The Kaduna Refinery, which once produced base oils in the country, has been out of production since 1995 when it was gutted by fire. However, there is hope that it will recommence base oil refining in the second quarter of 2016.

Despite this development, delegates at the 2nd Nigerian Lubricant Summit in Lagos in November voiced concerns about what they describe as constraints on their business posed by base oil traders.

Local Capacity

Kasali Adunola, manager of Hydrocarbon Processing Plants for the Department of Petroleum Resources (DPR) – a government agency responsible for regulating the lubricant industry – gave an overview of the updated register of approved blenders in Nigeria. According to Adunola, there are 41 licensed lube blending plants in Nigeria with a total installed capacity of 5.5 million liters per shift per day and 1.8 billion liters annual installed capacity.

The licensed blenders comprise six oil majors, who operate under the aegis of the Major Marketing Oil Companies Association of Nigeria. The remaining 35 independents operate under the sponsorship of the Lubricant Producers Association of Nigeria (Lupan).

Adunola disclosed that the Nigerian base oil industry has a storage capacity of 135 million liters. And Jani Ibrahim, chairman of Lubcon International told LubesnGreases that the Nigerian base oils market is projected to grow at 11 to 12 percent in 2016.

However, Kayode Sote of Lube Services Associates, technical consultants to the Summit, noted that Nigerias lubricant industry is currently operating at an average of 40 percent of total installed capacity. He contended that the industry has the technology and potential to blend an estimated 75 percent of the countrys total demand. The remaining 25 percent are specialized products, manufactured in countries with more advanced technology, that need to be imported into the country.

Excess Base Oil

Despite the fact that the lubricant sector produces at 40 percent of capacity, Nigeria is awash in base oils. In his keynote address, Ibe Kachikwu, minister of state for petroleum and group managing director for the Nigerian National Petroleum Corp., highlighted the challenges posed by the excess base oil.

The Nigerian lubricant industry could be characterized as having blending overcapacity, he said. However, instead of being an advantage for growth, this situation has been exploited by unscrupulous elements to import below premium-quality base oils … some with high sulfur and ash content. These oils are relatively cheap and encourage unlicensed blenders [to produce] substandard lubricants.

Consequently, noted Lubcons Ibrahim, the importation of excess base oils to the country has resulted in the flight of capital amounting to U.S. $600 million per year. Foreign exchange is becoming very tight, and we cannot continue like this, he said. It also puts the future of the Kaduna refinery at risk. He added that local production of base oils could help stem the tide of capital leaving Nigeria.

However, Gbenga Olaoye, who led a delegation from the Kaduna Refinery and Petrochemical Co., a subsidiary of NNPC, to the Summit, told delegates that by the second quarter of 2016 we are going to start producing base oils. As I speak, the plants are in good shape. The challenge we have is whether we have the local capacity to take up base oils produced in the refinery. I want to assure you that the issue of base oil importation will soon be a thing of the past.

However, Linus Ilozue, managing director of A-Z Petrochemicals, disagreed, stressing that Kaduna does not have the capacity to meet local consumption requirements. Kaduna has the capacity to produce only 197 million liters of base oil annually, he said. Even if they produce to that capacity, it will not solve our problem because local consumption is about 540 million liters.

Traders Dictate?

Ilozue told LubesnGreases in a private interview, We are at the mercy of base oil importers. We have to buy what they import. Niyi Okedairo, chief operating officer for Ranod Oil and Gas West Africa Ltd., agreed, stressing that base oil traders are to blame for the glut of product on the market, noting that over 50 percent of imported base oils are consumed wrongly.

Emmanuel Ekpenyong, lubricant manager for Honeywell Oil and Gas Lagos, differed, stressing that traders are not entirely to blame for the excess base oil on the market. My understanding is that only lube blenders are granted import permits for base oils into Nigeria. So the blenders, the traders, the government regulatory agencies and all stakeholders have a role to play, he said.

The impact of excess base oil on the shift from API Group I to premium base oils among Nigerian blenders remains debatable, but some stakeholders argued that profitability has made Group I base oils the choice of traders and blenders. A-Zs Ilozue concurred, stressing that as long as Group I remains more profitable, it will continue to be more attractive to base oil traders.

If the government says [to use] Group II and monitors the market effectively, it will work. But if it is left to market forces, the company importing Group I, who feels that Group I is where he makes his profit, will [continue to do so], Ilozue said.

However, Honeywells Ekpenyong does not think that excess base oil on the Nigerian lubricant market impedes blenders from shifting to Group II base oils. The average blender in Nigeria wants Group I base oils that meet minimum specification. You hardly ever hear a blender say that they are looking for Group II base oil specifically.

On the other hand, while acknowledging that the Nigerian market will embrace Group II base oils, Ekpenyong noted that the volume of Group II is small compared to Group I. The reason is primarily because Nigeria is a very price-sensitive market, and a few dollars per ton difference in price can affect a buying decision, he said. Ranods Okedairo, however, noted that the Nigerian lubricant market would within the shortest time embrace the use of Group II base oils.

A Way Forward

DPRs Adunola said that the department developed a form that it sends to Lupan members, requesting information on the volume of base oils used and how much is left before the agency renews blenders licenses. We ensure that a company has a blending plant before we issue a license to import base oils. But Moman and Lupan must cooperate to control the importation of excess base oils to the Nigerian lubricant market, he said.

Ekpenyong agreed, The solution is to ensure strict compliance with existing procedures and regulations. Only blenders should import base oils; the regulatory agencies must increase surveillance on base oil movement out of depots. There should be a blanket ban on the sale of base oils to nonblenders. There should be increased public awareness about lubricants.

Adunola concurred with the assessment that the DPR has not employed the same level of monitoring of base oils as it does for white oils. We have directed our field officers to monitor where base oils are being shipped. Maybe we need to revive our collaboration with the Standard Organization of Nigeria and work more closely with them in conjunction with the National Agency for Food, Drug and Administration and Control. For his part, Okedairo advocated strict monitoring of base oils from the granting of import permits to importers to the final destination.