As the nation continues to grapple with the dual challenge of increased spending on the importation of petroleum products and rising cost of the Dollar, stakeholders have called on the Federal Government to stimulate domestic refining of the nation’s crude oil as a way out of the looming economic crisis.
The National Bureau of Statistics (NBS) has recently reported an upward trend in the nation’s spending on importation of petroleum products in the second quarter of 2021. The situation has become of serious concern for economist and stakeholders with some expressing worries over the negative impacts on the Nigeria economy.
Experts who spoke to EnergyDay on the matter suggested the need for government to attract investors to participate in the oil and gas industry through domestic refining.
According to the NBS, Nigeria in the 2nd quarter (Q2) of 2021, spent about N782.458 billion on fuel importation, especially on PMS (Premium Motor Spirit), the country’s largest import which makes up for about 11.26% of total imported goods.
In addition, the figure represents a 13.77% increase in the country’s spending on fuel importation from the first quarter to the second quarter of 2021, based on the NBS report.
Industry players are of the view that this development is not healthy for the economy, imploring the government to take a more serious step and devise strategies to boost local capacity for oil and gas production and refining, so as to reduce importation.
Reacting to the development, Otunba Akinbo Akin-Olugbade, Chairman, Power Sector Group of the Lagos Chamber of Commerce and Industry (LCCI) and Managing Director, Kawai Technologies Ltd, told EnergyDay that the situation will occur over and again until the Federal Government takes deliberate steps to improve domestic production, saying that the development is also affecting the value of the Naira in the international foreign exchange market.
He said that the new Dangote 650,000 BPD (barrels per day) Integrated Oil Refinery and the BUA Refinery which may be commissioned by 2024., if well supported and utilized by the nation could help reduce Nigeria’s spending and overdependence on imported fuels, while lamenting the fact that the government has failed to see it as a matter of urgency.
“Until production is local, we will see this problem repeat cyclically. Both the Dangote Refinery in Lagos and the BUA Refinery in Akwa Ibom, should ameliorate these issues to an extent.
“But both projects are several years from completion – the Dangote Refinery plagued by delays now coming on stream in 2022/23, and the BUA Refinery with a proposed 2024 commissioning date,” he said.
Otunba Akin-Olugbade also talked about capturing the gas being wasted through flaring, stating that Nigeria could increase its local production of gas by simply converting Liquefied Natural Gas (LNG) to Liquefied Petroleum Gas (LPG), also known as cooking gas, to help meet domestic gas obligations and weaken importation.
“So, these problems are now systemic, and we have been playing to the gallery on this issue of gas flaring, especially.
“On one hand, yes, Nigeria has some of the largest gas projects in the world, but that’s mostly natural gas for export.
“We need to gear towards local gas processing to LPG. Methanol has also been selected as a strategic gas-based industry under the new Nigerian Petroleum Industry Act (PIA).
“So, if properly executed, this should go a long way towards meeting our domestic gas obligations, and again, reducing pressure on foreign exchange demand,” he said.
Also, Mrs. Olawunmi Olatunji, Chief Executive Officer, Brockville Investments, and a research and investment professional, told EnergyDay that the Nigerian government has to develop the nation’s local gas production capacity by encouraging more involvement of entrepreneurs and experts who possess the technical know-how, giving them the enabling environment and the needed support to improve the oil sector locally.
She equally emphasized that the country’s increasing appetite for the importation of fuel will continue to affect the value of the Naira, as it encourages capital flight and heavy use of the Dollar.
“Yes, we know there has been an expression of interest by the Nigeria National Petroleum Corporation (NNPC), calling on companies to come and revamp our refineries, but there’s still that gap.
“Even the Dangote Refinery is not going to come upstream on time. Though it’s going to come upstream when it comes on stream, it’s not ready now, and then the Department of Petroleum Resources (DPR) has given out licenses for new refineries.
“But what all this is saying is that there’s still that gap and anytime there’s a gap, it is an opportunity for entrepreneurs to come and take over.
“Nigeria as Africa’s largest crude oil producer is still being stock in excess importation of fuel is a thing of concern.
“I think the economy has opened up since the Covid-19 Pandemic period when there was no movement and of which, I believe, resulted in this importation gap.
“The gap between our local production and what we are finally able to refine for domestic use is so huge – we just produce and export, not minding the fact that there’s this huge demand for oil within the country itself. LPG is imported, PMS is imported.
“The Dollar price volatility right now is also a big problem because, when we keep importing, it has a very straining effect on the Dollar. That means that a lot of businesses in this country are chasing after that Dollar that is very scarce. So, that diminishes the value of our Naira,” she said.
Olatunji blamed the current nationwide spike in gas price on Nigeria’s excess importation of the product, noting that the FG needs to support interested investors to set up and start running their local refineries, including those with existing licenses who are still unable to commence operations, due to financing.
“When you look at domestic LPG production, the price increases we have witnessed in a couple of months are also attributed to the fact that there is huge import.
“Yes, there may be other reasons like the cold weather of EU nations that affects the price of natural gas, usually leading to an appreciation of the Dollar. That, of course, affects prices in other countries.
“I still know of investors that have refinery licenses that are still not refining or not being able to set them up due to lack of funds and other challenges.
“We need investments, we need investors – people that have great technical competencies, to be able to develop assets and put the investments in the right places, giving investors the needed confidence.
“Investors or project sponsors need to create bankable projects – I mean, projects that have the right projections, cash flows and technical competencies that will help attract the right kind of investments such that investors will be interested in bringing in their funds to develop the sector locally.
“We have the opportunity to quickly announce that, now is the best time to refine and that we need to develop domestic capacity and utilize our gas locally, rather than exporting the crude,” she concluded.