Recent developments in Nigeria’s downstream oil sector underscore the country’s paradoxical situation of deprivation despite its abundant resources. While the Nigerian National Petroleum Company Limited has committed to supplying six million barrels of crude to the Dangote Refinery by December, several smaller domestic refiners have expressed frustration over their inability to commence production. This has resulted in an escalation of pump prices for refined products due to ongoing supply disruptions. President Bola Tinubu should promptly spearhead an initiative to promote self-sufficiency in domestic refining without any further delay.
Key officials, including the Minister of State for Petroleum, Heineken Lokpobiri, acknowledged that the NNPC’s failure to supply the Dangote Refinery and five modular refineries with the necessary crude feedstock has impeded their full operations. They attributed this setback to lower-than-expected crude production levels.
The Crude Oil Refinery Owners Association of Nigeria lamented that numerous other refineries are nearing completion but have been stalled due to uncertainties in the supply chain.
The surge in pump prices has caused additional distress for business operators and exacerbated the plight of Nigerians. Manufacturers have raised concerns about the price of diesel per litre, which has climbed to N1,275 in Lagos and N1,300 ex-Lagos, thereby increasing production costs and overall prices.
Dangote Refinery, which had set a production commencement target for October, cited the NNPC’s failure to provide the required crude as the reason for missing this deadline. Despite its official opening in May, it has repeatedly missed previous targets and now aims for a new start date of November 30.
Nigeria’s governance practices continue to defy logical solutions. Despite possessing over 37 billion barrels in crude oil reserves, the country remains the largest importer of refined petroleum products in Africa. The four state-owned refineries, dormant for more than three decades, continue to incur losses and consume billions of dollars through dubious turnaround maintenance contracts, yet the option of selling them is being resisted.
Rather than proactively driving a robust program to become the sub-Saharan Africa’s refining hub, officials persist in obstructing private local refining initiatives.
The delay in supplying local refiners warrants clarification from the NNPC. It is imperative that the NNPC clarifies whether it is still allocating 445,000 barrels of crude per day for its own use, selling it, and using the proceeds to import refined petrol, as well as whether it has ceased the controversial crude-for-refined products arrangement as instructed by Tinubu recently.
Analysts propose that the NNPC should allocate the 445,000bpd solely to local refiners to ensure an adequate supply of feedstock. It is also perplexing that while the NNPC consistently allocated the necessary resources for its own operations despite crude production shortfalls for decades, it now struggles to supply private refiners, citing reduced production.
Tinubu, who, like his predecessors, oversees the petroleum portfolio, must swiftly resolve this impasse. The solution to the downstream dilemma lies in achieving self-sufficiency in refining. While pricing and subsidies may remain contentious issues, it is essential to put an end to the national mismanagement.
In 2021, Nigeria spent $11.3 billion on importing refined products, making it the 18th largest importer globally and Africa’s largest, a figure that increased to $23.3 billion in 2022, as reported by Aljazeera.
Among OPEC member states, Algeria refines 677,000bpd; Iraq’s 15 refineries have a combined capacity of 1.0 million bpd; Iran’s 2.64 mbpd capacity represents 22 percent of the Middle-East’s total output, according to GlobalData. Libya’s refineries process 634,000 bpd. Despite having a crude production of just 660,000bpd, Egypt refines 833,000bpd, some of which it exports.
Nigeria must therefore implement a national emergency program for domestic refining, one that is driven by the private sector. The state-owned refineries should be sold immediately, and the NNPC should completely withdraw from the downstream sector.