Experts lament as crude shortage, funds ground seven refineries

The persistent unavailability of crude oil has significantly hindered investments in the establishment and full capacity operations of seven new and existing refineries across the country, local refiners stated on Thursday.

They also warned that without a steady and reliable supply of crude, the ambitious objective to attract investors and investments aimed at boosting local refining capacity and reducing dependence on imports may remain elusive.

The National Publicity Secretary of the Crude Oil Refinery-owners Association of Nigeria, Eche Idoko, disclosed the latest development in an exclusive interview with our correspondent on Thursday.

According to industry data obtained from the Nigerian Upstream Petroleum Regulatory Commission, 15 operators have licences for the construction of refineries, with a combined refining capacity of 1,151,500 barrels per day.

However, only a fraction of this capacity – 852,000 bpd – is currently operational, raising concerns about the underutilisation of refinery infrastructure in the country.

Owners of refineries with this capacity, however, witness shortfalls in crude oil supply to their plants, as this has remained a major challenge in the sector.

Analysis showed that five of these refineries have received approval licences but are not yet operational, while three facilities designated by the NUPRC to receive daily crude allocations are currently inactive.

Further findings revealed that the 10,000 bpd OPAC refinery is currently not operational due to poor feedstock, while the 2,500 bpd Duport refinery is not working. Also, the state-owned Kaduna refinery, despite receiving approval to refine products, is currently non-operational.

The licences, granted to private investors in the mid-stream sector, were expected to contribute significantly to Nigeria’s refining capacity and reduce its dependency on imported refined petroleum products.

Despite the large-scale approval, the current operational capacity of the refineries remains far below the licensed potential.

Idoko, however, outlined other challenges hindering the full operation of these refineries, including inadequate funding, delayed project timelines, and technical difficulties. The situation has led to a reliance on the country’s ageing refineries, which are struggling to meet domestic fuel demand.

Recently, the Dangote refinery announced a temporary suspension in the sale of its petroleum products to marketers in naira, due to concerns around the naira-for-crude deal and a mismatch in crude allocation paid for in naira and its actual sales.

Insiders familiar with the development said the Nigerian National Petroleum Company Limited had allocated large volumes of crude to its foreign creditors to settle the loans acquired by the firm, making it difficult to sustain the naira-for-crude deal between NNPCL and Dangote refinery.

Idoko highlighted that this gap in operational capacity is not solely affected by funding but by technical challenges, of which crude guarantee is a huge challenge.

The national officer explained that these facilities are currently unable to scale past the final investment decision stage because they cannot secure a source of feedstock.

Idoko said, “The major challenges that investors have had with completing the proposed plants in Nigeria is that a lot of these plants need to get past the Final Investment Decision stage and for them to pass this stage, which is the final financial investment stage, they would have to guarantee and allay the fears of investors on some challenges.

“And one of the major fears that they have is the availability of crude. So crude availability is a major issue, and the news making the rounds about the unavailability of crude to refineries that are already operating is not making our case easier.

“So, in response to your question, yes, the availability of crude is a major issue, and you know, until recently, the country was not meeting the production quota set by the Organisation of Petroleum Exporting Countries.”

The CORAN spokesperson added that “modular refineries can only ramp up capacities if two fundamental issues are addressed. One is the feedstock guarantee for refineries, and the second is the robust funding opportunities for refinery projects.

“The government has to lead on both fronts. It is already taking steps to address the first, but more can be done. Secondly, the government must make haste to create funding portfolios that can support the development of local refineries.”

The National Publicity Secretary of the Independent Petroleum Marketers Association of Nigeria, Chinedu Ukadike, further outlined challenges affecting the sector, including fluctuating government policies, poor Internal and external security, funding, and community relationships.

He named these challenges as reasons why refineries were finding it difficult to operate.

Ukadike said, “In a deregulated economy, the government has liberalised the market. So the Federal Government must first ensure that there is energy security and a return on investment. There is no way there will be a return on investment where there is no guarantee from the government to investors and investments that there is going to be profit.

“One of the most important things to look at that causes this challenge is the policies of the government, internal and external security, funding, environmental control, community relationships, and the source of crude oil. These are factors.

“Most of the refineries that the government has given licences to are not in oil-producing areas, and some of the wells close to them are moribund. All of these issues make it cumbersome to operate.”

The Petroleum Products Retail Outlets Owners Association of Nigeria President, Billy Gillis-Harry, said the refineries are failing to function because the operators lack the requisite technical knowledge.

Also, an oil and gas expert, Olatide Jeremiah, called for an enabling environment that promotes investments.

Jeremiah, who is the Chief Executive Officer of petroleumprice.ng, said, “For me, it is not about NMDPRA churning out refining licences without the refineries having an enabling environment to thrive. One key thing is the availability and accessibility of crude oil, possibly in naira.

“Our sweet crude oil production of about 1.5 million barrels per day is pretty small compared to the humongous commitments of forward sales deals and foreign buyers’ contracts.

“The fact that the NNPCL is trying to keep business terms with foreign buyers, denying our local refineries access to our sweet crude, is a misplaced priority, and I strongly charge NUPRC to work assiduously to increase crude production to 2.5 million barrels per day for stability in the petroleum industry.”