Modular refinery 1

The much awaited policy move on petroleum refining in Africa’s biggest economy has come. Decades of dependence on imported refined products has taken a huge toll on Nigeria’s economy. It technically moved Nigerian jobs abroad, put enormous pressure on the Naira due to foreign exchange and promoted corruption through subsidies, while encouraging product smuggling. In late May, Nigeria’s Department of Petroleum Resources (DPR) carried out a series of workshops to promote a new policy that encouraged investment in modular refining in Nigeria.

This is indeed a good investment window that holds economic, social and development value for Nigeria and potential investors. However, mini refining holds a tricky margin, which calls for the most skilled and surgical approach to guarantee profitability. The following is an analysis of some of the essential considerations of mini-refining; in the context of Nigeria’s business environment.



The new refining opportunity in Nigeria is a great initiative. Its impacts transcend economic gains for investors and entrepreneurs with respect to its potential contributions to national development. The most interesting element of mini refining is the relative low setup cost, when compared with full conversion refineries (with capacities of 200,000 bpd) whose cost will be between $2 – 9 billion. For example, The Turkish Socar refinery is a $5 billion modern refinery funded by the International Finance Corporation (IFC).

Mini-refineries can be established with about $100-$250 million. Depending on the configuration the cost can be lower or higher. In addition, it offers the possibility of phased construction and the flexibility of quick and easy upgrade to reflect changes in product demand. An initial 30,000 bpd capacity refinery can be upgraded to double or triple the capacity with ease and speed.



In addition to low capital, being skid mounted means construction time is compressed and the quality of engineering is improved. New demands can be easily met with the addition of new modules. Different plants can serve different markets (such as the 6 geopolitical zones in Nigeria) rather than feeding a whole nation or region with a single plant, together with the associated risk of creating an elephant-sized supply chain and operations management system. However it cannot boast of the same scale and efficiency obtainable from a full conversion plant and will typically require more personnel per Effective Distillation Capacity (EDC).



TOPPING PLANT; it consists of only a crude distillation unit and (usually) a catalytic reformer to provide gasoline. It typically permits only condensates and light sweet crude.

CRACKING REFINERY; this type takes the gasoil component from the crude distillation unit and breaks it further into gasoline & distillate components. It utilizes catalyst, high temperature and pressure. (more sophisticated than a topping plant).

COKING REFINERY; this type of refinery utilizes residual fuel (the heaviest material from the crude unit. The addition of a Fluid Catalytic Cracking Unit (FCCU) significantly increases the yield of higher valued products like crude gasoline and diesel oil from a barrel of crude. Cooking refineries allows a refinery to process cheaper, heavier crude while producing an equivalent or greater volume of high valued products (Cenam Energy Partners). Due to cost considerations it’s possible to procure and re-attach a used hydro-cracker as an add-on to a modular mini-refinery to obtain a full conversion refinery. The FCCU makes very significant contribution to a refinery’s profitability.



The profitable operation of mini refineries requires care. Investors should have a good knowledge and vision of what is to be achieved. The viability and operational economics of mini-refineries depends on a number of factors as well as their interplay namely:

1) Product slate, 2) Crude slate 3) Refinery’s configuration 4) Proximity to sizeable market 5) Proximity and access to crude 6) Government incentives to support low margins for mini-refineries (due to lack of economies of scale ) 7) Logistical issues and others.

A prospective investor should understand each of these elements as standalone forces as well as how they interrelate with one another in the context of the Nigerian investment environment. Mini refining has been embraced in many regions of the world. Emirates National Oil Co’s (ENOC) subsidiary Cylingas and UK-based Pyramid Engineering plans to build a 7,500 bpd modular refinery in Fujairah, UAE. Iran is also building eight (8) new mini-refineries to serve the South Pars gas field. The technology is available in the Middle East and North America where turnkey engineering services can be obtained.

The configuration of the refinery and its economic viability depends largely on the specification of the feedstock it will be processing. With high API crude, there will be limited need for further investments in systems like de-salters (usually for crude having salt content above 1kg per 1000/ bbl) and/or de-sulfurization units (for high sulfur content crude).

In contrast, with heavy (cheaper) crude – if it can be economically sourced – further investment will be required in the form of other processing units to both bring sulfur content to acceptable units and to enhance the octane value of Naphta products and in turn get good quality unleaded gasoline. Gasoline (Petro) is the top consumed petroleum product in Nigeria with a good growth projection towards 2035. Maximum allowable sulfur is specified by different regulatory regimes in different countries so compliance is crucial. Invariably, investments in these extra units do bring additional costs that if not carefully controlled could erode lean margins.

All the positive elements of a mini-refinery when juxtaposed with a full conversion high capacity refinery, indicates the need for a careful approach and a good  understanding of the technical, economic and operational elements  required to make it commercially viable.



AGO & PMS (ALSO CALLED DIESEL AND PETROL) If there is a good market for Automotive Gas Oil (AGO – Diesel) – and there is in Nigeria! – it will be investment savvy to install a simple atmospheric topping plant, which comprises of the distillation unit in its simple form and produces AGO, Kerosene (high growth projection), Naphta and Fuel Oil. In Nigeria AGO consumption has been on the rise for over 30 years. Energy consumption projections also indicate even more increase in total national consumption between 2015 and 2035, according to Nigerian Energy Commission (ECN)

But the consumption projections and analysis provided by the  (ECN) did not factor the anticipated improvements in electricity supply (see Petrocracy below) which will lead to reduced demand for both AGO and Petrol (over 20 percent of the Petrol and AGO consumption in Nigerian is used in the generation of captive electricity in households and industrial/commercial residents). This implies that a top plant originally configured to maximize AGO production might soon need to include PMS in the desired product slate. An extra cost will be incurred for the installation of a cracking unit to further convert the Naptha and Fuel Oil to PMS. Consumption is also projected to rise exponentially between now and 2035. It show very high percentage increases in each of the intervals between 2020, 2025, 2030 and 2035 according to IAEA/ECN data.

Road transportation vehicles are increasingly using AGO and petrol for fuel and their demand is currently substitution inelastic. This represents another good demand source in a sector that is also projected to grow. (Note: LNG fueled locomotive trains and cars has been tested recently)

These are some of the fine considerations that must go into the feasibility work of a mini-refinery. A full conversation refinery is somewhat shielded from these very consideration, given the larger array of products obtainable and the advantage of economy of scale with better margins.  

Once armed with this understanding, an investor is bound to benefit from the numerous advantages of a mini-refining facility.



It will be reasonable for new investors in mini-refining to consider locations in close proximity to existing tank farms or similar facilities with extra capacity (if capacity, design and license permits)  or to be factored into ongoing or proposed projects, such as the ones coming up in some areas in Lagos. By having an arrangement where a number of the assets required for running the modular refinery such as storage tanks, power generating units, truck loading facilities and pipeline systems are shared, significant costs can be saved (at least in the short term) Independent oil marketers with complementary product distribution assets can (where capacity, design and license permits) take advantage of the flexibility in construction of modular refineries to incorporate it into existing assets. Likewise strategic partnerships can be struck between these marketers and new investors/entrepreneurs interested in running a modular refinery. Even where an engineering company that manufactures the modular units can provide turnkey services; project owners are required to provide these other assets as they do not ship with the pre-manufactured modules.




Lagos and its neighbors as well as South-South Nigeria are Nigeria’s China and India respectively. They account for a huge percentage of total national petroleum product consumption.  The reason can be inferred from both the concentration of industrial/manufacturing activities in these regions & their sheer population. Thirsty Lagos and its South-South neighbors presently consume more than all other regions put together. The South-South in addition to having a large market (for products petrol, diesel and HHK) is also host to Nigeria’s crude oil producing states. The proximity of crude source, as well as, the presence of existing product transport infrastructure and experienced manpower makes it an attractive site.

But investors must be willing to contend with the tensions and usual volatility of host communities. In addition, new facilities will be entangled in the conversation about an already compromised & polluted environment; arising from decades of negligence by currently operators.

Others: South-East | North-Central | North-East |North-West | FCT



Refining capacity in Nigeria may rise. The state owned refineries are undergoing some slow maintenance; NNPC officials recently told Senate Committee on Petroleum (Downstream) that it will restore the facilities to work at their full capacity of 445,000 bpd by the end of 2016 (from present day 40% capacity utilization). A new refinery in Lagos by Nigeria’s billionaire business mogul, Aliko Dangote will come on stream by mid-2018, according to George Nicolaides, Dangote industries’ operation director for petroleum refining. It’s a full conversion plant that will cost a whopping $9 billion and process about 500,000 bpd.

If these capacities come on stream around 2018 as planned, combined national refining capacity   will be about 1,000,000 bpd. This is way below the 1,500,000 bpd capacity which the vision 20: 2020 anticipates Nigeria should attain to curtail (Not end!) importation.



Refineries in Europe and North America have suffered huge setbacks in the recent years. A report by the European Petroleum Industry Association (now FuelsEurope) showed that 15 European refineries have shut down between 2008 and 2013.  These trends put a lot of pressure on African countries and developing nations of the Asian/Middle East countries. It is both an opportunity and a challenge.  Refining capacities in Africa’s energy sector is generally low. Consequently mini refineries if strategically located can benefit from the petroleum products markets in nearby nations. Current subsidy programs encourage smuggling across Nigeria’s borders in the North East. With the removal of subsidy the market dynamics will change, eliminating the price differential that makes smuggling viable, opening up new market for producers that can map that region.



Petrocracy is a term used by researchers Ben Naanen and Patrick Tolani, in their 2014 report on illegal oil bunkering and artisanal refining in the Niger Delta. They used it to describe political contestations that are inspired by oil revenue. It rightly deserves a definition extension that includes the totality of all Nigerian specific forces that all petroleum investments and business activities must contend with, in respect of these contestations and regulations.  A similar cliché is what many Nigerians call the “Nigerian Factor”. While this term has an elusive definition it is frequently used to connote the summative impact of a number of negative forces that are unavoidable in a Nigerian discourse. It will include the positive elements too in this analysis.

It’s a new day in Nigeria and there are significantly high levels of expectations in most sectors. The new government of President Muhammadu Buhari has a plethora of problems facing it. The most conspicuous of which are challenges facing the petroleum industry in Nigeria. They include; deregulation of the downstream sector and/or restructuring of the petroleum product subsidy, product supply challenges arising from non-functional refineries (4 state run refineries) artisanal refining business in the Niger Delta that bears off from crude oil theft (an industry estimated to be worth $9 billion and provides about 26,000 direct jobs while catering for over 100,000 people indirectly, poor maintenance/management practices on the over 5,000km of pipelines in Nigeria. Corruption cannot be omitted as a central player in all this.


The new president has already given signals that he might be removing petroleum product subsidy. This move will make the business of mini refining more profitable by way of introducing competition and allowing market forces of demand and supply to drive prices. But the challenge stills remains that the government will have a big hurdle in eliminating or restructuring the petroleum subsidy; a move that the masses has historically considered anti-people. Protest followed President Jonathan’s upward review of the pump price to N140 on Jan 01, 2012. This led to organized labor downing tools for about 8 days before it was readjusted to N97.


The regulatory aspect of all activities in the petroleum industry is also a source of serious concern. The role of the Department of Petroleum Resources (DPR) vis-a vis its relationship with the Ministry of Petroleum and NNPC has been described as non-optimal. The popular Petroleum Industry Bill (PIB) (which everyone hopes the new president will summon the will to get it passed by the House of Assembly) advocates for changes in the current structure and function of DPR. Given that the DPR has spearheaded the new mini-refining initiative one might expect limited red tapes. If there is an improvement in the regulatory framework and its manner of delivery (that goes beyond the usual rhetoric) then prospective investors can gladly anticipate the required support from government.

These challenges can impact the finance structure and the ease of finding capital for projects like this. Both locally and internationally, investors will typically be keen on understanding the regulatory regime that locally governs a venture such as modular refining.

Others: Operational implication of PIB |Cost Analysis | Financing | Operational Economics| Government incentives


This is an excerpt from the Report: Analysis of the mini-refining opportunities in Nigeria.   

Chijoke K. Mama is a Senior Oil and Gas analyst based in Lagos. [email protected] | 070-6101-3333. @chijiokemama