Local Refining Faces Big Hurdle as Crude Shortage Threatens Investments

SEATTLE (Oil Monster):  Operators in Nigeria’s oil and gas sector are sounding alarms over the impact of inadequate crude oil supply to local refineries, identifying it as a major deterrent to attracting Foreign Direct Investments. OKECHUKWU NNODIM highlights the crucial role played by indigenous investors in recent sector developments and the need for government support to enhance mid and downstream operations

The inadequate supply of crude oil to local refineries is one of the key factors stifling Foreign Direct Investments in Nigeria’s oil and gas sector, operators have stated.

According to them, most major investments in the oil sector in the last eight years were done by indigenous private investors, stressing that, for instance, the five functional refineries in Nigeria currently were developed by local players.

Oil marketers and refiners told our correspondent that it was high time the government provided the necessary support to mid and downstream operators in the industry.

An improvement in crude supply to local refiners would give a big boost to the production of refined products in-country and would pave the way for more FDIFDI into Nigeria’s oil sector, the operators explained.

The Crude Oil Refinery Owners Association of Nigeria, Petroleum Products Retail Outlets Owners Association of Nigeria, and Independent Petroleum Marketers Association of Nigeria, among others, pointed out that investors were watching developments in Nigeria’s oil sector concerning crude supply.

CORAN is a registered association of modular and conventional refinery companies in Nigeria. Modular refineries are simplified refineries with significantly less capital investment than traditional full-scale refineries.

The Publicity Secretary, CORAN, Eche Idoko, urged the government to treat indigenous refiners right because foreign investments were no longer flowing into the sector.

He told our correspondent that only private sector players in Nigeria were investing in the industry, adding that in the last eight years, no major foreign investments had been recorded.

“If you listen to what Dangote said in his interview with CNN, he (Dangote) said Africa, which includes Nigeria, is waiting for Foreign Direct Investments that will help build structures, but this will not come. Rather, we should leverage locals like us to create these structures.

“They are talking about FDIs, now, how many such FDIs have come into Nigeria in the last eight years? I can tell you that most of the FDIs came from private arrangements and not government. Apart from the Nigeria Liquefied Natural Gas company’s deal, tell me one other deal by a government agency in the last eight years that has delivered.

“But within the last eight years, we’ve delivered four functional modular refineries and the Dangote refinery. So the point is that they should create an enabling environment and let’s bring the investments in,” Idoko stated.

On June 4, 2024, The PUNCH reported that the Chairman of the Dangote Group, Aliko Dangote, during an interview with CNN, stated that Africa was not growing because of several factors, including the sale of its raw materials to the Western world and buying the same as finished goods.

“Africa is not growing as it should because we export raw materials and import finished goods. It doesn’t matter what it is, even if it is gold or whatever, raw material is always priced at a ridiculous amount compared to finished goods,” Dangote stated.

The Dangote Petroleum Refinery boss, who stated that the plant would start making money soon, pointed out that his satisfaction was that the $20bn facility was constructed to make Africa great.

“We will start making money soon. It is not about making money only, it also gives us great satisfaction that we are making Africa great,” the billionaire stated, as he revealed that the 650,000 barrels per day capacity refinery could absorb 21 million barrels of crude oil monthly.

“Almost 21 ships will no longer leave the African continent, either from Nigeria or Angola, we will be able to take the crude, refine and distribute the product. I feel very proud as an African that we have demonstrated that it can be done, and we’ve done it.

“If we take all the crude from Nigeria, it means we will take 21 million barrels per month and that will also help to reduce the CO2 emissions. Rather than ships coming from Europe to bring in products, or the ships going out of Nigeria, 21 ships going out of Nigeria every month, and then you have the product coming into Nigeria. In totality, when you calculate, you are talking about 480 ships of one million barrels,” he stated.

Refinery owners seek crude supply

Meanwhile, CORAN again called on the government to work hard in ensuring the supply of crude oil to refineries in Nigeria, as the association faulted the recent claims by the Nigerian Upstream Petroleum Regulatory Commission on the provision of crude to local refiners.

In a recent response to the demand for Conditional Term Sheets by the financiers of modular refiners earlier, NUPRC stated that it received figures on the production capacities of indigenous refineries and had presented them to crude oil producers to make the commodity available.

NUPRC’s Chief Executive Officer, Gbenga Komolafe, while reacting to a question by our correspondent on the matter, stated that the commission would not guarantee supply to refineries that had yet to come into existence.

“This still borders on the implementation of the domestic crude oil obligation. First of all, let me make it clear that establishing a refinery of whatever capacity, whether it is a modular refinery or a bigger-sized refinery, is a commercial engagement. So the commission can’t come in to give any form of guarantee. I need to make that clear.

“However, the regulator will only implement the provisions of the PIA, given that all the regulatory activities of the commission are expected to comply with the provision of the law. So as it relates to guaranteeing feed-stock to refiners, that is enshrined under Section 109 of the PIA.

“And what we have just done in furtherance of that provision is that we have put in place a regulation that has to do with domestic crude oil obligation. So, in the implementation of that provision, what we do is that we receive the figures on the domestic refining capacity from the Nigerian Midstream and Downstream Petroleum Regulatory Authority.

“And once we receive that, our development and production department factors the numbers against the capacities of the various producers within the upstream sector and makes it obligatory for them (crude producers) to meet those numbers, thereby guaranteeing that volume of supply to existing licensed and operating refineries, not refineries that have not come into existence,” Komolafe stated.

The NUPRC boss stressed that “we do not guarantee crude for financing of refineries that have not come into existence.”

The CORAN official, however, faulted the position of the NUPRC, as he argued that the guideline for the establishment of a hydrocarbon refinery in Nigeria made provision for crude supply to investors.

Courtesy: www.punchng.com