Nigeria is the largest oil producer in Africa but spends huge amounts of scarce foreign exchange to import most of the refined petroleum products consumed domestically, due to a lack of refining capacity in the country. But based on a number of developments in the downstream industry, this could change over the next few years.
Two of Nigeria’s biggest industrial conglomerates – Dangote and BUA Group – are developing large-scale petrochemical refining projects with the combined capacity to process more than 800,000 barrels of crude oil into refined petroleum per day.
Dangote’s 650,000 barrel-per-day plant in Lekki, Lagos is set to come on stream in early 2021 and BUA’s facility much later in 2024. An agreement between the latter and French company Axens was only reached in September on the development of a refinery plant to be sited on the waterfront in the South-South Akwa Ibom State. It will have the capacity to process 200,000 barrels per day (bpd).
“It’s about time. Nigeria imports 90% of its petroleum products. We spend 35% of our foreign exchange on importing petroleum products. Let’s use whatever we have locally and add value,” Chairman of BUA Group Abdulsamad Rabiu told Jean Sentenac, Axens chief, at the contract-signing event at the 16th-century Château de Vert-Mont outside Paris.
Nigeria has been importing gasoline from abroad for years in mind-blowing oil-for-fuel swap transactions involving dealers like Trafigura, Vitol, and Gunvor as well as supermajors like Total and BP. Crude leaves the country in cargoes and gasoline comes back in exchange.
“For a country that has been producing oil for over 50 years, it is really a difficulty to explain why we are still importing petroleum products,” said Mele Kyari, group managing director of state-owned Nigerian National Petroleum Corporation.
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Besides private sector-led efforts, the government is in talks with some investors for the sale of majority stakes in state-owned refineries, Kyari said in September, explaining that the NNPC would be a minority shareholder while private investors operate and manage the assets, similar to the NLNG model. Nigeria has four major national refineries – two in Port Harcourt, one each in Kaduna and Warri – with a combined installed capacity of 445,000 bpd.
The coming on stream of all the refining projects should go a long way in serving local fuel consumption and reduce the reliance on importation, thereby saving the government billions of dollars it spends on petroleum products yearly. It spent $264.57 billion on petroleum imports within a five-year period (2015 to 2019), according to the Organization of Petroleum Exporting Countries.
Overcapacity now seems to be the new risk, experts have warned. When all the refinery projects – private and state – materialise, Africa’s top crude producer might have daily refining capacity enlarged to 1.3 million barrels, at least 160 percent bigger than Nigeria’s fuel needs, standing between 450,000 and 550,000 bpd. (It is more likely though that the state refineries will increase capacity only after being privatised).
But a leading energy policy expert, Ademola Adigun, notes that there will not be an oversupply of fuel because the market is “very large.” According to him, the projected combined barrels per day refining capacity will only give about 21 million litres while Nigerians consume more than 50 million litres presently.
Using the standard measure of 47% premium motor spirit (PMS) per 159-litre barrel of crude oil according to the U.S. Department of Energy, however, a combined capacity of 1.3 million bpd will produce around 97.5 million petrol, well more than Nigeria’s internal demand. Dangote’s Refinery alone is designed to produce up to 50 million litres of gasoline a day.
Nigerians consumed 20.8 billion litres of petrol in 2019, which is about 57.2 million litres every day according to the Nigerian Bureau of Statistics (NBS), citing based on data provided by the Petroleum Products Pricing Agency.
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Regardless, overcapacity should not be a bother because surplus refined products can easily be shipped to markets across the region which overwhelmingly relies on smuggled subsidised Nigerian petroleum, an analyst covering downstream oil & gas for a top Nigerian investment bank said. “Moreover, industry data shows the demand for refined petroleum products in West Africa is expected to witness a CAGR (compound annual growth rate) of approximately 4.7% between 2020-2025.”
Ademola echoed the stance, noting that “there is a large market and demand is high, not just in Nigeria, but the West African market as a whole, which has almost 400 million people.”
Despite concerns over capacity glut, Rabiu has maintained confidence he is taking the right step. Nigeria’s increasing energy needs, alongside those of the region, will match the consolidated output of BUA’s, Dangote’s, and NNPC’s refineries. “Our population is our biggest strength – that is the market,” the BUA Group chairman said.
Situating the new refinery at a waterfront in Ntaikang is strategic, given that the marine infrastructure there offers easy loading on to vessels. From over depending on importation to meet domestic fuel needs, Nigeria could be grappling with domestic refining overcapacity within the next few years and is well placed to become one of Africa’s biggest exporter of petroleum products.
