Setting Nigeria on course to becoming a net exporter of refined petroleum

The 2024 Nigerian Crude Oil Refining Summit, themed “Make Nigeria a Net Exporter of Petroleum Products,” presents a pivotal moment in Nigeria’s oil industry.

Nigeria has paradoxically been one of the Africa’s largest crude oil producers while being heavily reliant on imported refined petroleum products. This imbalance has placed significant strain on the nation’s economy, creating vulnerabilities to global price fluctuations and external shocks. The upcoming summit, organized by the Crude Oil Refinery Owners Association of Nigeria (CORAN), represents more than just a gathering of industry players—it marks a potential turning point for Nigeria’s petroleum sector.

Nigeria is the largest oil producer in Africa, yet it continues to rely on importing the majority of its refined petroleum products. This is largely due to the chronic inefficiency and under-capacity of its domestic refineries. The country has four government-owned refineries—located in Port Harcourt, Warri, and Kaduna—that have consistently operated far below their installed capacities due to poor maintenance, corruption, and mismanagement. Consequently, even though Nigeria produces over 1 million barrels of crude oil per day, it has been forced to spend billions of dollars on importing refined products, further exacerbating its economic challenges.

The dependence on imported fuel is not only economically draining but also exposes Nigeria to external shocks. Global price fluctuations, supply chain disruptions, and international geopolitical tensions all impact the availability and price of petroleum products in the country. These challenges underscore the importance of the 2024 summit’s theme, which aims to transform Nigeria from a net importer to a net exporter of refined petroleum products.

A major focus of the summit will be on the deregulation of Nigeria’s downstream oil sector, a move that is set to radically transform the refining industry. For years, the Nigerian government has maintained a subsidy regime that kept the price of fuel artificially low. While this was intended to make fuel affordable for the population, it had unintended consequences, including widespread corruption, smuggling, and inefficiencies in the downstream sector. The government’s inability to properly fund these subsidies also strained national finances, diverting resources that could have been used to develop the country’s infrastructure and public services.

Deregulation promises to create a more dynamic and competitive market. By allowing prices to be determined by market forces, refineries will have the incentive to operate more efficiently and expand their capacities. This policy change also opens the door for greater private-sector participation in the refining industry. New refineries, especially modular ones, are expected to come online, with private investors more willing to invest in refining infrastructure without the burden of artificially low fuel prices cutting into their profit margins.

One of the key expectations of the summit is that it will not only review the impact of this deregulation but also propose actionable steps to capitalize on its potential. Ensuring that Nigeria’s deregulated downstream sector remains stable, transparent, and competitive will require robust policies, regulatory frameworks, and clear oversight mechanisms. The summit will thus be crucial for discussing how best to sustain this transformation and align it with Nigeria’s broader economic goals.

A critical component of achieving Nigeria’s goal of becoming a net exporter of petroleum products is forging strong partnerships between crude oil producers and refineries. The summit will likely address the importance of maintaining a stable and competitive feedstock supply for refineries, which is essential for efficient and cost-effective production of refined products.

In a deregulated market, refineries will no longer be reliant on the government for crude allocations at subsidized rates. Instead, they will have to negotiate directly with oil producers to secure their supply. Ensuring that these agreements are fair and competitive will be key to the success of the refining industry. Transparent and mutually beneficial partnerships will foster a more efficient supply chain and allow refineries to operate at full capacity, which in turn will reduce Nigeria’s reliance on imported fuel.

Moreover, the summit will likely explore ways to integrate Nigeria’s upstream and downstream sectors more effectively. A more coordinated approach between crude oil producers, refiners, and regulators will help smooth out inefficiencies and bottlenecks in the supply chain. By ensuring that refineries have a consistent and reliable supply of crude oil, Nigeria can maximize its refining potential and gradually move towards becoming a net exporter of petroleum products.

Another key point of discussion at the summit will be the need for significant investments in Nigeria’s refining infrastructure. The country’s existing refineries are old and inefficient, and many have questioned the wisdom of continued investment in their rehabilitation. Instead, there is growing momentum behind the development of new, private-sector-driven refineries, such as the Dangote Refinery, which is expected to significantly boost Nigeria’s refining capacity when fully operational.

The Dangote Refinery, set to become one of the largest in the world, will have the capacity to process around 650,000 barrels of crude oil per day. This single facility could potentially shift the balance of the Nigerian petroleum market, allowing the country to significantly reduce its reliance on imported refined products. However, the success of this and other private refineries will depend on Nigeria’s ability to create a conducive environment for investment.

The summit will likely highlight the importance of creating an enabling environment for investors. This will include improving regulatory transparency, ensuring security in the Niger Delta, and addressing infrastructural challenges such as inadequate power supply and poor transportation networks. Strategic investments in both refining capacity and the supporting infrastructure will be essential if Nigeria is to realize its goal of becoming a net exporter of petroleum products.

Despite the optimism surrounding the 2024 Crude Oil Refining Summit, there are several challenges that must be addressed. These include lingering concerns about corruption, the potential for market monopolies, and the social impact of removing fuel subsidies. While deregulation promises to bring long-term benefits, there are short-term risks that could lead to higher fuel prices, which would disproportionately affect lower-income households.

On the other hand, the opportunities are immense. By harnessing its oil wealth and developing a robust refining sector, Nigeria could significantly reduce its import bills, create jobs, and stimulate economic growth. Becoming a net exporter of refined products would not only improve Nigeria’s trade balance but also position it as a major player in the global oil and gas industry.