Until 1960, government participation in the oil industry was limited to the regulation and administration of fiscal policies. In 1971, Nigeria joined OPEC and in line with OPEC resolutions, the Nigerian National Oil Corporation (NNOC) was established, later becoming NNPC in 1977. This giant parastatal, with all its subsidiary companies, controls and dominates all sectors of the oil industry, both upstream and downstream.
With the Niger Delta region producing majority of the nation’s crude oil, problems associated with unrest, border disputes and government funding, the nation’s wealth of oil makes it most attractive to the major oil-multinationals, with the major foreign stakeholder being Shell.
Going down memory lane, in 1965, Shell/BP built Port Harcourt I refinery as a topping and reforming refinery with a distillation capacity of 60,000 bpd. In 1977, the Government partially nationalised the oil industry, taking a 60 percent interest in all operations including the refinery.
Port Harcourt II refinery was built as a complex refinery with a distillation capacity of 150,000 bpd. It came on stream in 1989 and functioned properly until 1993 when frequent utility plant failures caused regular shutdowns that resulted in equipment damage. The situation deteriorated rapidly from 1994 when the military government cut NNPC’s “take” from the domestic sales price of oil products from 84 percent to 22 percent, causing a cash crisis, and a virtual halt to most maintenance work.
The Warri refinery is a complex refinery with a distillation capacity of 125,000 bpd when it came on stream in 1978. It is managed jointly with a petrochemicals plant built in 1986 to produce 35,000 mt/yr of polypropylene and 18,000 mt/yr of carbon black.
Evacuation of products is by the refinery truck loading rack, by products pipeline, and by ship from the 2 refinery jetties about 1Km from the refinery. Loading and discharging at the jetties is limited to small vessels due to the 150 M LOA restrictions, and the shallow draft in the river and at the Escravos river bar.
The refinery suffered badly when the Abacha government cut the NNPC portion of the pump price from 83 percent to 22 percent in 1994. The Military government raised the price from N3.25/liters to 11N/liters in the face of massive Naira devaluation on the parallel market.
As most of the refinery maintenance costs were for imported spare parts, very little maintenance was carried out, and serious breakdowns occurred. In 1999, the new civilian government ordered massive investment to remedy the problems, and a $200 million turnaround started in early 2000.
This led to a significant improvement in throughput, although FCC performance has been erratic. In 2003 the refinery was caught up in the tribal unrest in the delta region, and the crude supply pipeline was cut by sabotage for much of the year so throughput was only around 30% capacity.
The Kaduna refinery had a distillation capacity of 110,000 bpd. The first 50,000 bpd unit, when it was built in 1980, was a fuels unit designed to run light Nigerian crude. It was later revamped to 60,000bpd by the addition of a pre-flash unit. In 1982, a 50,000 bpd sour crude unit was built, designed to provide feed to a lube baseoil manufacturing plant, an asphalt plant, and an Linear Alkyl Benzate (LAB) plant. The plant was initially designed to run Venezuelan crude, but was later re-certified to produce lubes from Arab Light crude.
In 1987, the LAB plant was started up. The plant can manufacture 30,000 mt/year of LAB, 15,000 mt/year of benzene, and 30,000 mt/year of kero solvent, but has not operated since 1998. A drum plant was also installed, and a 6,000 bpd asphalt blowing unit.
The refinery has been plagued by technical malfunctions and breakdowns, and suffers from being in a location at the end of an insecure pipeline that is remote from the crude supply. In July 1997, after many years of low throughput, the refinery suffered a total shutdown following a serious fire, and did not restart until 1999.
In 1997, a major contract valued at $215 million was awarded to Total International to handle repair of specific parts of the refinery and to rebuild the depleted spare parts inventory. This project was fraught with difficulties for Total’s resulting from exaggerated expectations, diversion of funds, and numerous local problems. Both CDU’s restarted in 1999. However there has been no regular sour crude supply since 1992, and since 1998 the sour crude unit has not operated due to lack of crude feed.
A 500KM pipeline from Warri refinery supplies the crude to KPRC. Most of the sweet crude is sourced from the ChevronTexaco Escravos fields, but about 20,000 bpd comes from the Ughelli field that is supplied via a spur that joins the line north of Warri refinery. The pipeline crosses a number of rivers and other obstacles, and is constantly being ruptured by both natural and man-made causes. The Arab Light sour crude is imported through an SBM at Escravos (currently out of service) into NNPC constructed storage tanks behind the ChevronTexaco facilities. Prior to 1992 the supply of Arab Light crude was supplied in exchange for Forcados, and this contract was much sought after by traders.
According to the 2008 BP Statistical Energy Survey, Nigeria had 2007 proved natural gas reserves of 5.29 trillion cubic metres, 2.98 percent of the world total. Due, mainly, to the lack of a gas infrastructure, 75 percent of associated gas was flared and 12 percent re-injected.
Nigeria had set a target of zero flare by 2010 as well as raising earnings from natural gas exports to 50 percent of oil revenues by 2010. The former it couldn’t achieve till date.
Aside this, Nigeria’s downstream oil industry is also a key sector including four refineries with a nameplate capacity of 438,750 bbl/d. Problems such as fire, sabotage, poor management, lack of Turn Around maintenance and corruption have meant that the refineries often operate at 40 percent of full capacity, if at all. This has resulted in shortages of refined product and the need to increase imports to meet domestic demand. Nigeria has a robust petrochemicals industry based on its substantial refining capacity and natural gas resources. The petrochemical industry is focused around the three centres of Kaduna, Warri and Eleme.
In April 2000, the Nigerian government set up a new committee on oil and gas reform to deal with the deregulation and privatisation of NNPC. Seven subsidiaries of NNPC are due to be sold including the three refineries, the Eleme Petrochemicals Company Ltd, the Nigerian Petroleum Development Company and the partially owned oil marketing firm, Hyson Nigeria Ltd. Nigeria is a member of OPEC and is its 12th largest producer.
The petroleum industry in Nigeria is regulated by the Ministry of Petroleum Resources. The government retains close control over the industry and the activities of the NNPC, whose senior executives are appointed by the ruling government.