Decentralised solutions in demandMay 18, 2020
Souheil Abboud, managing director of VFuels, talks to The Energy Year about why the company is bullish on the continuing competitiveness of its modular refinery projects and how these projects benefit local economies. VFuels is a Houston-headquartered full-service oil and gas engineering, design and fabrication company.
To what extent has your business been affected by Covid-19?
Our business has been hindered by Covid-19 as we were about to commission and start up the 5,000-bpd Waltersmith modular refinery in Nigeria. We had to come up with mitigation measures and plans to compensate for the time lost due to lockdowns across the world.
All in all, we have been interrupted, but unlike other businesses, we are not going to make significant changes to our business model. If anything, we believe that the demand will expand as the low oil price coupled with the lack of storage capacity is pushing people to refine more. We need to keep pushing, as the demand for refining capacity is growing, especially in Africa, irrespective of the current market economics.
Will the current business environment be a driver for more modular refineries?
Decentralised solutions for oil and gas infrastructure continue to be in high demand, especially in Africa. So to your question of whether more modular refineries will continue to be in demand due to the current business environment my answer is probably not. You see, construction time is still between 18 to 24 months for a typical modular refinery. Despite being a short period of time, the reality is that it normally takes at least another one to two years to predevelop the project, so you are looking at three to four years from now for a modular refinery project to materialise.
We don’t build our business, nor do we think the market for our services/products will dramatically change, due to events that are extraordinary and have a temporary impact. As noted earlier, the current market economics (no current storage capacities and the low price of oil) are fuelling new interest, but the reality remains that decentralised oil and gas infrastructure and the drive to refine in Africa remain the main drivers.
Another question is whether the financiers have the appetite for such projects given the current global situation in oil and gas. We believe the interest will continue as modular refineries now make more sense. If you are a local producer in West Africa, you are better off having a modular refinery next to your production facility, as opposed to just selling crude.
Can the Waltersmith modular refinery project serve as a role model for other such projects in Africa?
Definitely, yes. We want the Waltersmith project to be replicated throughout Africa. We did an excellent job with our partner, Lambert Electromec, both on quality and delivery (on budget and on time). We both (VFuels and Lambert) delivered ahead of schedule because of our commitment and of course due to the commitment of our client (Waltersmith). Ditto for the Liberia project, where our EPC partners are working hard even in these difficult times. It is important to note that modular refineries are not copy-paste type projects; each project has its unique design and engineering issues.
To further elaborate, a slight change in the crude assay can drive new engineering and design processes. It depends also on client needs, but the concept/business model is what we can replicate.
How can local economies benefit from your modular refinery projects?
These projects are decentralised and tend to primarily serve the local community initially, and then the local economy. Our Nigerian project fulfilled all the outcomes of sustainable development with respect to job creation, transfer of technology, health, environment, wealth creation and education. Both VFuels and Lambert have a strong commitment to making our projects on par with international standards when it comes to sustainability. It is important to note that our clients and local government regulatory bodies have also been aggressive in ensuring that local content and sustainability are adopted.
These types of projects are relatively simple to construct, operate and maintain; therefore, the impact on the local economy is substantial since a considerable amount of the services and material can be sourced locally.
What objectives can VFuels set in the current environment?
To reiterate, these projects are considered relatively small on a global refinery scale; they typically take 18-24 months to construct. Having said that, the current low oil price does not mean that in two years the status quo will continue … the oil and gas market is very dynamic. We are still bullish; the oil and gas sector will rebound as the demand will pick up when economies reopen.
I would not say that we are in a disaster situation. Yes, some of our pipeline projects are on hold, but none have been cancelled. We feel that we have a good understanding of the current situation and continue to be bullish. This optimism comes from the fact that our clients are thinking ahead and we see that the financiers are still committed to further investment in our field.
2020 will obviously be a lot slower than 2019 and 2018, but economies will rebound (as they always do) and demand for decentralised oil and gas solutions will also rebound.
Have any in-house opportunities emerged for VFuels amid the downturn?
We are still doing great. We have a solid market share in Africa and are growing our share in the US.
Since we started VFuels, our business has been based on flexibility; we adapt very quickly. Our growth in Africa was primarily due to our ability to support and work with our clients in Africa as well as the US. That is a business model that nobody has in our space in Africa; we have the capacity to support our clients during their predevelopment phase, which includes fundraising, early-stage engineering, permitting and licences. We surely go beyond our refinery OEM scope.
We continuously work on our efficiency; we didn’t need a Covid-19 situation to become more efficient. What this situation gave us is time for certain things we did not have time for before: some internal housekeeping, for example.