Despite being endowed with vast reserves of crude oil, Nigeria has witnessed a decline in its oil industry in recent years. In earlier times, the oil industry has been a key driver of the country’s economic growth. The sector’s decline is due, in part, to the country’s failure to develop capacious refineries and the country’s subsidized imports of refined petroleum products. Nevertheless, Nigeria is making steady progress toward attaining domestic self-sufficiency in crude refining in order to ensure sustainable solutions to product availability, price stability, and maximization of the benefits of the oil.
As such, the Nigerian government aims to end the practice primarily through Aliko Dangote’s 650,000 barrels per day (BPD) integrated refinery project under construction in the Lekki Free Zone near Lagos. The refinery will meet 100% of the Nigerian requirement of all refined products and also have a surplus of each of these products for export. Conversely, a local contractor in the Niger Delta is building one of a growing number of mini refineries on a deep river bank. With this, the Nigerian government intends to leverage the development in order to ablactate Nigeria’s economy off foreign fuel finally.
Government intends to refurbish its non-functioning infrastructure.
For many years, Nigeria, the continent’s top crude oil producer, has shipped its crude oil overseas for refining while importing and subsidizing the finished product. This has apparently impacted the economy particularly when oil prices increase and sales fall since the country lacked a large refinery. The government intends to refurbish its own non-functioning infrastructure at the same time it’s working to get Dangote’s refinery up and running. Mini-projects like this are leading the charge in the country’s fight to reduce its yearly import costs by billions of dollars.
The government has promoted the construction of smaller modular facilities, such as AIPCC Energy Ltd.’s 30,000 BPD Koko refinery, which is now being designed in China and will be deployed in the southern Delta state. Daghe Osime, the executive director of AIPCC Energy, a Nigerian multinational private energy firm, stated the company’s goal of capturing 20% of the whole diesel market in Nigeria. He predicts that the plant’s annual revenue from selling diesel into the local market would be roughly 400 billion naira ($867 million). Through a contract with Mercantile & Maritime Energy Pte Ltd. of Singapore, it stands to gain nearly 230 billion naira by shipping naphtha and fuel oil.
Four companies constructed facilities with 27,000 BPD capacity.
To aid in Nigeria’s refining efforts, the country’s first privately owned refinery, the Edo Refinery (ERPC) 6000-barrel-per-day, was established. In the meanwhile, AIPCC built a “proof of concept” refinery in Edo state with a 1,000 BPD capacity in 2021 and planned to begin construction on expanding capacity at its Koko location. Although scores of companies like AIPCC were granted permits, only four have actually constructed facilities with the capacity to handle 27,000 barrels of oil per day. The corporations involved have committed to increasing production significantly, but even so, this represents barely 2% of Nigeria’s total output.
Compared to Dangote’s development, which has cost $20 billion, more than twice the amount estimated in the first place, and has missed many deadlines, this project seems quite modest. Nevertheless, the Nigerian National Petroleum Corp (NNPC), which owns 20% of the company, would provide nearly half of the oil the massive facility requires. With this project, Nigerian oil, which can be refined together with other crudes, would have a market opportunity worth $21 billion per year.
AIPCC has finalized a supply agreement with one local producer.
Notably, the widespread theft of most of the delta’s pipeline network has also significantly reduced Nigeria’s petroleum production. Osime, the executive director of AIPCC Energy, has said that the firm may provide a safe option to marginal field producers who are concerned about pipeline vandalism because of its location as a local refinery. According to him, AIPCC has already finalized a supply agreement with one local producer and is in advanced negotiations with London-listed Seplat Energy Plc regarding other supplies. With these refineries, Nigeria will no longer need to spend its little foreign money on fuel imports, freeing up funds that may be used toward supporting other, more peripheral enterprises.