Olufemi Adegbulugbe, a Calgary-based oil and gas portfolio manager and long-time critic of Nigeria’s refinery rehabilitation strategy has stated that the cost of the newly refurbished old Port-Harcourt refinery may outweigh its benefits on the long run.
Background
After nearly a decade of inactivity, the Nigerian National Petroleum Company Limited (NNPCL) has resumed operations at its Old Port Harcourt Refinery, marking a significant milestone for Africa’s largest oil producer.
The reopening of the refinery, which had been shut due to years of mismanagement and systemic inefficiencies, is being hailed as a victory for Nigeria’s oil and gas sector. However, industry experts and analysts caution that the celebration may be premature.
Expert Opinions
While the restart signals progress, many believe it has done little to address the fundamental challenges that have historically plagued Nigeria’s refineries. Issues such as crude oil theft, internal corruption, pipeline vandalism, and outdated management structures remain largely unresolved, raising doubts about the long-term viability of the refinery’s operations.
“There is no evidence that the three NNPCL refineries, when fully operational, will be profitable,” said Olufemi Adegbulugbe, a Calgary-based oil and gas portfolio manager and long-time critic of Nigeria’s refinery rehabilitation strategy.
“Without addressing the root causes of their collapse, we may find ourselves back at ground zero.” He concluded.
A History of Losses and Subsidies
The reactivation of the Port Harcourt facility comes at a steep cost, with NNPCL investing billions of dollars in its rehabilitation. Critics argue that the financial burden may outweigh the benefits, particularly if the refinery fails to operate profitably.
From 2015 to 2019, Nigeria’s state-owned refineries were a major drain on the NNPC Group’s finances. At the time, the per-liter production cost of Premium Motor Spirit (PMS) at the Port Harcourt refinery far exceeded the cost of importing the same product, creating hidden subsidies that were absorbed as losses on the company’s balance sheet.
This situation raises concerns that the resumed operations could lead to a resurgence of similar subsidies, further straining public finances.
Adding to these worries is the lack of pricing transparency. Although NNPCL has announced the resumption of PMS loading from the Port Harcourt refinery, it has yet to release a detailed price list or cost breakdown.
Competition with Dangote Refinery
The relaunch of the Port Harcourt refinery also raises questions about its ability to compete with Nigeria’s privately owned Dangote Refinery, which began operations earlier this year. With a state-of-the-art facility and significant economies of scale, the Dangote Refinery is expected to produce fuel at a significantly lower cost than the NNPCL refineries.
For instance, the Old Port Harcourt refinery is producing just 2 million liters of PMS daily with a workforce of 500 employees. By contrast, the Dangote Refinery produces 30 million liters per day with the same number of employees, highlighting stark differences in operational efficiency. Analysts predict that NNPCL may struggle to compete unless it sells products below production cost—effectively reintroducing subsidies.
Broader Implications for Nigeria’s Energy Sector
The stakes for Nigeria are high. As Africa’s largest crude oil producer, the country has long relied on petroleum exports for the bulk of its revenue while importing refined products to meet domestic demand. The resumption of local refining is seen as a potential turning point, reducing the country’s reliance on imports and saving foreign exchange.
But for many, the key question is not about restarting production—it is about sustainability and profitability. “Those who believe that resuming refining will automatically lower prices may be far from the truth,” Adegbulugbe said. “If NNPCL cannot compete with Dangote Refinery, it will either have to operate at a loss or fail to capture market share.”
Optimism Tempered by Skepticism
Despite these concerns, the resumption of operations at the Port Harcourt refinery is a symbolic achievement for Nigeria. It reflects the government’s commitment to revitalizing the oil and gas sector, a crucial pillar of the nation’s economy. Still, experts warn that unless systemic issues are addressed, the country risks repeating past mistakes.
As Nigeria celebrates this milestone, the road ahead remains uncertain. The success of the refinery will depend not just on its ability to operate but also on its capacity to turn a profit in a competitive and challenging environment.
