Tackling Nigeria’s endless quest for self-sufficiency in petroleum products
By Nigeria is one of the few nations in the world with huge hydrocarbon (crude oil) resources but relies mainly on importation of refined petroleum products for its population of about 200 million. OLATUNDE DODONDAWA examines what the Federal Government has done through relevant agencies to encourage domestic refining of petroleum products and why it has also failed to liberalise the downstream sector for private participation in domestic refining.
Despite being one of the largest producers of crude oil in Africa in the last four decades, Nigeria has consistently struggled to keep its refineries functioning optimally without success. This has led to its struggle to meet domestic consumption of refined petroleum products including premium motor spirit (PMS) otherwise called petrol and kerosene.
In spite of having a nameplate capacity of 445,000 barrels per day with refineries strategically located in various states around the country, Nigeria imports over 80 per cent of refined products to meet current domestic consumption.
Due to population increase, Nigeria is one of the largest consumers of petroleum products in Africa and accounts for over seven per cent of Africa’s refined products consumption, importing over one million tonnes of petrol every month.
For example, total crude processed by Warri Refining and Petrochemical Company (WRPC) for the month of March 2018 was 271,215 Metric Tonnes (MT) while Port Harcourt Refining Company Limited (PHRC) and Kaduna Refining & Petrochemical Company (KRPC) only processed intermediate 7,675MT and 12,675MT respectively.
For the month of March 2018, Nigeria’s three refineries produced 159,424 MT of finished petroleum products and 67,428 MT of intermediate products out of the 271,215 MT of crude processed at a combined capacity utilisation of 14.41 , per cent according to the Nigerian National Petroleum Corporation (NNPC)’s monthly financial report released recently.
FG Intervention
Between 2012 and 2017, the Federal Government, through Department of Petroleum Resources (DPR), has had some interventions that were designed to involve some private investors in refining business by granting licenses to 37 private firms, including the 650,000 barrels per day Dangote Refinery Plc, for the establishment of private refineries in the country.
However, six years after being granted licenses, 36 of the licensees are yet to record meaningful progress in terms of construction of their refineries. Among the licensed companies, which have capacity to produce 2.3 million bpd of crude oil, only the Dangote Refinery has reached an advanced stage in ensuring the completion of the refinery, albeit being one of the last to obtain refinery license.
The coming on stream of these licensed refineries is expected to turn Nigeria into an exporter of refined petroleum product. Unfortunately, apart from the 650,000 bpd Dangote Refinery, many other licenses have not moved beyond the initial level of obtaining permission to establish.
Some of these licenses have expired with no efforts from the holders to re-apply, which is an indication that the project may have been put to rest.
The inability of the other private refineries to make significant progress has now put so much pressure on the Dangote Refinery to bail Nigeria out of the burden of importation of petroleum products.
Private Refineries’ Setback
With 37 licenses already granted by the DPR to companies, including Dangote Refinery Plc, to establish private refineries in the country, the world is earnestly waiting for Nigeria to halt importation of petroleum products and become net exporter of Premium Motor Spirit (PMS) come 2019 or early 2020.
The private refineries, which have capacity to refine over 2.3 million barrels per day, would not only make Nigeria a net exporter of petroleum products, but also make the country an importer of crude oil to meet local demand of the refineries, which is already more than the country’s daily crude oil production.
For example, Nigeria’s crude oil production, including condensate, was 1.97 million barrels per day (bpd) in July 2018, according to the Ministry of Petroleum Resources.
This is grossly inadequate to meet the total demand of the private refineries with total capacity of 2.3 mbpd and another demand of 445,000 bpd from the three Nigeria’s refineries.
Dangote Refinery
While other refineries are struggling to utilse their licenses, the Dangote Refinery has made significant progress to ensure that Nigeria attains self-sufficiency in petroleum products.
Five years ago, the Dangote Group, which focuses on the manufacturing of essential and value adding products that meets the needs of the African population, made a foray into the oil and gas industry. The decision was informed by the persistent shortage of petroleum products in Nigeria.
The Group is currently building the single largest Refinery, Petrochemical and Fertiliser Complex in Africa. The project is situated in the Ibeju-Lekki Free Trade Zone (FTZ), Lagos State, Nigeria.
The refinery will have the capacity to refine 650,000 barrels of crude oil per day. The Petrochemical Plant will produce 750,000 metric tonnes per year (MTPY) of Polypropylene.
The ultra-modern Dangote refinery, which has adopted world-class technology in its processes, is designed to meet domestic and international demand for fuel.
The project will create thousands of jobs for Nigerians, and will save over $7.5 billion for the country annually, through import substitution. It will also lead to the availability of petroleum products in the country as well as the development of ancillary industries.
European refineries are already fretting over the coming on stream of the Dangote Refinery.
“In Africa, the Dangote refinery is a huge story; one of the biggest refineries in the world being built in Nigeria, likely to supply most of or all of the Nigeria’s consumption,” Editorial Director, Strategic Oil Markets Development, S&P Global Platts, Andrew Bonnington, said.
According to the Executive Director, Dangote Group, Devakumar Edwin, the refinery project is ongoing and it is expected to help Nigeria achieve self-sufficiency.
Apart from meeting local demand of petroleum products, Edwin said the company is also going to explore the international market.
“Our primary focus is Nigeria, but we are also going to supply our products to Central and Western Africa countries. Our primary focus is Nigeria, to meet the entire local demand, but we have the capacity to export more than 50 per cent of what we produce, so the secondary focus will be on western Africa and central Africa,” he said.
“There will be no more queues at the filling stations due to fuel shortage, which cause traffic and waste innumerable man hours. And, last but not the least, the quality of our products will be high because we are coming out with Euro V grade.
“In Europe and in the United States, the refineries are now being converted to Euro V grade. In our own case, we are building a refinery which will produce Euro V grade from day one. Finally, huge amount of foreign exchange will be earned from the export of gasoline, diesel, aviation jet fuel and polypropylene.”
For the Managing Director and Chief Executive Officer of Seplat Petroleum Development Company, Mr Austin Avuru, it is only the Dangote Refinery that has the prospect to make Nigeria self-sufficient in petroleum products.
He said, “The only one that has prospects is Dangote. He is raising money from an existing business, so he has the fund to build it. He is going to open doors, anyway. Once he builds his own, the existing ones will rather be sold off or will die.”
Conclusion
The Group Managing Director of the NNPC, Maikanti Baru is optimistic that Nigeria’s four existing refineries would begin full capacity utilisation before the end of 2019.
But stakeholders in the Nigeria oil and gas industry believe that the Nigerian refineries will not work until they are privatised. They opined that the production of petroleum products should be left to the private sector.
Former Executive Secretary of the Major Oil Marketers Association of Nigeria (MOMAN), Thomas Olawore stated “As presently owned, the refineries cannot work until they are privatised. Monies will be pumped into rehabilitation and maintenance, but they won’t take us anywhere. It’s not the first time that monies were budgeted for the refineries. Why should we continue to waste such monies?”
The Executive Secretary of Lubricants Producers Association of Nigeria (LUPAN), Obidike Emeka, said the Federal Government should channel its resources and actions towards eliminating the challenges inhibiting the development of private refineries, and make the prospect of modular refining more appealing and profitable to investors.
“This it can do by setting up investment friendly legal, economic and regulatory framework and policies, while minimising bottlenecks and stipulating moderate, practical licensing procedures,” he added.
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