By Afe Babalola
Nigeria a hydrocarbon-rich nation. It is ranked by the Organisation of Petroleum Exporting Countries, OPEC, as the top crude oil producer in Africa as at May 2023, producing up to 1.4 million barrels of crude oil daily (this has reduced to below 1.2 million barrels per day as at May 2024). Nigeria is also one of the 10 largest producers of the crude oil in the world and owns the second largest crude reserve in Africa. By the estimation of Worldometer, Nigeria still has more than 230 years’ worth of crude oil reserve at current consumption. The crude oil deposit in Nigeria is mostly comprised of Bonny light, a high-grade crude oil ranked one of the best in the world and is highly prioritised by refiners.
Nigeria’s infrastructure deficit and the appalling dependence on importation
There are over 6000 bye-products of crude oil. One of these and the most widely consumed is the Premium Motor Spirit, PMS. Nigerians consume above 80 million litres of PMS daily. However, Nigeria’s combined functional refineries produce less than 500,000 litres of PMS daily. The obvious implication of this is that Nigeria grossly under-produces to meet its daily consumption need of PMS, even after Nigeria has explored crude oil for nearly seven decades. Consequently, Nigeria heavily depends on the importation of PMS and other bye-products of PMS to forestall the deficit of the production of PMS. For ease of understanding, Nigeria imported about 12 billion litres of PMS in the first half of 2023 at N234 per litre. The price has since gone up.
The vision of Dangote Refinery and the clog in its wheel of progress
Aliko Dangote, Africa’s richest man, saw the lacunae and sought to remedy it. After nearly seven years and $19 billion in expenditure, Dangote Refinery and Petrochemicals Plant (the world’s largest single-train refinery) was completed. Aliko Dangote assured Nigerians that the refinery will start rolling out PMS and other products in June. This refinery would greatly reduce the rate of dependence on importation of PMS in Nigeria.
Unfortunately, Dangote had to revise the schedule for the availability of PMS and related products from June to July and then to August because he was unable to procure feedstock (crude oil) for his refinery in Nigeria. The NNPC promised Dangote Refinery 300,000 barrels daily, while he is to procure the deficit from the IOCs. In other words, he could get all the crude oil he needed in Nigeria. Dangote never got what was promised, even though Nigeria produces about 1.2 million barrels of crude oil per day. Below are a few reasons why:
1. Nigeria has developed an appetite for oil-backed loans: Oil for cash is a loan scheme which uses future crude oil as pre-payment plans. Since the lender is borrowing in advance, it gets certain concession in the price of the crude oil. The loan is also given with interest. On August 16, 2023, Nigerian National Petroleum Company, NNPC, Limited secured a $3.3 billion oil for cash deal with the African Export-Import Bank at an interest rate of 11.85 per cent per annum. Nigeria pledged 164.25 million barrels of crude oil (at 90,000 barrels per day from 2024) to repay this debt. The NNPC is only entrusted with 455,000 barrels of crude oil produced in Nigeria as their share of the production. With its refinery needing close to 500,000 barrels of crude oil per day (not including Dangote Refinery needs), the oil-backed loans have further hampered Nigeria’s ability to supply domestic refinery.
This equates to more dependence on importation of refined oil. Unfortunately, the NNPC is contemplating a fresh $2 billion loan. It is so sad that Nigeria prioritises immediate funds to sustainable future trade.
The implication is that Nigeria is undervaluing its future oil under the pre-sale deal. This has also increased the fuel crisis in the nation since there are reduced number of crude available for local refineries.
2. Reluctance of the IOCs to sell to local refineries: IOCs are struggling to supply crude to local refineries. This is because some of these IOCs have their own refineries outside Nigeria and would prioritise supplying their own refineries with their own share of the crude oil explored from Nigeria. Consequently, some of the IOCs offered higher prices above international prices and cost of logistics as concessions to supplying crude to local refineries.
On the available facts, it could be inferred that many of the IOCs intentionally want to frustrate Nigerian refineries since the refined products purchased are purchased from their home countries.
3. The menace of oil theft and oil pipeline vandalism: Nigeria loses between 100,000 to 120,000 barrels of crude per day to oil theft and vandalism. This means that Nigeria has only 355,000 barrels of crude oil (or less) left to trade with and to refine. Nigeria has not been able to effectively plug this leak in almost 70 years of refining activities in the nation. This has therefore impacted the availability of crude oil to Dangote refinery negatively.
4. Exit of the IOCs and the problem of asset transfer: The onshore and shallow water fields where majority of the NNPC’s quota of crude oil are mined have been abandoned by the IOCs. The reason for this is that most of the major players are diversifying into cleaner energy in line with the mandates of the various international agreements to reduce global carbon emission, as well as the global collapse of oil price in 2016. Some IOCs have also complained about policy concerns which have negatively affected the ease of doing business in Nigeria. This is creating lacuna which has led to the reduction of daily production rate of crude oil in Nigeria.
Dangote Refinery has no alternative but to turn to international markets to curb the dearth in the availability of crude oil in Nigeria. So far, Dangote Refinery has concluded arrangements to import nine million barrels of crude oil from the USA and is set to import 11 million barrels more. It has also concluded deal to import one million barrels of crude oil from Brazil and has plans in motion to purchase from Angola, Senegal and Libya.
The Federal Government has, however, promised that there would be sustainable supply of crude oil to local refineries. The Nigerian Upstream Petroleum Regulatory Commission, NUPRC, has insisted that IOCs meet local demands first, before exporting to other African countries. However, whether these promises will translate to crude availability in local refineries is the concern. This is because Nigeria has very little say on what the IOCs do with their own oil and the NNPC’s share is not sufficient to supply local refineries.
Conclusion
In view of the revelation above, it is not surprising that Dangote Refinery and Petrochemicals Plant suffers lack amidst plenty. It is however puzzling that Nigerians are not asking the right questions on how the wealth of the country is spent, especially since all the figures of what is made are available on the internet. Countries like Qatar, the United Arab Emirates, Iran, Russia, Saudi Arabia, China and the United States of America have used proceeds from crude oil exploration and refining to bolster their national economies. However, the same natural resources have been very loosely referred to as a “curse” in Nigeria.
The Nigerian crude industry made above $394 billion from 2011-2022. Nigeria’s total debt is $108.23 billion. The implication is that Nigeria has enough revenue to pay its debt, and to build a functional refinery to reduce the dependence on importation.
Sadly, Nigeria cannot account for the whereabouts of all these revenues. Also, an individual built a refinery bigger than what Nigeria could build. In 2023, Saudi Aramco (the world’s largest oil company) declared above $124 billion as dividends for its shareholders. On the contrary, the NNPC is declaring deficits and mortgaging future oil productions for immediate resources. Nigeria has a long way to go, and it starts from asking the right questions and holding our leaders accountable to the electorate.
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