Local refining faces big hurdle as crude shortage threatens investments

Operators in Nigeria’s oil and gas sector are sounding alarms over the impact of inadequate crude oil supply to local refineries, identifying it as a major deterrent to attracting Foreign Direct Investments. OKECHUKWU NNODIM highlights the crucial role played by indigenous investors in recent sector developments and the need for government support to enhance mid and downstream operations

The inadequate supply of crude oil to local refineries is one of the key factors stifling Foreign Direct Investments in Nigeria’s oil and gas sector, operators have stated.

According to them, most major investments in the oil sector in the last eight years were done by indigenous private investors, stressing that, for instance, the five functional refineries in Nigeria currently were developed by local players.

Oil marketers and refiners told our correspondent that it was high time the government provided the necessary support to mid and downstream operators in the industry.

An improvement in crude supply to local refiners would give a big boost to the production of refined products in-country and would pave the way for more FDIFDI into Nigeria’s oil sector, the operators explained.

The Crude Oil Refinery Owners Association of Nigeria, Petroleum Products Retail Outlets Owners Association of Nigeria, and Independent Petroleum Marketers Association of Nigeria, among others, pointed out that investors were watching developments in Nigeria’s oil sector concerning crude supply.

CORAN is a registered association of modular and conventional refinery companies in Nigeria. Modular refineries are simplified refineries with significantly less capital investment than traditional full-scale refineries.

The Publicity Secretary, CORAN, Eche Idoko, urged the government to treat indigenous refiners right because foreign investments were no longer flowing into the sector.

He told our correspondent that only private sector players in Nigeria were investing in the industry, adding that in the last eight years, no major foreign investments had been recorded.

“If you listen to what Dangote said in his interview with CNN, he (Dangote) said Africa, which includes Nigeria, is waiting for Foreign Direct Investments that will help build structures, but this will not come. Rather, we should leverage locals like us to create these structures.

“They are talking about FDIs, now, how many such FDIs have come into Nigeria in the last eight years? I can tell you that most of the FDIs came from private arrangements and not government. Apart from the Nigeria Liquefied Natural Gas company’s deal, tell me one other deal by a government agency in the last eight years that has delivered.

“But within the last eight years, we’ve delivered four functional modular refineries and the Dangote refinery. So the point is that they should create an enabling environment and let’s bring the investments in,” Idoko stated.

On June 4, 2024, The According reported that the Chairman of the Dangote Group, Aliko Dangote, during an interview with CNN, stated that Africa was not growing because of several factors, including the sale of its raw materials to the Western world and buying the same as finished goods.

“Africa is not growing as it should because we export raw materials and import finished goods. It doesn’t matter what it is, even if it is gold or whatever, raw material is always priced at a ridiculous amount compared to finished goods,” Dangote stated.

The Dangote Petroleum Refinery boss, who stated that the plant would start making money soon, pointed out that his satisfaction was that the $20bn facility was constructed to make Africa great.

“We will start making money soon. It is not about making money only, it also gives us great satisfaction that we are making Africa great,” the billionaire stated, as he revealed that the 650,000 barrels per day capacity refinery could absorb 21 million barrels of crude oil monthly.

“Almost 21 ships will no longer leave the African continent, either from Nigeria or Angola, we will be able to take the crude, refine and distribute the product. I feel very proud as an African that we have demonstrated that it can be done, and we’ve done it.

“If we take all the crude from Nigeria, it means we will take 21 million barrels per month and that will also help to reduce the CO2 emissions. Rather than ships coming from Europe to bring in products, or the ships going out of Nigeria, 21 ships going out of Nigeria every month, and then you have the product coming into Nigeria. In totality, when you calculate, you are talking about 480 ships of one million barrels,” he stated.

Refinery owners seek crude supply

Meanwhile, CORAN again called on the government to work hard in ensuring the supply of crude oil to refineries in Nigeria, as the association faulted the recent claims by the Nigerian Upstream Petroleum Regulatory Commission on the provision of crude to local refiners.

In a recent response to the demand for Conditional Term Sheets by the financiers of modular refiners earlier, NUPRC stated that it received figures on the production capacities of indigenous refineries and had presented them to crude oil producers to make the commodity available.

NUPRC’s Chief Executive Officer, Gbenga Komolafe, while reacting to a question by our correspondent on the matter, stated that the commission would not guarantee supply to refineries that had yet to come into existence.

“This still borders on the implementation of the domestic crude oil obligation. First of all, let me make it clear that establishing a refinery of whatever capacity, whether it is a modular refinery or a bigger-sized refinery, is a commercial engagement. So the commission can’t come in to give any form of guarantee. I need to make that clear.

“However, the regulator will only implement the provisions of the PIA, given that all the regulatory activities of the commission are expected to comply with the provision of the law. So as it relates to guaranteeing feed-stock to refiners, that is enshrined under Section 109 of the PIA.

“And what we have just done in furtherance of that provision is that we have put in place a regulation that has to do with domestic crude oil obligation. So, in the implementation of that provision, what we do is that we receive the figures on the domestic refining capacity from the Nigerian Midstream and Downstream Petroleum Regulatory Authority.

“And once we receive that, our development and production department factors the numbers against the capacities of the various producers within the upstream sector and makes it obligatory for them (crude producers) to meet those numbers, thereby guaranteeing that volume of supply to existing licensed and operating refineries, not refineries that have not come into existence,” Komolafe stated.

The NUPRC boss stressed that “we do not guarantee crude for financing of refineries that have not come into existence.”

The CORAN official, however, faulted the position of the NUPRC, as he argued that the guideline for the establishment of a hydrocarbon refinery in Nigeria made provision for crude supply to investors.

“The NUPRC contradicted the law because the guideline to establish a hydrocarbon refinery in Nigeria states that the Federal Government will guarantee 60 per cent of our feed-stock needs. It is there in the guidelines.

“So saying it can’t guarantee any refinery yet to be completed is not right. In my submission, I mentioned that even before now, they used to give us a letter, but the challenge is that the letter of guarantee submitted was just about Section 109 of the PIA, which he quoted there.

“But the guideline states that they should give us 60 per cent. The 60 per cent that the Federal Government committed to why we had the stakeholders’ meeting on how domestic crude should be given to local refiners.

“The guideline to establish a hydrocarbon refinery by the Nigerian Midstream and Downstream Petroleum Regulatory Authority states that the government will guarantee up to 60 per cent of our feed-stock needs for the refinery,” Idoko stated.

Joining in the call for the supply of crude to local refiners, the Public Relations Officer, IPMAN, Chief Ukadike Chinedu, said the government should listen to the demands of modular refineries as well as that of Dangote Refinery concerning crude oil supply.

“It is a genuine demand. We all saw the positives of in-country diesel production when Dangote started producing it in large volumes. We saw how diesel prices crashed from about N1,700/litre to N1,200/litre as soon as Dangote commenced production.

“So the government and the international oil companies should honour the demand by local refineries for crude oil supply. These local refineries should be given priority attention,” Ukadike stated.

The IPMAN official had earlier kicked against the hike in the crude oil price to local refineries by IOCs, stressing that this should be resisted.

“The government should not allow such to happen. Why should you raise the price of crude for local refiners? That shouldn’t be accepted. The government has to intervene.

“The continued support of Dangote Refinery by the Federal Government in supplying crude oil and other necessary assistance will further bring down prices of petroleum products. Diesel is sold between N1,000 and N1,200/litre and the product is available now. Before Dangote came on board, diesel rose to about N1,700/litre,” Ukadike stated.

The Vice President of Oil and Gas at Dangote Industries Limited, Devakumar Edwin, revealed last week that IOCs were willfully frustrating Dangote Refinery’s efforts to buy local crude by hiking the cost above the market price by $6.

This, he said, was forcing the refinery to import crude from countries as far as the US, with its attendant high costs.

But in his reaction to this, the President, PETROAN, Billy Gillis-Harry, declared, “Clearly, that is anti-country! Because when you are doing business in a country, the country’s welfare, well-being and economic growth should be your business.

“That is why some multinationals said they were packing out of Nigeria when they had exploited all the weaknesses and lukewarm policies that Nigeria has, which empowered them, without them empowering us and not leaving technology transfer to enable us to continue running such businesses.

“So, it is a wake-up call for the Nigerian government, not just in the oil and gas sector, but especially in the trade and investment sector, to insist on new rules on how to engage in doing business in Nigeria.”

FG assures operators

The Federal Government, through its oil sector upstream regulator, has continued to assure operators of its efforts to meet their crude oil demands.

The spokesperson of the NUPRC, Olaide Shonola, repeatedly stated that the matter was being tackled by the commission.

The commission also recently promised to ensure that crude oil was supplied to domestic refiners.

It stated that in compliance with the provisions of Section 109(2) of the Petroleum Industry Act 2021, the NUPRC, in a landmark move, had developed a template guiding the activities for Domestic Crude Oil Supply Obligation.

“The commission, in conjunction with relevant stakeholders from the NNPC Upstream Investment Management Services, representatives of Crude Oil/Condensate Producers, Crude Oil Refinery-Owners Association of Nigeria, and Dangote Petroleum Refinery, came up with the template for the buy-in of all.

“This is in a bid to foster a seamless implementation of the DCSO and ensure consistent supply of crude oil to domestic refineries,” Komolafe had stated.