NIGERIA’S oil industry is chaotic, primitive, and sunken. Proof is found in the recent decision of the Dangote Petroleum Refinery to import crude oil from the United States in the coming months, as the $20 billion facility intensifies moves to start pumping out refined products. With Nigeria being the leading producer of crude in Africa, President Bola Tinubu, who doubles as the Minister of Petroleum Resources, should quickly implement solutions that will sustain supply to domestic refiners.
Although Bloomberg stated that this decision shows how competitive American barrels have become in the global market, it is still a concern that the crude imports will dampen Nigeria’s comparative advantage.
The Dangote Petroleum Refinery and Petrochemical is a 650,000 barrels per day refinery located in Lagos State. The facility has, so far, received six million barrels of crude oil, which were supplied by the NNPC and other international oil companies operating in Nigeria.
But that seems to be the end of the good news. For decades, Nigerians have not benefitted from this natural resource. For years, it could not meet its OPEC quota of 1.78 million bpd; it imports petroleum products at a great cost to its economy because the four government-owned refineries with a nameplate of 445,000 bpd are comatose. State governors allege that the NNPC did not remit a kobo to the Federation Account in 2022.
The outcome is that Nigeria cannot service its domestic crude needs. The same is true for gas, where Nigeria’s 206.5 trillion cubic feet ranks it among the top 10 globally.
In an era that oil companies around the world are declaring mega profits, the prices of petroleum products in Nigeria have become prohibitive for citizens after Tinubu unilaterally removed petrol subsidies and floated the naira in 2023.
Furthermore, industrial oil theft, estimated at 400,000 bpd, constricts production. NNPC Group CEO Mele Kyari said the cost of producing a barrel of crude in Nigeria is the highest in the world due to insecurity, multiple taxation, and sundry issues. This provoked some IOCs to divest their stakes in Nigeria.
The persistence of crude oil theft in Nigeria tarnishes the country’s reputation as a reliable supplier of crude oil and undermines investor confidence in the oil and gas sector. The inability of the NNPC to effectively curb oil theft and ensure the security of oil infrastructure reflects poorly on the government’s ability to govern and protect vital national assets. Such reputational risks can deter potential investors, including strategic partners from engaging in long-term collaborations and investments in Nigeria’s oil industry.
The Dangote Refinery importing crude oil from the US has several consequences on the Nigerian oil market. It could reduce the demand for domestically produced crude oil in Nigeria. This could lead to decreased sales and revenues for Nigerian oil producers, potentially impacting government revenues from oil exports.
Dangote Refinery’s introduction of imported crude oil into the Nigerian market could influence price dynamics.
Importing crude oil from the US could raise questions about Nigeria’s energy security and reliance on foreign sources of supply. While diversification of supply sources can mitigate risks associated with disruptions in domestic production, it also exposes the country to global market dynamics and geopolitical factors that may affect oil prices and availability.
With Dangote importing crude, the fate of the modular refineries springing up around the country is sealed. This discourages domestic refining, as the modular refineries might not have the financial clout of Dangote to import crude from the US.
Therefore, the NNPC and the Federal Government must launch a new chapter on how to supply all domestic refiners with crude stock.
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