As Nigeria, Niger plan refinery

By Chineme Okafor | Business Daily, Kenya August 2, 2018

Nigeria last week made some progress on its talks with Niger Republic to build a brand-new 150,000 barrels per day (bd) processing capacity refinery in a government-to-government inspired initiative.

Though planned to be built in a border town in Katsina between both countries, the refinery which would come with an associated crude oil pipeline linking it to oil fields in Niger.

It is expected to be funded with private sector finance and managed as well by private investors though championed by the governments of both countries. It also came at a time Nigeria has yet to get its four refineries to work at full capacities again despite reports of huge funds sunk in to revive them in the past.

To get kicking on the project though, both countries met in Abuja and set up two teams to be jointly managed by officials from the countries.

Inaugurated by President Muhammadu Buhari, alongside the President of Niger, Mahamadou Issoufou, the task teams would by December 2018, come up with a detailed project implementation roadmap.

The roadmap would contain amongst other things, bankable feasibility studies for the refinery and associated pipeline project; optimal project site and pipeline routes; security plan; as well as selected consortia of investors for the projects.
It will in a nutshell tell both countries if it would be prudent to build the refinery.
Essentially headed by Nigeria’s Minister of State for Petroleum Resource, Dr. Ibe Kachikwu and his Nigerian counterpart, Foumakoye Gado, the teams would be expected to submit their report after which the implementation of the project could commence and possibly last over a two-year period.

Though no estimate as to how much the project would cost, has been made, it is however expected that financial commitments running into billions of dollars would be needed and from private sector financiers.

Rationale for another refinery up north

With hindsight on how poorly an existing refinery – the Kaduna refinery which was built in the 1980s and managed by the Nigerian National Petroleum Corporation (NNPC) – has performed since its setting up, pundits who spoke with THISDAY on the new development were uncomfortable with the plan.

They amongst other issues, raised valid questions about the economic rationale for the refinery; funding arrangements for the project; its likely management or operational model; as well as the viability of crude oil supply to it from fields in Niger Republic.

However, its promoters – Nigeria and Niger – were resilient in their argument for the project which they said would turn out a win-win for both countries.

Buhari said the initiative would provide a reliable market for stranded crude oil volumes from the Niger Republic, as well as provide petroleum products for Nigeria to enable it exit importation of refined products as she planned to do in 2019.

The president noted the project would be private sector driven with the full support of the governments of both countries. He pointed out government’s funds would not be put in it.

“Nigeria and Niger have excellent relations for several decades, as neighbours sharing a long border with common cultural and historical ties. Nigeria sees this cooperation on crude oil export from the Republic of Niger and construction of refinery facilities in Katsina state as a win – win for both nations,” said Buhari.

He further stated, “In addition, it is my hope that the current frontier exploration efforts in the northern part of the country (Chad Basin, Gongola Basin, Sokoto Basin, Bida Basin and Benue trough) will also result in the provision of additional hydrocarbon inflow to the corridors of the proposed pipeline and a potential refinery around Kaduna axis.”

Inaugurating the task team, the president said, “A steering committee has been set up to be chaired by the Nigerian Minister of State for Petroleum Resources and the alternate chairman is the Nigerien Minister of Petroleum, to provide strategic leadership, direction and governance oversight for the project.”
In agreement with Buhari, the Nigerien President, Issoufou, stated the project would strengthen existing economic and political ties between both countries.

He explained, “The country sees the refinery as way of uniting with the country after being separated by the colonialism. The initiative remained a way growing intra-African relationship.”

Providing some insights into the projects, Kachikwu on his part explained the decision to build the refinery and pipeline was taken after it was discovered the initial plan to build a crude oil line to the Kaduna refinery for feedstock supplies from Niger’s oil fields was uneconomical.

He noted that almost nothing of both government’s funds would be put in the projects, adding that investors were already lining up to partake in it.

According to him, about 50 investors were at the meeting to observe the processes and firm up their initial expression of interests.

The minister equally stated that the governments were mindful of the security challenges up north but not deterred by it and would push on with the plan. Niger Republic, he noted had been least-impacted by the security challenges occasioned by the Boko Haram terrorists.

“There is a decision to build a pipeline from Niger Republic into Nigeria’s boarder town and construct a refinery with capacity probably between 100,000 and 150,000 barrels per day. It is all dependent on the Niger crude volume and what they find.

“The study has to be done and we know what is involved. The technical and financial components, negotiating the finance. We have mentally structured our minds to a two-year period but it depends on what we find,” Kachikwu said.
He noted Katsina was chosen to host the refinery because it was close to Niger, adding there was a potential for an extension to Kaduna.

Further justification
Notwithstanding the defences put up by Buhari, Issoufou, and Kachikwu, for the project which expectedly raised comments from the Nigerian public, THISDAY approached Suleiman, who is Kachikwu’s Senior Technical Adviser (STA) on refineries and downstream infrastructure, and lead of the project’s technical committee, to provide detailed explanation on its economics and sustainability.

THISDAY sought to know amongst other things if Niger with a proven one billion barrel oil reserves had adequate daily oil production to sustain the refinery, and he explained the country currently produced about 90,000 barrels of oil every day, with plans to bring in additional volumes going forward.

He noted that out of the 90,000bd produced by the country, 20,000 barrels went to its existing refinery which refined mostly diesel, while the balance of 70,000 barrels remained somewhat stranded because it had not directed access to the sea to ship them to destination markets.

Suleiman further told THISDAY that Niger’s access to the sea was through Cameroon which is thousands of kilometres away from it through a complicated pipeline system.

He added Nigeria was perhaps the best alternative to it and the country (Nigeria) considered this a good opportunity to advance its drive to become Africa’s foremost hydrocarbon hub.

According to him, northern states in Nigeria accounted for about 40 per cent of Nigeria’s entire petroleum products consumption which part of could be sourced from the refinery when it comes on stream. He also hinted that Niger had three highly prolific oil blocs which would supply the refineries.

“It is a competitive world. Nigeria has the intention without excuse to be the hub of hydrocarbon business in Africa and therefore any opportunity that will give us that unique position to be the hub, we will grab it because it has a potential of business activities in all aspects of life.

“There is no justification that ships coming to Nigeria and all other African countries go to Cotonou to fuel and bunker. If we have bunkering facilities in our territorial waters, you can imagine the volume of trades and employment opportunities there,” he said.

He claimed 14 expressions of interests on the project had been received by his team so far from Russian; Turkish; Chinese; and local investors, adding that a clean pre-investment process would be employed to get the best for the project.

Security, other issues
Asked if the plan had taken into consideration the peculiar social challenges, especially terrorism and massive immigration, which currently existed in the region, Suleiman said the feasibility studies of the project would factor all that in, but emphasised it was perhaps the best way to stem the tide of immigration from Nigeria’s porous border with Niger Republic.

He noted that when the refinery comes on board and provided jobs for people in norther Nigeria, as well as means of monetising Niger’s crude oil for its people and government, both countries would become its biggest beneficiaries.
According to him, immigration from Niger to Nigeria would be minimised, while criminality associated with terrorism up north would be cut down.

Experts’ views
Notwithstanding, experts who spoke to THISDAY had mixed feelings about the project. Some considered it a good development, while others felt it was somewhat risky and may not attract private sector interest as expected by the promoters.

For instance, Mr. Dan Kunle, who is a global energy business expert said the initiative could become a success if it had a competitive access to crude oil.
Kunle, also asked that a confirmation on the oil reserves of Niger Republic be made to be sure crude supply is secured and guaranteed.

“I will give you my expert opinion based on industry knowledge and also because I want Nigeria to succeed, but I must also let you know first that the business of crude oil has not been palatable in Nigeria for more than 50 years.

“When Niger first found oil, President Obasanjo attempted to sell the Kaduna refinery to the Chinese there so they could pipe crude to the refinery but that plan didn’t pull through,” said Kunle.

He further stated: “So, yes, the location is a good idea but what is the most critical success factor for crude oil refinery anywhere is the competitive access to crude stock. On this basis, they must go to Niger to confirm and validate the proven reserve there which would be used as feedstock to the refinery.

“I said this because I know Niger has a contractual agreement with the Chinese who built a refinery there.”

Kunle, equally asked why the Chinese had not built a bigger refinery in Niger if the country had a big oil reserve, saying, “for the Chinese not be too aggressive there raises a question mark about the proven oil reserves of Niger.”

Another expert who however preferred to speak off records, stated that the question of location was almost immaterial in the conversation, but that the ability of the promoters to raise or attract funds for it was important.

He pointed to Nigeria’s refusal to deregulate her downstream petroleum sector as a potential put-off to willing investors.

“While news of the proposed refinery is well received, it’s not quite clear if the government promoters and the designated private sector investors will be able to mobilise financing for the construction of the pipeline and refinery given the fixed retail price of petrol (in Nigeria).

“Not everyone is a Dangote who can raise financing for a refinery in spite of this challenge of pricing. However, there is hope that the government will take the right steps to increase the probability of success of the several ongoing downstream projects in the industry – including this one,” said the expert.

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