thereby enhancing a sense of part ownership of the enterprise; and

    o Establishing processes for auditing, methods for identifying and reporting non-conformances and progress

    reporting to inform all stakeholders of project development.

    The IAMP is also a precursor for enhanced security. Funds are to be made available ahead of Final Investment Decision (FID) by means of perfected Bank Guarantees, such that payment for goods and services would be made in a timely manner.

    By continuously scanning the project environment, government directives can be implemented without adverse

    impact to project schedule, quality or cost.

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    Implementation A specialist Project Management Company is required to foster this idea. This entity has the idea, knows who can do what, who needs the facility, how to arrange the fianc (if Sponsor so wishes) and bring all to bear in establishing the facility on the ground. And if required, establish the processes to run the facility. The company is paid according to its involvement and efforts. The outline implementation plan is thus:

    Market the idea to potential Sponsors

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