The refineries in Nigeria have the potential to produce about 228,900 barrels per day (bpd) of diesel, to serve the domestic market, cancel dependence on importation and export the product, provided the local producers are given the needed support, EnergyDay’s report has revealed.
According to the figure obtained by EnergyDay from the Nigerian Midstream and Downstream Regulatory Authority (NMDPRA), AGO (Diesel) average daily sufficiency was around 88,057.35 barrels per day(14 Mltrs/day) as at June 22,2022.
Based on 2021 data provided by the defunct Department of Petroleum Resources (DPR), which is now NMDPRA, EnergyDay’s analysis of the data revealed that Nigeria refinery has the capacity to produce 228,900 bpd of diesel locally and help address challenges faced by both oil marketers and end users of the commodity due to price increases.
According to the regulatory agency, there were only 23 private refineries with valid permits in the country, as of March 2021. The agency also gave the total production capacity of all 23 private refineries as 1.09 million barrels per day (mbpd).
Findings show that most of the private refinery owners in Nigeria have had to stall operations either due to issues relating to license revalidation or expiration.
As of 2021, there were 55 private refining license holders, 32 of which had to forfeit their licenses when the DPR labeled them “invalid” or “expired”, leaving only 23 valid.
The NMDPRA Petroleum Products stock & days sufficiency Report for June 2022, showed that Nigeria consumes, on average, 79, 976 barrels (12.7 million litres) of diesel each day. This is below the diesel production potential of local refineries in the country as it only constitutes about 38.47% of their total potential.
What that implies is that the country would still have an excess of 140,842.65 bpd of diesel to export and generate an estimated daily revenue of N19.89 billion, after meeting daily domestic consumption.
If other interested private players are given the opportunity to come in, including the 32 whose licenses were revoked by the DPR, their total diesel production strength will give local consumption a wide margin, necessitating export of the excess.
An analysis of petroleum products that can be obtained from one barrel of crude oil given in a report by Statista, a German company specialized in global market and consumer data, revealed that the average volume of diesel that can be produced from one barrel (42 gallons) of crude oil is 9 gallons (about 21%).
Going by this figure, a country which has 23 licensed private refineries with capacity to refine 1.09 mbpd of crude oil, will be able to produce 228,900 barrels per day of diesel, supply enough to its local market and still have an excess of 148,924 bpd to export.
Out of the 23 valid licensees, there are but a few who have begun refinery construction. The few include the Dangote Oil Refinery in Lekki, Lagos, and some modular refineries with nameplate design capacities between 5,000 bpd and 7,000 bpd.
The Nigerian Government seems to be more interested in the Dangote 650,000 BPD Oil Refinery than any refinery project initiated by other licensed private operators in the country.
Though the Dangote Oil Refinery has the capacity to supply Nigeria with as large as 136,500 bpd of diesel (59.63% of total diesel production potential of all 23 private operators), there are other licensed private operators offering to contribute relatively huge outputs to the diesel supply value chain in Nigeria. About sixteen of them have a capacity of 12,000 bpd.
A breakdown of expected diesel production potentials of 5 of these refineries revealed that they are altogether capable of supplying Nigeria oil marketers with about 144,060 barrels daily.
The 650,000 BPD Dangote Oil Refinery in Lagos would produce 136,500 bpd while 10,000 BPD Walter smith Refining & Petrochemical Company Limited in Ibigwe, Imo would produce 1,050 bpd.
10,000 BPD OPAC Refineries in Umuseti, Kwale, Delta State would produce 2,100 bpd while neighbouring 11,000 BPD Niger Delta Petroleum Resources in Ogbele, Rivers State would produce 2,310 bpd. Also, the 10,000 BPD Edo Refinery and Petrochemical Company limited in Ikpoba-Okha L.G.A, Edo State, would supply 2,100 bpd.
EnergyDay gathered that the failure of the country to maintain, and later rehabilitate, the four state-owned refineries operated by the Nigerian National Petroleum Corporation (NNPC), is responsible for the inadequate supply of diesel within the country.
The national oil Company had not only rendered all four refineries “useless” by failing to conduct periodic Turnaround maintenance (TAM) for about four decades, but also has been unable to fast-track their rehabilitation, over the years.
The Federal Government’s encouragement of local refiners and the sourcing of diesel locally by oil marketers, particularly operators with valid refining licenses, would help Nigeria reduce the adverse impact the international diesel price increases have on local price of the commodity.
Unfavourable foreign exchange rate, according to oil marketers, is a major issue affecting the local price of diesel as most importers usually import at black market rates. The regular increases in these unofficial rates have forced them to equally increase the prices for which they sell.
On Tuesday, June 28, 2022, the Independent Petroleum Marketers Association of Nigeria (IPMAN), the Depot and Petroleum Marketers Association of Nigeria, and the Major Oil Marketers Association of Nigeria, demanded that oil marketers be made to import at the official CBN rate.
Supporting the position of the oil marketers, Engr. Farouk Ahmed, Chief Executive Officer of NMDPRA, who was also present at the plenary session, said that importation of the petroleum products should be made available to the genuine importers at CBN official rate.
Ahmed said, “The upswing in international price, combined with the prevailing naira/US dollar exchange rate contributes about 80 per cent of the product price at the pump. While the official naira/US dollar exchange rate has remained relatively stable at about N415/US dollar since the beginning of the (Russia-Ukraine) war to date, the parallel rate on the other hand has increased considerably.
“The challenge with this is that petroleum products importers are unable to access the required amount of Forex at the official rate and therefore rely on the parallel market to complement their forex US dollar requirements.”
The Government needs to find a way of both bringing these licensed private players together to provide them the needed support to execute their refinery projects, including in the areas of policy and financing. This would guarantee the availability of diesel within Nigeria, strengthen foreign exchange and provide an alternative source to Nigeria oil marketers whose operations are currently import-based.
If the nation would not continue in its usual manner of neglecting private refinery projects and giving attention to revamping the state-owned refineries (which has not been fruitful for years), Nigeria would gradually phase out dependence on diesel importation and help keep prices relatively low, against changes in the international market.
Modular refineries, for example, require very little funding to start. If there is financial support for and also a friendly policy framework that enables their smooth operations, they would hit the ground running as quickly as possible, to help the country mitigate the diesel challenges in the short run.
It is also noteworthy that the Federal Government has to act fast in ensuring that petroleum products are made available to importers at the official CBN rate, else black marketers would continue to take advantage of importers, who have stated that they are only willing to sell at cost-reflective rates.
Beside the direct benefit of increasing local diesel production capacity, the Federal Government needs to monitor quality of and promote the consumption of locally-produced products as the quality of imported petroleum products into Nigeria is generally below the 50 ppm (parts per million) Sulphur Afri-5 standard.
Recall that in February 2022, the country experienced scarcity of Petrol Motor Spirit (petrol) as a result of an ethanol-based petrol imported into the country which caused immediate damage to many vehicles.
The scarcity resulted in widespread anxiety for businesses that rely on the PMS to power their generators, as well as, affected the operations of Electricity Distribution Companies (DisCos) as power was unstable, during the period.
The full implementation of the petroleum industry Act will enable more private players on-board the downstream sector but a stop-gap measure is needed to prevent the present fuel crisis from degenerating further.