ECONOMICS IMPACT OF LOCAL REFINERIES IN NIGERIA (A CASE STUDY OF KADUNA REFINERY)

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INTRODUCTION

1.1 BACKGROUND OF THE STUDY

A refinery is a production facility composed of a group of chemical engineering unit processes and unit operations refining certain materials or converting raw material into products of value. Oil refining or petroleum refining is an industrial process plant where crude oil is transformed and refined into more useful products such as petroleum naphtha, gasoline, diesel fuel, asphalt base, heating oil, kerosene, liquefied petroleum gas, jet fuel and fuel oils. Petrochemicals feed stock like ethylene and propylene can also be produced directly by cracking crude oil without the need of using refined products of crude oil such as naphtha Ugwukah AC, Ohaja OJ, 2016). Oil refineries are typically large, sprawling industrial complexes with extensive piping running throughout, carrying streams of fluids between large chemical processing units, such as distillation columns. In many ways, oil refineries use much of the technology of, and can be thought of, as types of chemical plants. The crude oil feedstock has typically been processed by an oil production plant. There is usually an oil depot at or near an oil refinery for the storage of incoming crude oil feedstock as well as bulk liquid products. Petroleum refineries are very large industrial complexes that involve many different processing units and auxiliary facilities such as utility units and storage tanks. Each refinery has its own unique arrangement and combination of refining processes largely determined by the refinery location, desired products and economic considerations. An oil refinery is considered an essential part of the downstream side of the petroleum industry. Some modern petroleum refineries process as much as 800,000 to 900,000 barrels (127,000 to 143,000 cubic meters) of crude oil per day. There are four major existing refineries in Nigeria as follows. Old Port Harcourt Refinery; capacity 60,000bpsd com-missioned in 1965.Warri Refining and Petrochemical Company; capacity 125,000bpsd commissioned in 1978.Kaduna Refining and Petrochemical Company; capacity 110,000bpsd commissioned in 1980.New Port Harcourt Refinery; capacity 150,000bpsd com-missioned in 1989.Thus, the total installed capacity is 445,000bpsd. These plants in the last 15–20years had a poor operating record with average capacity utilization hovering between 15 and 25% per annum. As a result, 70–80% of the national petroleum products demand is met through import. As at 2017, the aggregate demand of petroleum products in Nigeria was equivalent to 750,000bpsd. Hence, there is ample scope for investment in new plants and revamp of the existing ones to make them more efficient. The study seeks to appraise the economic impact of local refineries in Nigeria .A case study of Kaduna refinery.

1.2 STATEMENT OF THE PROBLEM

The decline in the performance of the local refineries started in the early 1990s after the military Government ordered NNPC to close its accounts in commercial banks and transfer them to the Central Bank. NNPC lost its autonomy. It became increasingly subjected to interference and directives by politicians. It could no longer ensure prompt maintenance of the refineries. Most importantly, decisions on when to carry out turnaround maintenance and which contractor to execute it came under the influence of the Government rather the sorry situation of low capacity utilization which developed and still exists today is due to the following reasons Poor governance, No major turnaround maintenance has been carried out in any of these refineries since 2008. The last TAM in PHRC was carried out in 2000. This should be viewed against the established best practice worldwide that TAM should be conducted by refineries every two or maximum 3 years; Pipelines supplying crude oil to the refineries, and those conveying products from them are routinely vandalized. This leads to massive loss of revenue and worsens the problem of under-recovery of crude cost. Even if the refineries were able to operate consistently, the price of Premium Motor Spirit (PMS) is regulated by Government, leading to serious under-recovery of crude cost. The problem confronting the study is to appraise the economic impact of local refineries in Nigeria. A case study of Kaduna refinery.

1.3 OBJECTIVES OF THE STUDY

The Main Objective of the study is to appraise the economic impact of local refineries in Nigeria. A case study of Kaduna refinery.

The specific objectives include:

i.        To determine the economic impact of local refineries in Nigeria. 

ii. To understand the relationship between local refineries and economic growth in Nigeria.

iii. To examine the challenges of local refineries in Nigeria.

1.4 RESEARCH QUESTIONS

i. What are the economic impact of local refineries in Nigeria?

ii. What is the relationship between local refineries and economic growth in Nigeria?

iii. What are the challenges of local refineries in Nigeria?

1.5 STATEMENT OF THE HYPOTHESIS

Ho1: There is no significant relationship between local refineries and economic growth in Nigeria.

1.6 SIGNIFICANCE OF THE STUDY

The study appraises the economic impact of local refineries in Nigeria. A case study of Kaduna refinery.

1.8 LIMITATION OF THE STUDY

The study was confronted with logistics and geographical factors.

1.9 DEFINITION OF TERMS

REFINERY DEFINED

A refinery is a production facility composed of a group of chemical engineering unit processes and unit operations refining certain materials or converting raw material into products of value. Oil refinery or petroleum refinery is an industrial process plant where crude oil is transformed and refined into more useful products

such as petroleum naphtha, gasoline, diesel fuel, asphalt base, heating oil, kerosene, liquefied petroleum gas, jet fuel and fuel oils. Petrochemicals feed stock like ethylene and propylene can also be produced directly by cracking crude oil without the need of using refined products of crude oil such as naphtha.

CRUDE OIL DEFINED

Mixture of naturally occurring hydrocarbons that is refined into diesel, gasoline, heating oil, jet fuel, kerosene, and literally thousands of other products called petrochemicals.

ECONOMICS IMPACT OF LOCAL REFINERIES IN NIGERIA (A CASE STUDY OF KADUNA REFINERY)