BENEFITS OF MODULAR REFINING AS AN ALTERNATIVE IN EMERGING ECONOMIES.
By Ikenna Ifedobi.
In the business of refining crude oil, what is good for the goose may not always be good for the gander. In essence, the modus of refining crude oil in developed nations may not always suit 3rd world countries like Nigeria. The fundamental developmental differences in socio-economic infrastructure and maintenance psychology demands that a more suitable approach be adopted by countries like Nigeria, to align with their stage of societal evolution and political uniqueness.
This article shall focus on Nigeria as a case study to propose a better alternative for an emerging economy dealing with social vicissitudes that may otherwise make full conversion refineries inefficient when compared to small scale modular plants. History has shown in Nigeria that large scale, full service plants are difficult to maintain and often function at the level of small scale modular plants anyway, despite their size and heavy output potential.
The Port Harcourt, Warri and Kaduna plants have been almost nonfunctional due to a poor maintenance culture and a profound difficulty for Nigeria to sustain the industrial ethics needed for large scale refining. While it is encouraging that the 500,000 BPD plant by Dangote will alleviate the national and regional shortages in petroleum products supply, it should be understood that the problems that crippled the older plants are still in place, and by the sheer size of the refinery, it may suffer the fate of the older ones if extensive reforms are not implemented. Modular refineries however offer some unique options that may be more suitable for emerging economies like Nigeria.
Why modular is preferable.
A modular refinery by definition is a prefabricated processing plant that has been constructed on skid mounted surfaces, with each structure containing a portion of the entire refining process plant connected together by interstitial piping to form an easily manageable process. Due to its manageability it is in my opinion better suited for the Nigerian environment.
Its key advantage lies in its size, cost differential and flexibility. It is constructed in a controlled environment and properly tested before being shipped out. It is relatively easier to fabricate and erect. Also, when an area becomes unsuitable for business, it can be disassembled and reassembled in a more suitable environment. For areas with non-cohesive geopolitics like Nigeria, modular plants can be scattered throughout the country to each serve the needs of the various regions of the country.
The maintenance cost is low; considering that it processes 2,000 to 15000 BPD of mainly light sweet crude, routine turn around maintenance and on-stream inspections would require less personnel and down time. Modular plants are easier to secure because of the reduced surface area and perimeter; issues of internal monitoring of equipment and external acts of sabotage can be better policed given the smaller area of operation, and in a situation where one plant suffers an incident, the other smaller plants scattered all over the country can still be operational. The impact on the environment is nothing compared to a large scale refinery.
Environmental pollution and regulation can best be controlled with small scale plants in countries that may not have the industrial ethics to manage the huge amount of pollution prevalent with large scale refining. While a full conversion plant can cost anywhere from 2 to 9 billion dollars, the same amount can be used to spread the risk potential and build various modular plants all over the country to cater to the needs of each geopolitical zone. Finally, while it may take several years to build a large refinery, modular plants can be put to service in a matter of months, and only cost about 250 million dollars.
The issue with large scale refining.
In a volatile 3rd world nation like Nigeria, large scale refining has some profound disadvantages that has over the years been proven by the non-functionality of plants and the heavy dependence on fuel imports even after the plants were built. This shows that unlike developed countries, economies like Nigeria have not evolved to managing large scale plants and maybe should look to smaller and flexible units.
The key reason here is maintenance. Large scale refineries are not easy to maintain and require a stringent quality control and jurisdictional system to ensure longevity. Global standards stipulate that process equipment be opened cleaned and inspected at least every 5 years, and an on-stream mechanical integrity program be implemented and documented. While some refineries in America built in the 1920’s are still fully functional, Nigeria’s oldest refinery was built in 1965 and operates at less than 15% capacity. The jurisdictional and industrial ethics are clearly absent and such levels of operation do not suit societies like Nigeria.
Because of this lackadaisical culture of maintenance, the likelihood and consequence of failure of having such huge process capacities cannot be overstated. In the event that all the country’s refining rely on a few giant plants, once those facilities suffer a mishap, the country is immediately thrown into socio-economic shock. However, if there are numerous small scale plants then the risk is spread and environmental and economic impact reduced. Why spend 9 billion dollars to build a 500,000 BPD behemoth, only for it to become epileptic in ten years.
The Nigerian example is the most extreme in all the 3rd world in evaluating the problems that a huge refinery can encounter. Due to the dependence in extensive interconnecting piping, large scale plants in Nigeria will find it very difficult to stay in business if the pipelines are not protected. Given that pipeline vandalization has never been arrested and that there is a serious problem of disgruntled elements in the country blowing up pipelines, how then do giant refineries stay in business? How do they get their crude oil feed? Is it really worth it to invest 9 billion dollars in one area and operate on a skeletal scale?
Given the stratified nature of the Nigerian population in terms of ethnic tensions, it may be advisable for regional refining to be considered, where indigenous modular plants are operated and overseen by indigenes of the region for their own economic benefit. In this case, if they blow it up, then they are really hurting themselves as opposed to seeing the facility as a symbol of government or multinational domination.
Deriving any economic benefit from modular plants is highly dependent on their proximity to marine transportation. It is imperative that areas that border with the Atlantic Ocean be made safe one way or another. This is the responsibility of the federal government. Also it is imperative that the federal government gives strong consideration to pipeline protection from the standpoint of advanced technology. These two factors are at the root of any kind of viability in petroleum refining in Nigeria and ultimately national economic development.
Also the PPMC of the NNPC should extend fiscal incentives towards the budding modular refining industry by guaranteeing the purchase of all output and regulating the downstream sector of the industry. It is common knowledge that there is a huge market for petroleum products not just in West Africa but the entire continent, however the appropriate national institutions must ensure the growth of investments by acting as the industrial fulcrum between demand and supply.
At this stage of national development, small scale modular plants will yield more economic benefits and return on investments than their large scale counterparts and with the proper government incentives may solve the problem of fuel scarcity and imports which a giant oil producing country like Nigeria should not experience.
Ikenna Ifedobi is an economist and consultant of the American Petroleum Institute (API). firstname.lastname@example.org