Refined impact in Nigeria

• On state-owned refineries: “These refineries have suffered years of underinvestment. When you have a complicated system with multiple stakeholders without necessarily having clarity of co-ordination, then it’s very difficult. If you look at it even from the point of view of a refinery operator, if my price is fixed but my input cost is variable, then I have a huge challenge in how to manage and eventually reinvest into that business.”

• On modular refineries: “With some of the challenges we have around vandalism, cost of infrastructure and the transportation network, modular refineries represent an opportunity because you can localise and have the final product close to the market. One of my concerns is regulation, from a technical and quality-standards standpoint. Technical and operational regulations need to be improved.”

• On oil prices: “When the oil price dropped, profitability for the operators became a huge challenge. Back then a tremendous amount of capacity was taken out of the industry on the service side, whether equipment went away, was scrapped or was impaired. These adverse conditions resulted in the industry scaling back on its operations and investments.”

• On outlook: “Prices are improving, but the reality is that the service terms and conditions are not necessarily improving at the same rate or scale. We now face a very delicate balance and quite a difficult challenge for the service sector.”

Most TOGY interviews are published exclusively on our business intelligence platform TOGYiN, but you can find an abridged version of our interview with Ado Oseragbaje below.

What challenges are state-owned refineries facing?
These refineries have suffered years of underinvestment. When you have a complicated system with multiple stakeholders without necessarily having clarity of co-ordination, then it’s very difficult. If you look at it even from the point of view of a refinery operator, if my price is fixed but my input cost is variable, then I have a huge challenge in how to manage and eventually reinvest into that business. If you look at some of the liberalisation that has happened in the past few years, it gives an opportunity for the government and the NNPC to start to look at things differently. Just the fact of having this project come this far also indicates that the government is looking to do things differently.

How promising are modular refineries for Nigeria’s refining capacity?
With some of the challenges we have around vandalism, cost of infrastructure and the transportation network, modular refineries represent an opportunity because you can localise and have the final product close to the market. One of my concerns is regulation, from a technical and quality-standards standpoint. Technical and operational regulations need to be improved.

How have low oil prices impacted the Nigerian upstream sector?
Conditions were tough in sub-Saharan Africa because the markets are very much offshore driven. If you go around West Africa, 50-60% of the activity is offshore based, which is a lot more expensive and more price sensitive than the onshore fields. Additionally, with the exception of maybe Nigeria, most of the onshore activity is very remote and logistically challenging. When the oil price dropped, profitability for the operators became a huge challenge. Back then a tremendous amount of capacity was taken out of the industry on the service side, whether equipment went away, was scrapped or was impaired. These adverse conditions resulted in the industry scaling back on its operations and investments.
Now, prices are improving, but the reality is that the service terms and conditions are not necessarily improving at the same rate or scale. We now face a very delicate balance and quite a difficult challenge for the service sector. With activity coming up, there is an expectation that we’re going to ramp up and increase capacity. But it’s very difficult to do that with some of the conditions that we currently have. We need to bring the right level of resource into the market in order to continue supporting our customers. There’s now higher capacity existing in the country, both local and international, and you almost need two to three projects sanctioned every year over a five- to 10-year period for us to be able to support the level of investment that has already been made in the country.

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