Home » How Nigeria’s Falling Oil Production Threatens Its Refining Dreams

How Nigeria’s Falling Oil Production Threatens Its Refining Dreams

The country needs to address the issues of crude theft and vandalism and boost its refining capacity.

by Motoni Olodun

Nigeria, Africa’s largest oil producer, has long struggled to keep its refineries running optimally. Despite having a refining capacity of 445,000 barrels per day (bpd), which should be enough to meet domestic demand, the country still imports over 80 percent of its refined products, draining its foreign exchange reserves.

However, the country’s refining sector is expected to undergo a significant transformation in the next few years, with the completion of several projects that could make Nigeria self-sufficient in fuels and even a net exporter. The most prominent of these projects is the Dangote Refinery, a privately owned refinery delayed by political interference, environmental challenges, and other critical projects. The refinery, which is expected to start operations next month, has a planned capacity of 650,000 bpd, making it the largest single-train refinery in the world.

Another project that could boost Nigeria’s refining capacity is rehabilitating the Port Harcourt refinery, which is scheduled to start operation later this year. The refinery, which has a capacity of 210,000 bpd, has been operating at low levels for years due to poor maintenance and operational failures. The government has awarded a contract worth $1.5 billion to an Italian firm to revamp the refinery and restore its total capacity.

These projects are crucial for Nigeria’s economic recovery and diversification, as they would reduce the country’s dependence on imported fuels and create more value from its natural resources. They would also create thousands of jobs and stimulate other sectors of the economy.

However, these ambitious plans face a significant challenge: the country’s declining oil production rate. According to data from the National Upstream Petroleum Regulatory Commission (NUPRC), Nigeria’s oil production dropped by 2 percent to 1.517 million bpd in March 2023 from 1.547 million bpd recorded in February 2023⁴. This is far below the country’s oil production quota set by the Organisation of Petroleum Exporting Countries (OPEC) at 1.7 million bpd and the 2023 budget benchmark at 1.69 million bpd.

The main factors behind Nigeria’s falling oil production are crude theft, pipeline vandalism, sabotage, and lack of investment. These problems have plagued the country’s oil industry for decades, costing it billions of dollars in lost revenue and environmental damage. They have also discouraged oil companies from investing in new exploration and production activities.

Analysts say that the government needs to urgently address these issues and ensure a stable supply of crude oil for its refineries. They suggest that the government appoint a special envoy to negotiate with local stakeholders in the Niger Delta region, where most of the oil production occurs. They also advocate for immediate security measures to prevent losses from theft and vandalism, as well as long-term strategies to address the socio-political grievances of the host communities.

The government has also been urged to create an environment that enables private investors to participate in the refining sector. This includes providing fiscal incentives, regulatory clarity, infrastructure support, and market liberalization. The government has recently announced plans to scrap petrol subsidies and deregulate the downstream sector, which could attract more investors and encourage competition.

Despite the challenges, there is still hope for Nigeria’s refining sector. The country has a vast potential market for refined products within its borders and in the West African region. The country also has abundant crude oil reserves that could be exploited with improved technology and governance. With the right policies and partnerships, Nigeria could achieve its refining dreams and become a significant player in the global energy market.

Source: Business Day


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