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Dangote refinery and modular plants hit crude supply snag, jeopardizing Nigeria’s fuel independence

Despite Vows, Dangote's Mega-Refinery and Modular Units Face Setbacks, Leaving Nigeria in Continued Fuel Import Dependency

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By Kirk Leigh

As the sun sets on Nigeria’s ambitions for fuel self-sufficiency, a shadow looms over the multi-billion-dollar Dangote refinery and several modular plants, hindering their ability to produce refined petroleum products. The intricate web of issues encompasses missed production targets, crude oil supply shortages, and the stark reality that the October promise to herald an era of indigenous fuel production remains unfulfilled.

Dangote’s Unmet Promise

The grandeur of the Dangote Refinery, boasting a capacity of 650,000 barrels per day, was poised to reshape Nigeria’s energy landscape. However, October witnessed a disheartening repetition of unmet production projections, leaving a bitter aftertaste of dashed hopes for the second time in 2023. The refinery’s failure to kickstart operations prolongs Nigeria’s reliance on fuel imports, an outcome in stark contrast to the anticipation of curbing petrol importation.

Despite assurances from Devakumar Edwin, the Executive Director of Dangote Group, that crude oil imports were a temporary measure, the refinery awaits its first cargo, highlighting the complex intricacies of the oil industry. Edwin’s promises of commencing production in October, yielding diesel and jet fuel, were met with disappointment as October concluded without a trace of diesel refining from the facility.

Modular Refineries in Limbo

The tale of Nigeria’s fuel woes extends beyond Dangote’s grand vision. Approximately five modular refineries stand ready to churn out refined petroleum products, but their ambitions are thwarted by a fundamental hurdle—lack of crude oil supply. International oil companies, preferring lucrative dollar exports, contribute to the woes of domestic refiners, echoing concerns raised by operators of modular refineries.

Industry sources reveal that the Dangote Refinery, seated in Lekki, Lagos, has yet to receive the necessary volumes of crude oil essential for production. This shortage is symptomatic of a larger issue plaguing Nigeria’s domestic refineries, starved of the vital feedstock required for refining operations.

Government’s Blame Game and Industry Struggles

The Federal Government attributes this predicament to Nigeria’s low oil output, a stance contested by operators of domestic refineries who underscore the dearth of feedstock (crude oil) as the primary obstacle stalling plant operations. Efforts by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) to enforce domestic crude oil supply obligations encounter resistance, exacerbating the country’s dependence on fuel imports.

The situation prompted officials from the Dangote Refinery to lodge complaints with the NUPRC, emphasizing the incongruity of the refinery importing crude when Nigeria is a producer. Yet, these pleas fall on deaf ears, and the refinery’s attempts to garner reactions remain unanswered.

In a landscape populated by modular refineries under the umbrella of the Crude Oil Refinery Owners Association of Nigeria (CORAN), feedstock scarcity is a severe bottleneck. Despite the readiness of about five modular refineries, including Aradel Holdings and OPAC, the insufficient volumes of crude hamper their production capabilities.

Government Pledges and Industry Skepticism

The Secretary of CORAN, Olusegun Ilori, highlights the struggle for financiers as a consequence of the feedstock issue, an impediment preventing the commencement of production. While the Petroleum Industry Act mandates domestic crude supply, the reality on the ground reveals a gap between legislation and implementation.

Ilori discloses that the number of companies ready to join the production ranks is growing, yet the four existing modular refineries face limitations due to inadequate crude supply. This dire situation underscores the need for a sustainable solution to bridge the gap between policy intentions and industry realities.

Export Prioritization and Crude Availability

The issue of crude oil producers prioritizing exports for dollar earnings emerges as a significant barrier. Ilori cites a circular from the NUPRC urging oil companies to allocate a specific percentage of crude for local refining as a regulatory attempt to address the predicament. However, the effectiveness of such measures remains to be seen.

While the government acknowledges the dearth of crude for domestic refiners, the Minister of State for Petroleum Resources, Heineken Lokpobiri, cites Nigeria’s failure to meet its OPEC-approved crude oil production quota as the root cause. As international oil companies, NNPCL, and local content bodies sign MoUs to streamline processes, the industry grapples with an uphill battle.

OPEC’s Projections and the Dangote Factor

OPEC’s World Oil Outlook anticipates the emergence of new modular refineries in Nigeria as complementary to the Dangote refinery, foreseeing a boost in crude oil sales in Africa. The 650,000-barrel capacity of the Dangote Refinery, once operational, is projected to enhance Nigeria’s overall capacity. However, the persistent delays raise questions about the refinery’s ability to meet its promises.

Mrs. Dolapo Kotun, Deputy Chairman of CORAN, reinforces the viability of modular refineries, essential for securing Nigeria’s energy needs. She counters skepticism about their relevance in the face of the Dangote Refinery, emphasizing the multiple locations of modular refineries in the Niger Delta in contrast to the centralized Dangote facility. The goal, she asserts, is not merely to meet demand but to eventually surpass it, making products affordable and positioning Nigeria as an export hub.

Fuel Imports Amidst Economic Strain

As the tussle over crude supply continues, Nigeria grapples with the repercussions of fuel imports. The removal of the Premium Motor Spirit (PMS) subsidy in May 2023 has seen the nation import over 5.52 billion liters of petrol, exacerbating the strain on foreign exchange reserves amid a high forex crisis. The National Public Relations Officer of the Independent Petroleum Marketers Association of Nigeria, Chinedu Ukadike, laments the continued export of crude at the expense of domestic refineries capable of reducing the pump price through local production.

Ukadike underscores the overdue emergence of functional modular refineries, expressing disappointment at their starvation of crude while crude oil producers prioritize exports for financial gains. The reduction of gasoline subsidies, he argues, should pave the way for modular refineries to operate optimally, provided the government supports them with the crucial supply of crude oil.

Government’s Pledges and Industry Challenges

In response to these challenges, the government asserts its commitment to resolving upstream sector issues. Minister Lokpobiri highlights engagements with international oil companies to address concerns and streamline processes. He emphasizes the need for increased production in the upstream sector to ensure success downstream.

While efforts are intensified to supply crude oil to modular refineries and bolster domestic refining, the sector’s challenges persist. Nigeria’s crude oil production, far below the OPEC-approved quota, accentuates the urgency of resolving upstream issues to fortify midstream and downstream sectors.

Navigating the Twists of Nigeria’s Energy Odyssey

Nigeria’s odyssey towards fuel self-sufficiency encounters twists and turns, with promises of indigenous refining capabilities intertwined with the harsh realities of crude supply shortages. The Dangote Refinery, a beacon of hope, faces repeated delays, casting shadows on its transformative potential. The modular refineries, though ready, are shackled by the scarcity of feedstock, reflecting the industry’s complex interplay of policy, regulation, and market dynamics.

As the nation navigates these challenges, the key lies in bridging the gap between policy intentions and industry realities. The delicate dance between international oil companies, regulatory bodies, and domestic

This article was curated based on a report by The Punch Newspapers

Kirk Leigh is the publisher of Abuja Politico.

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