In light of persistent crude oil production challenges in Nigeria, there is a growing concern that the Nigerian National Petroleum Company Limited (NNPCL) may have to resort to importing approximately 110,000 barrels of crude oil per day from countries such as Venezuela or Saudi Arabia to operate the Kaduna Refinery, scheduled to commence operations next year.
Furthermore, other major refineries in Nigeria, including the Dangote and Bua refineries, may also face the need to import roughly 1.322 million barrels of crude oil daily. This necessity arises from the ongoing issues surrounding oil production in Nigeria, existing contracts on crude oil swaps, and various commercial complications.
The Dangote Refinery, with a refining capacity of 650,000 barrels per day, already relies on imported crude oil. Similarly, the Bua Refinery, located in the South-South region, is projected to require around 200,000 barrels of crude oil per day from the coming year. NNPCL is also planning to bring back its 445,000 barrels per day refineries within the next month to next year, while modular refineries will need 27,000 barrels per day.
Nigeria has been grappling with a challenge to sustain its crude oil production, resulting in a significant deficit of 113.52 million barrels when compared to the Organisation of Petroleum Exporting Countries (OPEC) output quota. This deficit translates to a loss of approximately $8.9 billion during the first seven months of 2023.
While Nigeria’s OPEC production quota is set at about 1.742 million barrels per day, data from the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) reveals that the actual production has been averaging around 1.1 million barrels.
However, the recent borrowing of $3 billion by NNPCL from Afreximbank is expected to reduce the volume of crude oil available for the local market, as the company has existing obligations to supply crude to contractors.
The Nigerian Upstream Regulatory Commission is actively pursuing the enforcement of Section 109 of the Petroleum Industry Act (PIA), introducing the Domestic Crude Supply Obligation (DCSO) to ensure that domestic refineries receive a consistent supply of crude oil. While the regulator threatens penalties for non-compliance, many crude oil producers express concerns about logistical challenges and the sustainability of payments.
Renowned energy expert Dan Kunle suggests that crude oil importation might be inevitable for NNPCL-owned refineries in the coming year due to the challenges hampering local production. Kunle emphasizes the need for the federal government to transfer controlling shares in petroleum companies to private sector investors to revitalize the industry.
Kunle also highlights issues with the country’s product pipelines, infrastructure inefficiencies, and the likelihood that the Port Harcourt Refinery may not resume operations.
Energy economist Prof. Wunmi Iledare explains that refineries are designed for specific crude oil types and product yields, indicating that the Kaduna Refinery, designed for heavy crude, will require imports from Venezuela and Saudi Arabia for bitumen and heavy fuel used in industry.
However, concerns persist about the state of roads and pipelines, particularly in the case of the Port Harcourt Refinery. Road and pipeline infrastructure remains a significant challenge for efficient product distribution.
Professor Segun Ajibola, former President of the Chartered Institute of Bankers of Nigeria, worries about the sustainability and profitability of importing crude oil for the Kaduna Refinery. He believes that resolving challenges in the Niger Delta region is a more lasting solution than continued crude imports.
The state of the road from the refinery may also hinder product evacuation, as communities fear potential pipeline explosions or tanker accidents.
In an attempt to tackle subsidy payments and exchange rate problems, President Bola Tinubu announced the planned resumption of the Port Harcourt Refinery next month. However, there is a lack of information on the corporation’s plan for evacuating refined products from the refinery.
The Kaduna Refinery, originally designed for heavy crude, is now expected to import crude oil to operate, further highlighting the need for addressing Nigeria’s crude oil production challenges. However, challenges related to logistics and infrastructure remain a concern in ensuring efficient operations and product distribution.