With four refineries and its status as a leading oil and gas producer, Nigeria was expected to process and refine commercial crude oil for domestic consumption and export but that has not been the case for many years as a result of the poor state of its refineries.
Consequently, the nation has become a major fuel importer with very negative implications for its economy. The nation’s new Petroleum Policy obtained by Vanguard indicated that Nigeria’s refining capacity is one of the smallest.
“On a per capita basis, Nigerian refining capacity (theoretical maximum capacity which is far higher than actual current operational capacity) is one of the lowest, even among other African countries: Libya: 6.17 bpsd/capita; Algeria: 1.37 bpsd/capita; South Africa: 1.11 bpsd/capita; Egypt: 0.96 bpsd/capita and Nigeria: 0.3 bpsd/capita.
“The following figure shows how the capacity utilisation of Nigeria’s refineries has underperformed by such a large extent. Globally, refining is a very low margin business and refineries have to be kept working very efficiently 24/7 in order to make any profit. The Nigerian refineries however are performing well below capacity.
“Across the refineries, capacity utilisation has fallen from a high of just under 60per cent in 2002 to just 14per cent in 2014 (left hand chart below). To have any chance of succeeding commercially, Nigerian refineries need to operate on a globally acceptable cost structure and need to operate at 90per cent utilisation or more.
“In addition, the yields from the Nigerian refineries are not optimum. The yield is the proportionate mix of each type of refined product a refinery can produce. The optimal yield for a refinery takes into account the characteristics of that refinery and the value of the value added products that can be produced. The Nigerian refineries are producing less of the value added products than is optimal.
“It is important to describe these sub-optimal performances of the Nigerian refineries because (as is shown in the following sections of this Policy), a strong commercially viable and significant refining sector is an essential part of the Petroleum Policy.”
But hope does not seem to be completely lost as the policy has adopted the $12 billion Dangote refinery as a strategy to escape from the importation trap. It stated that: “Crude oil will not simply be exported but a significant and growing proportion of government equity crude oil will be sent to local refineries (whether private or public). Under the implementation of the petroleum policy, oil will be refined within Nigeria and further used to create significant end products to create value for the nation. “The Petroleum Policy intends to move the Nigerian economy away from using crude oil sales as a source of income to one with oil based petrochemical chemical industries and gas based industrialisation. The intention is to: achieve a competitive supply of petroleum products; make Nigeria a refining hub; introduce petrochemical industries to realise the full value from oil refining.”
Advent of Dangote refinery Specifically, the Federal Government has disclosed that it relies heavily on the Dangote refinery to fulfil its promise to Nigerians to end fuel importation by December 2019. The Minister of State for Petroleum Resources, Mr. Ibe Kachikwu, who visited the Dangote oil Refinery site at Lekki free trade Zone, in Lagos said the government is ready to play its part as a responsible stakeholder to assist in making sure the project is completed before the scheduled date. The minister who said he was overwhelmed by the dimension of the project explained that the present government had always believed that the private sector holds the ace in industrialization efforts of the government, noted that that belief has been reinforced by the Dangote refinery.
“Crude oil will not simply be exported but a significant and growing proportion of government equity crude oil will be sent to local refineries (whether private or public). Under the implementation of the petroleum policy, oil will be refined within Nigeria and further used to create significant end products to create value for the nation.
“The Petroleum Policy intends to move the Nigerian economy away from using crude oil sales as a source of income to one with oil based petrochemical chemical industries and gas based industrialisation. The intention is to: achieve a competitive supply of petroleum products; make Nigeria a refining hub; introduce petrochemical industries to realise the full value from oil refining.”
Impact of OTL Africa Week Mr. Emeka Akabogu, Chairman, OTL Africa Downstream Week disclosed in an interview that the development of the downstream is important as it would deliver sustainable value to consumers sector wide. He called for massive investment into the sector in order to not only meet domestic demand but also create multiplier effects in Nigeria’s economy. He said plans have been concluded to examine issues and proffer solutions to them at this year’s edition of the programme scheduled for Lagos next month. The chairman stated that: ”the event has been packaged to bring together every important stakeholder in Nigeria and other parts of the world.
“From the business point of view, this event is second to none, especially in terms of value. Participants do not need to go on the internet or travel around the world before meeting partners; they can get that at this event. The OTL Africa Week creates the platform for them to enhance their businesses. ”Our event has directly impacted on several government policies. Many participants have been able to get new businesses, partners, representatives and financiers for their projects and programmes through involvement in this event.”