Nigeria’s quest to transform its oil sector and achieve self-sufficiency in fuel refining is under serious threat as the country battles a severe crude supply shortage. Amid rampant crude theft, soaring inflation, and an unstable foreign exchange market, the ambitious Dangote Refinery project—a $19.5 billion investment expected to end decades of dependency on fuel imports—is facing significant hurdles.
The refinery, touted as a game-changer with its capacity to process 650,000 barrels of crude per day, has become emblematic of broader challenges within Nigeria’s oil industry. The disruption in crude supply due to theft and sabotage is undermining the refinery’s potential and jeopardising the nation’s refining prospects.
Dangote Refinery, which, hitherto, had been tipped to save Nigeria at least 40 per cent of its forex and reduce the pressure on the naira.
That hope today seems to be coming to all but fruition. Indeed, the challenges faced by Aliko Dangote, Africa’s wealthiest individual, in advancing his $19.5 billion refinery and petrochemicals complex, shed light on the broader obstacles within Nigeria’s refining industry. Despite Dangote’s mammoth investment and the promise of the 650,000 barrels per day/104 million liters per day refinery to end decades of fuel import reliance, the endeavour is hindered by both governmental and international oil company (IOC) actions/inactions.
Oil theft in the Niger Delta exacerbates these issues, severely impacting Nigeria’s capacity to meet the demand of its international clients, many of whom have bought crude oil from the country based on futures, by disrupting production. Hence, meeting the huge demand of Dangote Refinery and other local refiners in the face of increasing theft may be proving to be a tall order for the IOCs.
For perspective, as of the twilight of the Goodluck Jonathan administration, Nigeria was producing more than 2 million barrels of crude oil per day. As of the twilight of the Mohammad Buhari administration, owing to oil theft, Nigeria’s crude production had fallen to 973,000 per day; and hovered around 1.1 million as of the time of his leaving office, which development led to the federal government soliciting the security services of Tantita.
It is noteworthy that while the Organisation of Petroleum Exporting Countries (OPEC) has extended the production quota of 1.5 million barrels of crude oil per day for Nigeria to 2025, Nigeria struggles to produce 1.25 million per day, despite directly investing circa N100 billion annually on security.
So bad is the development that international oil companies have either moved their operations offshore or divested to local investors as they were getting perennial less returns on their investments.
Nigeria’s state-operated refineries, managed by the Nigeria National Petroleum Company Limited (NNPC), have long been ineffective, necessitating heavy fuel imports. In 2022, the country spent N12 trillion ($8 billion) on petroleum imports, underlining the urgency for domestic refining solutions. Dangote’s refinery, positioned as the world’s largest single-train refinery, aims to address this dependence and foster economic resilience.
Nigerians had thought that this would be the moment of truth in finally nailing the black hole of fuel subsidies and to steer the country to the economic powerhouse status that should be its rightful position. But the current status of the refinery sends a negative signal to would be national and international investors.
The reception from government bodies has been far from supportive. Farouk Ahmed, CEO of the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), has emphasised the continuation of fuel imports to prevent market monopolies, while criticising the quality of local diesel for its high sulfur content compared to imported alternatives. Ahmed has also questioned the refinery’s licensing status and its progress, dismissing Dangote’s contributions.
These assertions fall flat considering the substantial investments made to revive NNPC’s refineries and the ongoing efforts of other companies like BUA Group, which is constructing a 220,000bpd refinery in Akwa Ibom. Moreover, numerous modular refineries and newly- issued refining licenses indicate significant activity within the sector. Yet, regulatory opposition compounds the technical and logistical challenges, particularly the shortage of crude feedstock.
Dangote has highlighted difficulties in sourcing crude from IOCs, who demand premiums, forcing imports from countries like the United States and Brazil. The NNPC’s inability to supply additional crude, due to pre-committed forward contracts, further complicates the situation. This scenario underscores a broader issue: the lack of alignment between Nigeria’s regulatory environment and the needs of large-scale industrial projects.
This regulatory hostility extends beyond Dangote’s refinery, reflecting a broader reluctance to support local industries. Prominent figures, including the African Development Bank’s president, Akinwunmi Adeshina, have warned against undermining key investors. The exit of multinational companies and the retreat of IOCs from the Niger Delta fields underscore the deteriorating investment climate.
Other stakeholders stressed the urgent need for a new, long-term agreement with Niger Delta communities to ensure a steady and secure supply of crude oil. This deal is seen as critical not only for the successful operation of local refineries but also for stabilising the economy, reducing fuel import costs, and restoring investor confidence.
According to them, the situation underscores a broader systemic issue: despite significant investments and reforms, Nigeria’s oil sector remains mired in inefficiencies and regulatory challenges that impede progress and economic growth.
Muyiwa Adekoya, an energy professional advocated for the appointment of a dedicated special envoy to facilitate dialogue with local interest groups in the Niger Delta. Adekoya emphasised that this envoy should address the multifaceted challenges confronting Nigeria’s oil sector by presenting the government’s current dilemmas, proposals, and urgent requests to secure a reliable and uninterrupted crude oil supply.
He pointed out that much of Nigeria’s crude shortage and production issues stem from pipeline sabotage, terminal and installation vandalism, and theft for illegal export or refining, often perpetrated by locals within the Niger Delta.
Adekoya emphasised, “Force cannot be used to coerce these interest groups anymore. A serious dialogue between all parties—from the communities to the producers to the government—is necessary,” he said.
In alignment with Adekoya’s recommendations, Felix Echekoba, a financial economist at Nnamdi Azikiwe University, highlighted the importance of bolstering Nigeria’s refining capacity as a crucial step towards economic diversification.
Echekoba proposed that the federal government should initiate a new, comprehensive agreement with Niger Delta communities, which could involve innovative security partnerships aimed at reducing oil theft and sabotage.He said while such an agreement may require forgoing some immediate revenue from the region, the long-term benefits would outweigh these short-term sacrifices.
According to him, by increasing crude production and ensuring its availability for local and international markets, Nigeria could stabilise its economy, reduce pressure on foreign exchange reserves, and mitigate the adverse effects of fluctuating oil prices.
The administration of President Bola Tinubu has pledged that Nigeria will become a net exporter of petroleum products by next year, beginning with the rehabilitation of the Port Harcourt refinery. However, past promises have created a trust deficit between the public and- the government. In September 2022, former Minister of State for Petroleum Resources Timipre Sylva announced that the Port Harcourt refinery would be operational by the end of that year. Six months later, he revised the timeline, stating that refining activities would commence before the end of the second quarter of 2023. Now in the third quarter of 2024, the projection has been pushed back again.
“To be candid, the immediate focus should be on securing production facilities to prevent theft and vandalism. I question whether the government can achieve that,” said Jide Pratt, country manager of Trade Grid. He added that refineries must produce high-margin products to remain profitable, especially given the resurgence of petrol subsidies.
Pratt also suggested that restoring confidence in oil corporations is crucial for maintaining drilling activities, citing ExxonMobil’s participation at the United Nations General Assembly as a positive sign. “The problem has defied resolution, as we have not met our production quotas in a long time. Without sustained efforts, it seems a long road ahead,” he noted.
On a positive note, the chief executive of the Center for the Promotion of Private Enterprise, Dr. Muda Yusuf, while noting that there have been positive signals from the federal government, such as the directive by the Federal Executive Council (FEC) that the NNPCL sells crude oil to Dangote Refinery in Naira, said the signals that are coming from the higher level of government are more positive than the signals at the level of the NNPCL. He said whatever it is, the Dangote Refinery and any domestic refinery deserves all the support it can get because one of the major bleeding points of the economy is the importation of petroleum products.
He said a lot of atrocities are being perpetrated in the name of the importation of petroleum products, stressing that it is part of the reasons the nation is where it is today. “One of the ways to fix it is to ensure we refine these petroleum products domestically. It would be easier to monitor and it would be more transparent and it would accrue a lot of economic benefit.
“It would reduce the pressure on our foreign exchange, it would help us stabilise the exchange rate; it would be able to support the industrial sector with chemical products, job creation, backward integration, and benefits of energy security,” said Dr. Yusuf..
On his part, Development Economist and Dean at Adeleke University, Professor Tayo Bello, said President Bola Tinubu’s administration must urgently address the issues to attract and retain investment. He said ensuring reliable crude supplies for local refineries and engaging with IOCs, would enhance efficiency.
“The challenges faced by Dangote’s refinery are emblematic of broader systemic issues. A hostile regulatory environment, coupled with operational and logistical hurdles, undermines efforts to develop Nigeria’s refining capacity. Without significant policy shifts and support for industrial initiatives, Nigeria will continue to struggle with its dependence on imported refined products, forfeiting the potential economic gains of a self-sufficient refining sector,” said Bello.
