RC191616 Establishing Petroleum Refinery in Nigeria ...tandice-bsolutions.com/.../Refinerysummitpaper1.pdf · Establishing Petroleum Refinery in Nigeria: Regulatory and Financial

NIGER DELTAEXPLORATION & PRODUCTION PLC

RC191616

Establishing Petroleum Refinery in Nigeria: Regulatory and Financial Challenges

Pioneering the Development of Nigeria’s small oil fields

A Presentation to the House of Representatives Nigeria Refining Capacity Summit-Uyo

Theme: Towards a Functional Refining Regime in the Nigerian Petroleum Industryby ‘Layi Fatona(Dr. )

(Petroleum Geologist)Managing Director-Niger Delta Exploration& Production Plc

28 March 2012


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Presentation Outline

� INTRODUCTION & FACT SHEETS

� Nigeria and its Mature Oil& Gas Industry

� History of Refining in Nigeria- Fact Sheets 3

� Table of Nigerian Refineries 7

� Notable Observations 8

� Regulatory Challenges 9

� Financial Challenges 10

� Other Challenges 11

� Refineries in Africa 13

� The ND Experience & Story 17


2

� The ND Experience & Story 17

o History 18

o Key Milestones and Achievements 19

o The Ogbele Topping Plant 20

� Conclusion

� Working Towards Self Sufficiency in Refining Capacity 22

� NDEP’s Unique selling Points 23

� Contact Details 24


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Nigeria and Its Mature Oil & Gas Industry

• The Nigerian Exploration and Production industry has matured

• Transportation and Distribution sector has matured

• Refining capacity and capacity utilization?



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History of Refining in Nigeria- Facts Sheet-1• GOING DOWN The MEMORY LANE- THE GOOD OLD DAYS

– Before 1965, all international petroleum marketing companies in Nigeria imported their stocks independently from their own refineries located abroad. As domestic demand grew for these products, and following the local availability of crude oil by pipeline, establishment of a refinery in Nigeria became commercially viable

– In 1960 two oil marketing companies in Nigeria , Shell and British Petroleum, BP, formed a 50/50 joint venture refining company in Nigeria , the Nigerian Petroleum Refining (NPRC) in. 1960.


Petroleum Refining (NPRC) in. 1960.

– The NPRC built a 38,000b/d petroleum refinery at Alesa-Eleme, near Port Harcourt to refine local crude oil into five petroleum fuel products. Construction of the refinery commenced in 1963 and production started two years later, in 1965

– In 1973 the refinery was de-bottlenecked, in order to increase its crude oil processing capacity from 38,000b/d to 60,000b/d. The domestic demand for petroleum products which steadily increased was satisfied by the NPRCrefinery for about 8 to 10 years


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History of Refining in Nigeria- Facts Sheet 2

• In 1970, the Federal Government acting as a member of OPEC compulsorily acquired and paid for an equity share of 60 % in all private international companies working in the Upstream and Downstream sectors of the Petroleum Industry in the country.

•

The Federal Government invested these shares in its wholly owned corporation, the Nigerian National Oil Corporation, NNOC

• NPRC was one of such companies whose shares were compulsorily acquired by government. NPRC was allowed to continue to operate commercially and profitably, without any interference from government. The Federal Government participated only at the board, represented by NNOC, as the majority shareholder


only at the board, represented by NNOC, as the majority shareholder

• In 1977, a new Decree 77 was promulgated to establish the Nigerian National Petroleum Corporation, (NNPC). Among the five divisions created in the new NNPC corporate headquarters was the Refinery Division, which was headed by a General Manager. This division was responsible for policy, projects implementation and coordination of all petroleum refining activities of the corporation. In particular, the General Manager Refinery Division was appointed Chairman, NPRC Board, following the federal government’s compulsory acquisition of the (60%) equity shareholding in the NPRC.


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History of Refining in Nigeria Facts Sheet-3

• THE WARRI REFINERY (1975-1978)

• Following a tendering exercise involving international engineering contractors, a contract was awarded to Snamprogetti Spa of Milan , Italy .. The contract was for the design, procurement and construction of a new grassroots petroleum refinery in Warri. The design capacity of the refinery was 100,000 b/d, and the lump sum cost was $478 million, for project duration of 30 months. This project was completed in 1978. The refinery commenced operation immediately thereafter.

• THE KADUNA REFINERY (1976-1979)

• A second new refinery was planned for the production of lubricating oil products, waxes and asphalt (for road projects). This refinery which was located in Kaduna consisted of two refining streams, (50,000 b/d fuels units) and (50,000 b/d lubes, waxes Asphalt plants). The contract for the construction of the Kaduna Refinery was awarded in 1976 to Chiyoda Engineering and Construction Company of Japan, at


Kaduna Refinery was awarded in 1976 to Chiyoda Engineering and Construction Company of Japan, at the cost $525 million, for a project completion period of 36 months. The refinery was completed on schedule and was commissioned in late 1979. The existing products pipeline linking Warri Refinery to Kaduna was converted to pump crude oils for supply to the new Kaduna Refinery

• In 1978, the Federal Government through the NNPC had acquired the remaining 40 percent equity of NPRC from Shell and BP. The name of the NPRC was changed to NNPC Refinery, Alesa-Eleme, near Port Harcourt . A new position of Managing Director and a new management structure were established. The Chairman of the Board remained the General Manager Refineries Division of NNPC. While the refinery continued to produce and maintain its facilities as before.

•


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History of Refining in Nigeria Facts Sheet-4(1980-1989)

• By 1980, with the old Port Harcourt , Warri and Kaduna refineries in operation, there was still an appreciable level of importation of petroleum products to augment domestic production from the three refineries. A review of the old study was conducted to update the demand and pattern of consumption to cover the next period of 10 years.

•

This was also to determine the optimum size and location for an export oriented refinery, which would also supply the domestic market as required. The several options considered included, new refineries and/or expansion of existing plants. The Federal Government decided to expand the capacities of the fuels units in the existing refineries at Warri and Kaduna by de-bottlenecking.

• The de-bottlenecking route was quicker but capacity increases were moderate. The de-bottlenecking projects were completed in 1985. The new capacities at Warri Refinery and Kaduna Refinery became 125,000b/d and 110,000b/d respectively.


125,000b/d and 110,000b/d respectively.

• In addition, a new grassroots refinery with a capacity of 150,000 b/d would be constructed adjacent to the existing refinery at Port Harcourt . The total additional refining capacity added from the result of the new study became 185, 000 b/d. This would bring the total refining capacity in Nigeria on completion of the projects in 1989 to 445,000b/d, which is still the current total installed refining capacity in Nigeria.

•

The new Port Harcourt refinery with a capacity of 150,000b/d was designed to include facilities to export products in excess of domestic demand. The contract for the design and construction was awarded to a consortium of JGC Corporation/Marubeni Corporation both of Japan and Spibatignolles of France in October 1985 at a total cost equivalent of US$850 million. The construction was completed and the refinery was successfully commissioned in October 1989

•


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Nigeria 2012 Refining Capacity

Name Date Licensed Installed Capacity

(bpsd)

1 The Port Harcourt Refining

Company (PHRC I)

1965 60,000†

2 The Warri Refining &

Petrochemical Company Limited

(WRPC)

1978 125,000*

3 The Kaduna Refining & 1979 110,000*


3 The Kaduna Refining &


(KRPC)

1979 110,000*

4 The Port Harcourt Refinery (PHRC

II)

October 1989 150,000

5 NDPR Mini Refinery (Ogbele

Topping Plant)

Jan 6, 2012 1,000

† PHRC(I) initial installed capacity was 38,000bpsd. Its capacity was increased to 60,000bpsd in 1973

*The Warri and Kaduna refineries both had original installed capacity of 100,000bpsd. Their capacities were

expanded in 1985


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Ogbele Mini

Refinery


MAP OF NIGERIA SHOWING REFINERY LOCATIONS

Refinery


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Notable Observation

• The time lapse between 1989 and 2012 signifies 23 years of no refining capacity enhancement and investment for a country witnessing and living with a rapid and yearly growth in refined products consumption and utilization.



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Regulatory Challenges• Licensing Regime

– Three Licensing layers (establish/ construct/operate)

– Expiration timelines for the licensing layers

• Establish-two years- company location

• Construct-1.5 years- Inadequacy based on

– Construction season constraints

– Contracting constraints

– Customs, logistics and others

• Applicable studies to accompany each licensing layer and their implications

– Human resource needs

• Energy studies- except you are a producer, where is your feedstock?


• Energy studies- except you are a producer, where is your feedstock?

• Safety studies

• Environmental studies

• Reviews

– Time

– Financial resources- whose money? Yours, investors (local /international)

• Operations Resource Requirement

– Capacity- small or big?

– Appropriate experience

– Appropriate training

– Remunerations


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Financial Challenges

• Financing a new refinery in Nigeria- Myth, Fiction or share Mission Impossible?

• Financial challenges has little to do with availability of funds.

• More with a lack of deep understanding of the Nigerian Petroleum industry ( particularly the technical, commercial and economic requirements of new projects)

• Securitization of funds- collateral demands range from the absurd, to the ridiculous and often to the impossible!


• Loans are often short term with little breathing room (moratorium)

• Lending rates are excruciating

• Long term money unavailable

• Recourse being the following options:

– Internal funding from cash flow

– Joint venture where investors wan to be on the driving seat


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Other Unspoken Challenges

• Feedstock guaranty ( Crude oil supply)

– Are you a producer?

– Will you have access to buy crude oil –from whom, NNPC, IOCs or Nigerian Independent Producers?

– Why will any of these sell or make commitment to sell?

• Planning

– Having the right set of professionals at the various stages of the project life namely:

• Feasibility- developing a credible business plan


• Feasibility- developing a credible business plan

• Market research

• Product specification

• Supply and evacuation

• Plant operations, Maintenance and modifications

• Design

– The project must embrace technology that suits the environment it will be situated


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Other Unspoken Challenges

• Sociological challenges

– These relates to the prevailing mind set, the psychological and emotional capacity of personnel in our environment to handle and manage huge projects.

– It also includes community relations

– Political challenge- the political climate must be friendly to investors

• a case in point is the Amakpe refinery located in Akwa Ibom State believed to be facing some challenges between project owners.

• Deregulation

– A deregulated sector provides enabling environment for investors to make


– A deregulated sector provides enabling environment for investors to make returns on their investments

• Lack of incentives

– Incentives may be in the form of tax holidays for a limited period to allow investors thrive and consolidate in the first few years of coming onstream.

• Lack of transparency on the part of investors

– Some investors have come under the guise of building refineries only with the intent of securing guaranteed crude oil from the Federal Government (even before finding the site to construct).


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80,000,000

100,000,000

120,000,000

140,000,000

160,000,000

180,000,000

400,000

500,000

600,000

700,000

800,000

Population

C

a

p

a

c

i

t

y

Installed Refining Capacity Vs Population


16

Population figures are the UN estimates by 2012

0

20,000,000

40,000,000

60,000,000

80,000,000

-

100,000

200,000

300,000

(

b

p

s

d)

Combined Installed Refining Capacity (bpsd) Populaton


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Breaking the Mould- Demystifying the Myth

• Only six African countries have installed refining capacity in excess of their population (Libya, Gabon, Senegal, Algeria, Egypt and South Africa)

• Suggests a huge market for refined product in the continent

• Small sized refining capacities may be inefficient but a clear way to follow to national and regional self sufficiency

• A model for Nigerian Independent small volume producers


• A model for Nigerian Independent small volume producers


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A conceptual cluster of mini refineries with potentials to turn Nigeria towards

building indigenous capacity and self sufficiency of selected products

Pioneering the Development of Nigeria’s small oil fields18


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Expected Fall Outs- Benefits to Country

• Partnership, Partnering and Shared Risks

• Joint crude oil supply into planned mini refinery

• Joint development and resulting supply chain development

• Community development



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THE ND EXPERIENCE AND STORY- THE OGBELE MINI REFINERY (ND Evolving as Nigeria’s Independent Integrated Oil& Gas Company)

20


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The ND History

� Niger Delta Exploration & Production Plc (“NDEP”) is an independent indigenous Nigerian oil

and gas company founded in 1992 as an investment vehicle for Nigerians to participate in the

Nigerian oil & gas sector

� NDEP has three subsidiaries Niger Delta Petroleum Resources Limited (“NDPR”), ND

Properties Limited, ND Gas Development Company Limited (“NDGDC”)

� NDEP through its operating company and fully owned subsidiary, NDPR was the first

indigenous public oil company to produce a marginal Oil & Gas field (the Ogbele Field) in


indigenous public oil company to produce a marginal Oil & Gas field (the Ogbele Field) in

Nigeria

� The Ogbele oil field in OML 54 in Rivers State is NDEP’s primary producing asset. As at

December 31, 2011, the Ogbele field had produced 6.4MM bbls of crude oil from inception


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Key Milestones and Achievements: 1992 - 2011

1992Incorporated as Midas

Drilling Fund

1996Name change to Niger

Delta Exploration & Production Plc

1999Presidential consent received

for farm-out of Ogbele & Omerelu to NDEP

2005Ogbele Well 1 successfully re-

entered and completed.1st oil production on August 28

2009Investment decision for a 1kbpd

Diesel extraction plant.

1

Jun 20105MMBbls from Ogbele Field

Pioneering Gas Sale and Purchase Agreement with the NNPC/SPDC/AGIP/TOTAL JV

Oct 20105 years of continuous oil production from Ogbele

Field

2

3

5

8

7

9


March 2011Completed installation and test running of the Ogbele Mini Refinery

1996Initiated FOA with

Chevron for the Ogbele

2000FOA signed with NNPC/

Chevron JV

2005Oil production to Bonny terminal – 1st crude oil

export

2007Produced 1st million

barrel of crude oil

Nov 2011Received Ministerial

Approval to operate and commercialize Ogbele Mini

Refinery

Dec 2011Commisioned Ogbele Mini

Refinery. 1st Diesel production. Currently produces 2m

liters/mth of diesel

2

4

5

6

11


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Ogbele Mini Refinery

� Commenced and completed the mechanical

installation activities of the 1,000bpd Diesel

Topping Plant (mini refinery) at the Ogbele

Field

� Test production of diesel from our crude oil

commenced in March 2011

� Minister’s consent received in November

2011


� License to Operate- January 2012

FIRST PRIVATELY OWNED MINI REFINERY TO BE BUILT & OPERATED BY A NIGERIAN INDEPENDENT PRODUCING COMPANY


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Book proven recoverable reserves of 100 million barrels of oil equivalent by 2015

Achieve crude oil production of 10,000 barrels per day and gas production of 50 mmscfd by 2012

Build a market capital of in excess of US$500 million by 2012

Working Towards Self Sufficiency in Refining Capacity

Be the leading independent , indigenous oil and gas

producer in Nigeria

Build a high-impact natural gas business

Identify and pursue attractive exploration opportunities in

Nigeria and Sub-Saharan Africa


Focus on capital and cost discipline

Systematic and efficient development of existing marginal field assets

Systematic evaluation and acquisition of new medium and long term development assets

Identification and acquisition of blue sky opportunities and assets

producer in Nigeria

Continuous substantial returns on investment to its

shareholders

Leader in the development of Nigeria’s small/medium sized

oil fields


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NDEP’s Unique Selling Points

NDEP

Nigeria’s first indigenous marginal oil

producer

Strong and growing portfolio

Excellent host community

relations ensuring

Cumulative Production :6.38 million bbls as at

Experienced management team

with more than 100 yrs of

combined oil & gas experience


25

NDEP relations ensuring minimal operational

interruptions

Fully integrated indigenous oil

company – crude oil, diesel and

natural gas production

Strong oil & gas market

fundamentals providing an

attractive platform for future growth

Built Nigeria’s first privately owned

refinery (the Diesel Topping Plant)

million bbls as at Dec 2011


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Niger Delta Exploration & Production Plc

15 Festival Road

Victoria Island

Lagos

Telephone: +234 1 461 9126

Fax: +234 1 461 9127

Website: www.ngdelta.com

Email: [email protected]

Contact Details


2626


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Nigeria 2012 Refining Capacity

Name Installed Capacity

(bpsd)

Capacity Utilization

(Jan 2012)

Capacity Utilization

(Feb2012)

1 The Port Harcourt Refining

Company (PHRC I)

60,000† 0 0

2 The Warri Refining &


(WRPC)

125,000* 8.44% 0

3 The Kaduna Refining &


110,000* 9.1% 36.6%



(KRPC)

4 The Port Harcourt Refinery (PHRC

II)

150,000 17.42% 19%

5 Combined (Total) 445,000 10.5% 15.40%

Reasons for the low capacity utilization include:

1. Frequent equipment failure, power failure and haulage constraints

2. Unsteady crude oil supply occasioned by incessant pipeline vandalism on crude oil supply

lines to refineries

RC191616 Establishing Petroleum Refinery in Nigeria ...tandice-bsolutions.com/.../Refinerysummitpaper1.pdf · Establishing Petroleum Refinery in Nigeria: Regulatory and Financial

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