Nigeria says it plans to stop importing fuel by mid-2023, around the time a giant oil refinery being built by Africa’s richest man, Aliko Dangote, is expected to come online. Mele Kyari, the Group CEO of the Nigerian National Petroleum Company (NNPC), is confident that Nigeria will be able to stop fuel imports by next year, while the Dangote Refinery and the rehabilitation of the country’s four existing refineries are dying.
“NNPC owns 20% of Dangote Refinery. And also by right we have access to 20% of the products of this factory. That means whatever he does, you know we have the right to get 20% of that production as part of our equity, and that refinery will be operational no later than the middle of next year,” Chiari told reporters on August 30. . .
“Just this refinery because it has a capacity of 650,000 barrels and the different technology means it can break down crude oil in a way that you can have more gasoline than a normal refinery. This means that the refinery has the capacity to produce up to 50 million liters of PMS [petrol]. So the combination of that and our ability to get our refinery back will eliminate any potential imports of petroleum products into this country next year. You will not see any imports into this country next year. It is very practical. It is possible.”
Nigeria’s plans are ambitious but realistic
“It’s a very ambitious plan, but it’s realistic,” Ayodele Oni, an energy lawyer and partner at the Bloomfield law firm, says of the NNPC proposal.
However, he says several factors must be in place. First, the government should reduce its intervention in the accrual of petroleum revenue, given the government’s shareholding in NNPC Ltd, and second, it should create an enabling business environment. Third, the government must commit to ending the subsidy regime that has burdened its financial obligations.
According to Oni, the cessation of fuel imports depends on several variables, including the timely completion of the Dangote refinery and the rehabilitation of Nigeria’s existing refineries, as well as the maintenance and proper functioning of the said refineries.
The Dangote refinery has missed a number of start-up deadlines and was forced to push back start dates from 2019 to 2023 due to the global coronavirus pandemic and other challenges.
Technical analysts, including Joe Nwakwue, a partner at Zera Advisory & Consulting and former chairman of the Society of Petroleum Engineers, say the completion of the rehabilitation of the nation’s refineries can help boost local production and make NNPC successful.
“Rehabilitation of the refinery continues. Hopefully, Port Harcourt will be completed next year and start producing PMS for the local market,” he says. African business.
He notes that “it is important to understand that even if all the NNPC refineries are operational, we will still have a short supply of PMS in excess of 40 million liters per day which has to be imported from Dangote or from outside Nigeria. This means that significant refinery capacity expansion and investment are urgently needed to close the gap. I hope the NNPC will partner with some of the local promoters of refinery projects to help de-risk and implement these projects as soon as possible.”
The fact that Nigeria has spent about $25 billion on maintenance and rehabilitation of its state-owned refineries over the past 25 years, but still suffers from poor performance, does not inspire confidence, says Joachim McEbong, senior analyst at SBM Intelligence.
“No one who followed the sector can forget the theater that was engaged in capital maintenance [where facilities are shut down for maintenance] under the administration of former President Goodluck Jonathan, but perhaps if the NNPC adopts a more commercial slant, the incentives may be different now.”
However, Oni says a complete halt to gasoline imports can be successful if refineries are “operating at maximum capacity and properly maintained. The national refineries are expected to produce 18 million liters of PMS daily, while the Dangote refinery is expected to produce 50 million liters of PMS daily. With a combined output of 68 million liters of PMS daily, post-rehabilitation, the total cessation of PMS imports is expected to be successful.”
Consequences of stopping the importation of petrol into Nigeria
“When fuel imports end, the fuel subsidy is expected to be removed given the local production and slightly cheaper prices of petroleum products,” Oni says.
Nigeria’s Finance Minister, Zainab Ahmed, recently said the government spends an average of N18.39 billion ($42.9 million) daily on fuel subsidies, more than what is allocated to health, infrastructure and education, and could spend up to N6, 72 trillion ($15.7 billion). ) next year if it maintains the fuel subsidy.
Ending the subsidies could mean petrol prices will soar, but Yani believes the increase will be “slightly less than if we removed the subsidies and continued to import our petroleum products”.
“The cost of shipping, insurance and about five costs will be removed and we can see a reduction of 20% compared to what the prices would have been without the removal of the subsidy. As of February 2022, the NNPC reported that N861 billion was spent as transport costs on petroleum product imports between July 2019 and August 2021.
“So the country spends a minimum of N26 [$0.6] as the cost of freight for each liter of petroleum products imported into the country. Therefore, with local/domestic production of petroleum products, the expectation is that the petroleum products should be lower than the actual current landing cost.”
He also says he expects pressure on the naira to ease given the decline in the US dollar, which is used for imports.
“Despite the fact that the Federal Government of Nigeria uses the direct sales and direct purchases mechanism to import petroleum products, there is still a margin and additional costs in US dollars. Therefore, stopping imports will be a fantastic idea to reduce the rate of depreciation of the naira,” he says.
Nigeria is starting to fight oil theft
MacEbong believes that in order to succeed in ending fuel importation, Nigeria must address the problems of oil theft.
“Oil theft is putting Nigeria in a difficult position… In fact, as long as this level of theft continues, stopping fuel imports next year is impossible,” he says.
Rampant theft and vandalism cost the country at least 9 million barrels in the first quarter of the year, amounting to $1 billion in lost revenue.
Gbenga Kamalafe, head of Nigeria’s Petroleum Exploration and Regulatory Commission, said in a July press statement that of the 141 million barrels of oil produced in the first quarter of 2022, only about 132 million barrels reached export terminals. To reduce oil theft, Chiari said the country will implement a security infrastructure similar to that of Saudi Aramco to protect its oil pipelines, which will be unveiled soon.
“This trend poses an existential threat to the oil and gas sector and by extension the Nigerian economy if not stopped,” Kamalafe said.