oil_refinery_570xvarThe near-decrepit state of the nation’s four refineries, whose privatisation is expected to begin in the first quarter of 2014, has continued to slow down the growth of the vital petrochemicals industry.

Activity in the refining and petrochemicals industry is expected to receive a major boost as government looks to transfer ownership and operation of the state-owned refineries to private investors. One example is the 400,000-barrels per day (bpd) refinery being built by Aliko Dangote, which comes on stream in 2016.

“There is no doubt that the petrochemicals industry in Nigeria would be boosted if our domestic refineries are working efficiently,” said Adeola Adenikinju, professor of Economics and director, Centre for Petroleum, Energy Economics and Law, University of Ibadan.

Refineries are very important to the petrochemicals industry because they are major sources of feedstock used by petrochemical plants. Oil refineries produce olefins and aromatics which are very useful as raw materials and feedstock in chemical and plastic industries and in the production of synthetic rubbers.

The country’s low refinery-capacity utilisation over the years has resulted in lower petrochemical yields, creating a need for imports.

Nigeria has two refineries in Port Harcourt, one each in Warri and Kaduna, with a combined capacity of around 445,000 bpd, but they operate well below full capacity owing to years of mismanagement and corruption.

The Warri refinery was designed to produce carbon black for Nigeria’s input into plastics, paints, battery packs and steel alloys. Kaduna refinery, which uses heavy crude oil, was intended to produce asphalt, benzene and industrial waxes. Port Harcourt refinery was expected to produce feedstock to the then near-moribund Eleme Petrochemicals Company, which has been revived by Indorama Group following its privatisation in 2006.

“All these petroleum derivatives were to act as import substitutions and feedstock to factories that needed them. In their absence or in the event of any of these refineries not functioning, then this feedstock must be imported,” said Emmanuel Usanga, controller, subsurface, Peak Petroleum Industries Nigeria Limited.

Adenikinju, who doubles as the president of the Nigerian Association for Energy Economics, said the recent policy of government to address the near-comatose state of the refineries was in the right direction.

“Injecting new capital and fresh management into our refineries will enhance their productivity and be a win-win situation for all allied industries like petrochemicals, rubber and rubber products, vehicle assembly, among others,” he added.

Citing Indorama Petrochemical Company as a good pointer to the huge potential in the petrochemical industry, he said the company was not only supplying to the local industry but at the moment exported some of its products.

“The petrochemical industry is potentially a multibillion-dollar industry,” he said. “The potential size of the local market for petrochemicals is significant. This is not to mention the export potential to West African market and beyond. We will be giving practicality to our oft-stated desire to diversify our exports and income base.”

Also highlighting the importance of the petrochemicals industry to the nation’s economic development, Usanga said the industry was the bedrock of industrial manufacturing.

“Apart from steel, petrochemical products are the largest base of raw materials used in industrial manufacturing. There is hardly any finished good today in which petrochemical derivatives are not utilised either as an input, hardener, polish, coating or package. Even printing inks in news prints are petrochemical derivatives. Everything plastic originated from petroleum polymers. No country today can boast of modernity without making use of petrochemical derivatives,” he said.

The benefits inherent in the industry, which the country has been largely missing out on, are enormous, according to Adenikinju. “It will help to deepen the forward and backward linkages of the petroleum sector with the rest of the economy. We will be able to extend the value chain of our oil and gas sector, create high value, new jobs for our unemployed youths, reduce the amount of foreign exchange we spend annually to import petrochemical products into the country and diversify our foreign exchange earnings potential,” he said.

He added that it would help in realising the country’s aspiration to effectively transit from being primarily an exporter of crude petroleum with its attendant high price and income volatility to an exporter of processed products that would attract higher price and provide more stable income on the world market.

From 2007 to 2011, at least 25 percent of products traded in Africa were chemicals and related products, with the top four traded sub-products consisting of fertilisers, soaps, cleansing and polishing preparations, perfumery, cosmetics or toiletry preparations and medicaments, according to a recent report by the United Nations Conference on Trade and Development (UNCTAD).

The UNCTAD’s Economic Development in Africa Report 2013 released in July stated that many African countries that need to import primary commodities and fuels were doing so by sourcing outside the region rather than within it, adding that infrastructure bottlenecks and lack of investment in domestic refinery facilities could be hampering intra-trade opportunities in Africa when it comes to the fuels sector.

“It is easy to see the relationship between the refineries and Nigeria’s industrialisation. At this point in time there is hardly any feedstock to the petrochemical sector,” said Usanga. “Most feedstocks such as methanol and ethanol are imported, also asphalt. Apart from these petrochemical objectives, the malfunction of the refinery system also translates to the shortage of primary fuels for automobiles such as PMS and diesel.”

Analysts have stressed the need for Nigeria to position itself as a supplier of these products by reviving its refining capacity, which is expected to boost the petrochemicals industry.

 

[Femi Asu, Business Day]

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