A pump attendant fuels a car.
Nigerian motorists, and all fuel users in general, have this week faced yet another shortage at the pump, continually providing an irony in this country that is Africa’s biggest oil producer.
Throughout major cities in the country, long queues have been seen as motorists jostle to get the precious fuel, and stock some to last more days ahead. Nigeria’s crude oil stock is at an estimated 37 billion barrels. But how to deliver finished products sustainably to the consumers has been a toll order.
As it is, its crude oil reserves are equivalent to 237.3 times its annual consumption, meaning that without net exports, there would be about 237 years of oil left.
So why does the country face shortages on the local scene? And why does it import refined oil?
No refinery
The answer lies in the fact that there is no single functioning crude oil refinery. Now hopes have been dashed after the expected commencement of production by the celebrated $20 billion Dangote Refinery were delayed. The rehabilitated decades-old state-owned four refineries in Port Harcourt, Warri and Kaduna have also not resumed work.
Dangote Refinery put up by Nigerian tycoon Aliko Dangote was supposed to refine some 650,000 barrels per day and was expected to pump out 50 million litres of petrol daily apart from other products. It was commissioned in May 2023 but has consistently shifted its petrol production date much to the frustration of the public. The same goes for public-owned 150,000 per barrel Port Harcourt and 50,000 per barrel Kaduna refineries that were being rehabilitated after being out of production for two decades.
Dangote refinery currently produces aviation fuel, kerosene and diesel but that is too low for the demand. Most consumers in Nigeria want a version of fuel known as Petroleum Motor Spirit (PMS) for their cars.
Cartels
The latest date of August 15, 2024 came and went. Enter the cartels.
Aliko Dangote, Africa’s richest man, has accused some oil and gas stakeholders of frustrating the efforts of the company.
The failed production had caused panic among marketers who embarked on speculation to avoid being caught out in a price war. Some feared that the mega refinery could cut prices and make their current stock not competitive.
The fear was further aggravated when the Nigerian National Petroleum Corporation (NNPC) also hinted that its rehabilitated facilities in Port Harcourt would resume production in August.
“We are being careful not to fall into the trap of the ongoing intrigues as no one is sure of when any of these refineries will begin production,” said Mr Aliyu Adams, a major refined petroleum marker.
“We have to stop further purchases in order not to start selling at a loss when eventually local production starts and at a reduced price. This is the cause of the scarcity of the product this time around,” he explained.
Mr Femi Soneye, the NNPC spokesperson, disagreed and blamed the lingering fuel scarcity on panic buying and sharp practices by marketers who are exploiting the present situation to make more money.
Some major markers insist that inadequate supply caused the scarcity because NNPC relaxed importation in the hope that Dangote refinery would meet its target production date.
The Group Managing Director of NNPC, Mr Mele Kyari, said one of the two Port Harcourt refineries in the oil-rich Niger Delta region will begin operations last week but it had not happened.
He said the other one will come into operation by the end of the year and allow Nigeria to begin exporting refined oil.
Theft and corruption
Before the construction of Dangote Refinery, all four government-owned refineries, which can process about 450,000 barrels of crude per day, had been moribund for years. Nigeria then resorted to imports to meet its petroleum needs, estimated at about 40 million litres per day, the Minister of State of Petroleum Resources, Mr Heineken Lokpobiri, said.
The Nigerian oil industry has in recent years been faced with theft and corruption as well as the activities of a cartel that ensures that local refineries don’t function so that they continue to import refined petroleum products.
Dr Ogbonnaya Orji, the Executive Secretary of the Nigeria Extractive Industries Transparency Initiative, Nigeria may have lost money in every year of production from 2009 to 2020. Audits put losses to crude oil theft over a 12-year period at 619.7 million barrels valued at $46.16 billion or N16.25 trillion, he said.
“Similarly, between 2009 and 2018, the country also lost 4.2 billion litres of petroleum products from refineries valued at $1.84 billion.”
Unmet demand by local private refineries
The corruption in the system is hindering crude oil production quota of about 2.1 million barrels per day as approved by OPEC for Nigeria. The country hit a daily production of 1.6 million barrels, production that is not enough to offset the upfront payment the country collected for crude production, not to mention the demand of local refineries.
The Federal Executive Council (FEC) in August, after a meeting presided over by President Bola Tinubu, approved the sale of crude oil to indigenous refineries including Dangote Refinery in Naira and not in dollars and also consciously directed NNPC to allocate 450,000 barrels of crude to Dangote daily.
The Special Adviser to the President on Revenue, Mr Zacch Adedeji, said President Tinubu directed the crude supply to local refineries would be effective from October 1, 2024.
“And what does it mean to our economy? One, the pressure on foreign exchange will be reduced. Currently, Nigeria spends between 30 percent and 40 percent of foreign exchange on importation of petrol that it consumes.’’
“Monthly, we spend roughly $660 million in these exercises and if you analyse that will give us $ 7.92 billion annually,’’ he explained.
This step notwithstanding, former President Olusegun Obasanjo, said that those benefiting from fuel importation will do all in their power to frustrate the Dangote Refinery and other refineries.
“Aliko’s investment in a refinery, if it goes well, should encourage both Nigerians and non-Nigerians to invest in Nigeria.
“If those who are selling or supplying refined products for Nigeria feel that they will lose the lucrative opportunity, they will also make every effort to get Dangote refinery frustrated,” Obasanjo stated.
The Dangote Group had lamented that International Oil Companies (IOC) were frustrating the refinery by refusing to sell crude or by selling to them at a premium up to $4 above the normal price.
The Authority denied Dangote’s allegation and similarly reported that Dangote’s diesel was inferior when compared to the imported ones.
The NMDPRA Chief Executive, Mr Farouk Ahmed, also stated that the country would not stop fuel importation to avoid a monopoly by the Dangote Group.
