The failure to supply crude oil to both domestic refineries and the multi-billion dollar Dangote Refinery has led to a halt in the production of refined petroleum products at these facilities. This setback also means that Nigeria’s dependency on fuel importation continues, as the 650,000 barrels per day Dangote Refinery missed its October production target for the second time in 2023.
Despite the readiness of around five more modular refineries to commence production of refined petroleum products, they are unable to do so due to the unavailability of crude oil. This predicament extends to the Dangote Refinery in Lagos, which has yet to receive the required volumes of crude oil to initiate production.
Earlier in 2023, the Dangote Petroleum Refinery was reported to have imported crude oil and expected its first cargo within two weeks. However, this situation persisted, as the Nigerian National Petroleum Company Limited (NNPCL) had allocated its crude to other entities. While the details of these entities were not disclosed, a $3 billion crude oil-for-loan deal with the African Export-Import Bank allowed the NNPCL to pledge future oil production as loan repayments.
Dangote Refinery’s promise to start production in October remained unfulfilled, raising concerns among industry observers. The facility, initially scheduled to begin refining in August, was announced by Aliko Dangote, the President of Dangote Group, at the inauguration of the Ibeju-Lekki facility in May. Nevertheless, the issues surrounding crude oil supply to the plant have not improved, and the NNPCL has struggled to provide the necessary crude oil for production.
Officials from the Dangote Refinery recently visited the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) to express their concerns about the shortage of crude oil. This situation has hampered domestic refineries’ ability to operate and produce refined products, despite their readiness to do so.
The shortage of crude oil supply to these refineries is attributed to a preference among International Oil Companies (IOCs) for exporting crude to earn foreign currency, rather than supplying it to domestic refiners. The NUPRC recently announced that more domestic refineries were prepared to commence production, but the lack of feedstock (crude) was a significant hurdle.
In response to this situation, the NUPRC is working to enforce domestic crude oil supply obligations to ensure adequate crude for indigenous refiners. Nigeria’s low oil production has further complicated the matter, as the country has been producing below the OPEC-approved quota, which has impeded the supply of crude to domestic refineries.
Oil marketers have called for a shift in priorities, urging the government to provide crude to modular refineries to increase domestic production of refined products, particularly diesel. They believe that supporting modular refineries with crude oil would reduce the reliance on imported petroleum products and potentially lower pump prices.
Despite the forthcoming completion of the massive Dangote Refinery, modular refineries are considered essential in securing Nigeria’s energy needs. Their localized presence across the Niger Delta region can ensure the immediate availability of refined petroleum products to local markets. It is believed that even if the country produces in excess of its current demand, the surplus can be exported, making products more affordable and positioning Nigeria as an export hub for petroleum products.
