The Nigerian refining sector is grappling with a significant hurdle: the persistent unavailability of crude oil. This scarcity is severely impacting investments in new and existing refineries, hindering their establishment and operation at full capacity. Seven refineries are directly affected, with their potential to bolster local refining capacity and reduce import dependency remaining unrealized due to this critical supply bottleneck. This issue raises serious concerns about the future of domestic refining and the country’s ability to achieve self-sufficiency in petroleum product supply. The situation is further complicated by the fact that several licensed refineries are inactive, highlighting a significant gap between potential and actual refining output.
The scarcity of crude oil feedstock is not merely a challenge for new entrants; it also plagues existing refineries. Fifteen operators hold licenses for refinery construction, representing a combined potential capacity of 1,151,500 barrels per day (bpd). However, the operational capacity is a mere fraction of that – only 852,000 bpd. This substantial discrepancy is a clear indication of the underutilization of refining infrastructure within the country. Even those refineries currently operating are facing shortfalls in crude supply, which has become a systemic issue impacting their output and efficiency. The data reveals a stark reality: five licensed refineries haven’t even commenced operations, and three others designated for crude allocation are inactive, compounding the supply problem. Specific examples include the 10,000 bpd OPAC refinery and the 2,500 bpd Duport refinery, both currently idle due to insufficient feedstock. Even the state-owned Kaduna refinery, though authorized for refining, remains non-operational. This paints a concerning picture of a sector struggling to maximize its existing infrastructure.
Beyond the crude oil supply constraint, other factors contribute to the underperformance of the refining sector. These include inadequate funding, project delays, and technical difficulties. The inability to secure reliable feedstock deters investors from committing the necessary capital for refinery projects, creating a vicious cycle that inhibits the growth of domestic refining capacity. The consequence is a continued reliance on aging, inefficient refineries, which struggle to meet the nation’s fuel demand. This reliance on outdated infrastructure further exacerbates the country’s vulnerability to global market fluctuations and underscores the urgent need for investment in new refining capacity.
The situation is further complicated by the recent suspension of naira-denominated sales by the Dangote refinery. This decision stemmed from issues related to the naira-for-crude swap deal and discrepancies between allocated crude volumes and actual sales figures. It appears that the Nigerian National Petroleum Company Limited (NNPCL) has prioritized allocating substantial crude volumes to settle debts with foreign creditors, undermining the viability of the naira-for-crude arrangement with Dangote refinery. This move has not only affected the refinery’s operations but also raised questions about the efficacy and sustainability of using crude oil as a means of settling national debts.
Experts within the industry point to the criticality of securing consistent crude oil supply for the success of refinery projects. They emphasize that guaranteeing feedstock is a prerequisite for attracting the necessary investment to reach the final investment decision (FID) stage. The prevailing uncertainty surrounding crude availability creates significant investor apprehension, hindering the progress of critical projects. The national officer of the Crude Oil Refinery-owners Association of Nigeria (CORAN), Eche Idoko, confirmed the severity of the situation, stating that securing consistent crude supply is a major impediment to attracting investments. He stressed that the recent news regarding crude shortages for existing refineries only exacerbates the challenges faced by potential investors. This highlights the interconnectedness of the challenges facing the sector and how one problem, like crude scarcity, can ripple through and negatively impact other aspects, such as investment attraction.
According to industry insiders, two key factors are essential for enhancing the capacity of modular refineries: guaranteed feedstock and robust funding opportunities. CORAN emphasizes that the government must take the lead in addressing these issues. While acknowledging some government efforts to secure feedstock, they stress the need for more decisive action. They also advocate for the swift creation of funding portfolios specifically designed to support the development of local refineries. This underscores the need for a comprehensive approach to tackle the challenges facing the sector, involving both securing resources and creating enabling financial mechanisms. Furthermore, other challenges such as fluctuating government policies, security concerns, funding difficulties, and community relations have been identified as contributing factors to the operational difficulties faced by refineries. The location of refineries outside oil-producing areas and the moribund state of nearby wells further complicate the logistics of crude supply. Refining operators and oil and gas experts have emphasized the importance of an enabling environment that promotes investment, accessible crude oil supply, and the development of local refining capacity. They underscore the need for an increase in crude oil production to ensure stability and address the current supply limitations.
In conclusion, the Nigerian refining sector is facing a complex web of interconnected challenges. The persistent unavailability of crude oil remains a primary obstacle, inhibiting investments and hampering the operational capacity of both new and existing refineries. This issue is compounded by funding shortfalls, project delays, technical difficulties, and policy inconsistencies. The lack of consistent crude supply undermines investor confidence and hinders the progress of vital projects. Addressing these challenges requires a multi-faceted approach, including securing reliable crude oil feedstock, creating accessible funding opportunities, and establishing a supportive regulatory environment. Until these issues are effectively addressed, the goal of achieving self-sufficiency in petroleum product supply and maximizing the potential of the Nigerian refining sector will remain elusive.
