NIGERIA - The Nigerian Petrochemical Sector.

The petrochemical sector in Nigeria has suffered considerably since 2006 due to rebel attacks affecting the country's four oil refineries. The two refineries on which much of the petrochemicals production depends, at Kaduna and Warri, have been out of operation since early 2006.

The other two refineries, at Port Harcourt, are only producing heavy fuel oil, and their crude oil throughput is less than 150,000 b/d, compared to a nominal capacity of 210,000 b/d. These two plants and the Kaduna oil refinery were in May 2007 privatised and 51% in them was sold to a local company. That was just before then President Olusegun Obasanjo stepped down after eight years in office and was succeeded by Umaru Yar'Adua who was elected in April this year (see omt7NigrExp&GlobalPerspAug13-07).

Yar'Adua, like Obasanjo also controlling the petroleum sector, on July 21 vowed that Nigeria's oil refineries would be back at 70-80% of their 438,750 b/d capacity by end-2007. But few believe this until they see it. Hand-picked by Obasanjo, Yar'Adua is a very mild version of his predecessor. Obasanjo remains influential in the country's decision making process. But whether his influence will extend to the petroleum and petrochemicals sectors remains to be seen (see who's who in Review No. 8 of next week).

As president Obasanjo wanted to turn Nigeria into a centre for production and export of petrochemicals in West Africa and promotedg the coastal area of Lekki as a special industrial park. Called Export Processing Zone (EPZ), this is a 200-hectare park where investors get a variety of advantages ranging from low prices for gas feedstocks to fiscal incentives, cheap labour, etc.

Personally promoting EPZ-based projects, Obasanjo in October 2002 laid the foundation of a $3 billion gas-to-petrochemicals complex at Lekki whose promoters than said this would be on stream in 2006. The venture consists of a single-train, 2.5 million tons/year methanol plant - the biggest of its kind in the world. The plant was to feed a methanol-to-olefins (MTO) unit to produce 400,000 t/y of polypropylene (PP) and 400,000 t/y of high density polyethylene (HDPE).

The investor, Eurochem Technologies of Singapore, set up two firms to operate the plants: Viva Methanol for the GTM venture and Axinova Polyolefins for the downstream units. They were designed to consume 220 MCF/day of natural gas (see background in down7NigrPetchAug15-05).

Nigeria is rich in natural gas feedstocks produced at relatively low cost. It has been said for years that, if the incentives improved, these feedstocks should attract investors in new petrochemicals projects from among Western companies operating Nigeria's main petroleum ventures. But these firms want to see security and political stability established first in Nigeria before they actually commit themselves to such projects.

Foreign companies producing oil and gas in Nigeria have proposed several big joint ventures to produce olefins and polymers, a range of aromatics, methanol and oxygenates. They have pledged to finance these projects. But their main conditions, as ExxonMobil keeps demanding, are that they should control these ventures and that prices of their chemicals sold on the local market are set at international market levels.

The petrochemical sector is controlled by the state-owned Nigerian National Petroleum Corp. (NNPC) which has a monopoly on the main chemicals sold in the country. But new President Yar'Adua has said he is determined to see the downstream sector, including the petrochemicals business and oil refining, deregulated and privatised.

Nigeria has had a three-phase master plan, launched in the 1970s, to produce a wide range of petrochemicals. But so far only two of the phases have come on stream, after many years of delay in each phase caused primarily by lack of financing and bad management by successive military regimes.

The petrochemicals sector reached an important threshold in late 1995 with completion of the Phase Two plants. But the sector has experienced a number of problems mainly due to gross inefficiency and corruption.

Local production of a wide range of chemicals is vital to Nigeria as it should help substitute products currently being imported at high cost, thus saving hard currency. Exports to nearby countries would generate income much needed in the downstream sector for expansions, maintenance, spare-parts, etc.

Construction of new plants is always delayed. Work on the Eleme polyethylene plant near Port Harcourt was delayed for eight years because of the government's heavy debts to French and Japanese contractors working on the project. Now the plant's operations have been badly affected by lack of repairs at the Port Harcourt refining complex which can only produce HSFO.

The Existing Plants: Phase One of the nation's master plan was funded entirely by the government, through a combination of soft and commercial loans. Finance for the second phase involved both government funding and a combination of soft and commercial loans and participation by foreign companies.

The Phase One plants were originally to be completed during the Fourth Development Plan (1981-1985). But they came on stream in 1987. Plants for the second phase were to start-up in 1987; they were completed in 1995.

Under a separate $1 billion plan in the early 1980s, NNPC contracted Foster Wheeler of the US to study a project to produce 12 chemicals and plastics. This did not materialise, however.