Cautious optimism over cheaper fuel as PH refinery creates rivalry

Reduction in the pump price of petroleum products in the country may remain a mirage despite the resumption of the long-awaited Port Harcourt Refinery as questions over the quality of the product and the emergence of competition between Dangote Refinery and the Nigerian National Petroleum Company Limited (NNPCL) dominate the market.
After failing to come on stream in early 2023 and remaining dormant for one year after it was initially reported to have received mechanical revival, NNPC yesterday commenced loading petroleum products at the facility as the old assets with 60,000 barrels per day (bpd) commenced operation.
Most stakeholders, who spoke with The Guardian applauded the development even as President Bola Tinubu, who has faced backlash over the escalating energy prices, lauded the achievement.
He demanded expedited work on the second Port Harcourt refinery as well as Warri and Kaduna refineries.
This comes as some insiders told The Guardian that NNPC may only be refining largely diesel from the old facility with possible challenges with the quality of products from the facility.
The refinery does not currently have a desulphurisation plant to meet the extant requirements that only permit 50 parts per million (ppm).
The NNPC, after social media backlash released a press statement, yesterday stating the refinery will produce Straight-Run Gasoline (Naphtha), which will thereafter be blended into 1.4 million litres of PMS, it will produce 900,000 litres of kerosene, 1.5 million litres of diesel and 2.1 million litres of Low Pour Fuel Oil (LPFO). The daily output therefore stands at 5.9 million litres.
The NNPC added that the refinery incorporates crack C5, a blending component from Indorama Petrochemicals (formerly Eleme Petrochemicals), to produce gasoline that meets required specifications.
By implication, NNPC will only be meeting about 2.8 per cent of local demand for PMS in the country which currently averages 50 million litres per day.
By requiring additional efforts to blend with a low output, the refinery may also struggle to operate profitably as the sulfur content of the products remained an issue.
The NNPC appeared to be reacting to a leaked letter dated August 27, 2024, addressed to a supplier for the provision of high RON (Research Octane Number) gasoline had shown that NNPC imported gasoline to blend with naphtha produced from the refinery.
The request specifies a minimum RON of 94, specific gravity between 0.74–0.75, and a Reid Vapor Pressure (RVP) of 0.50 kgf/m². The company requires two cargoes of 28,000 metric tons each, constrained by the draft limitations of the Okrika Jetty, with delivery expected between the second decade of September and the first decade of October 2024. NNPC noted that it was a global practice.
Some stakeholders said the state oil company may explore blending options, a development which may render the facility uncompetitive until the newer facility comes on stream.
Earlier, NNPC had said 200 trucks would load from the facility per day, with the capacity of trucks in Nigerian being 45,000, the company insinuated that nine million litres of products would be lifted whereas going by its press statement only about 131 trucks would load from the facility daily if the production is sustained.
The company said it was aware of unfounded claims by certain individuals suggesting that the refinery is not producing products.
NNPC added that the old Port Harcourt Refinery is currently operating at 70 per cent of its installed capacity, with plans to ramp up to 90 per cent but did not give the timeline.
Tinubu, while acknowledging the role of the loans from the African Export-Import Bank in financing the project, said the facility would significantly enhance domestic refining capacity alongside the contributions of privately-owned refineries and make the country a major energy hub.
He underscored his administration’s determination to repair the public refineries, aiming to end the disheartening perception of Nigeria over its inability to refine crude for local consumption.
Speaking at the facility, the Group Chief Executive Officer of NNPC, Mele Kyari, described the commencement of the load-out activities as a monumental achievement for Nigeria, which signifies a new era of energy independence and economic growth for the country.
Kyari, who had said the entire facility, awarded for $1.5 billion would commence work in mid-2025, said the NNPCL Board of Directors and the entire staff contributed to making the project a reality.
Rather than providing regulatory details on the refinery, especially the specifications of the products from the refinery, Chief Executive of the Nigerian Midstream Downstream Petroleum Regulatory Authority (NMDPRA), Ahmed Farouk said a milestone has been achieved.
“It is indeed a proud moment for us and a relief. With the Port Harcourt Refinery online, alongside the Dangote Refinery and with expectations for the Warri and Kaduna refineries to follow, Nigeria will transition from being a net importer of petroleum products to a net exporter,” he said.
He stressed that the operational refinery is expected to increase competition in the petroleum sector, offering Nigerians better access to fuel at more affordable prices.
“What’s critical now is ensuring product availability nationwide, fostering competition, and providing consumers with choices. This will ultimately lead to reduced prices due to ample supply,” Farouk said.
Although NNPC did not speak on the possibility of a price reduction, many stakeholders have called for cautious optimism over a possible price reduction, saying the impact of the refinery may be disheartening.
A former senator, Shehu Sani, said there is a need for the new refinery to herald petroleum products price reduction and make life easier for the masses.
Sani said: “We are anxiously waiting for a similar gesture to Kaduna Refinery”.
An energy expert and former management staff at Shell, Ameh Madaki, noted that the plant needs to run successfully for a reasonable period before anybody could ass a vote of confidence on it, has been on perpetual turned-around maintenance in the past thirty years.
“It is however a positive development for the Nigerian economy, but it should be viewed with cautious optimism. It is too early in the day to use the news as the basis for any detailed analysis,” Madaki said.
An industry player, Joseph Zone, said until the masses feel and touch the products from the refinery, may remain all news.
“The NNPCL has done irreparable damage to the business environment in the country, there have been too many inconsistencies in and around the oil industrial sector for too long. To earn the trust of prospective investors in this sector once again will be an uphill task. It has been a sorry situation,” he said.
Zone noted that going further, there should be a commission of inquiry specifically to look into the over $25 billion spent so far on the rehabilitation of the refineries.
Most players in the downstream segment of the industry stressed that the refinery would potentially reshape Nigeria’s downstream petroleum sector, noting that the development could compel stakeholders to prioritise competitive pricing and efficient service delivery.
The National President of the Independent Petroleum Marketers Association of Nigeria (IPMAN), Abubakar Maigandi Shettima, told The Guardian that operationalisation of the refinery would improve the country’s domestic refining capacity.
He described the commencement of crude oil processing at the rehabilitated Port Harcourt Refinery as a welcome development, signalling a positive shift in Nigeria’s quest for energy security.
Energy Partner at Bloomfield, Dr Ayodele Oni, told The Guardian that increased local refining does not automatically guarantee stable production, as numerous factors influence production dynamics.
He emphasised that expanding local refining capacity, coupled with a well-implemented Domestic Crude Supply Obligation (DCSO) as a critical economic measure rather than just a policy, could positively impact production. He noted that oil producers are often eager to comply with DCSO while meeting other contractual obligations, such as forward sale agreements.
“In November 2023, Mele Kyari stated during discussions with House of Representatives Speaker Tajudeen Abbas that ongoing refinery upgrades are expected to end petrol imports by December 2024. Although this prediction might be optimistic, enhancing and operating local refineries, along with the Dangote refinery, is likely to decrease dependence on foreign fuel sources,” he said.
On pricing, Dr. Oni highlighted that before the commencement of operations at the Dangote refinery, many anticipated a reduction in fuel prices. However, this expectation did not materialize, and discussions have since arisen suggesting that importing refined fuel might be more cost-effective than sourcing from Dangote.
“The direct effect of local refining on fuel price reduction remains uncertain, nonetheless, local refining brings other economic advantages beyond potential price cuts. For instance, it strengthens energy security, creates jobs, and boosts the local economy, contributing to broader economic resilience and development,” he said.
Energy Expert, Prof. Dayo Ayoade, told The Guardian that with the Port Harcourt refinery coming onstream, it would create competition for the Dangote refinery, providing the industry with greater access to products.
He stated that this competition could potentially impact market pricing, provided NNPC adopts a competitive pricing strategy. However, he cautioned against pricing that could edge Dangote out of the market, as that would not serve Nigeria’s best interests.
Ayoade emphasised that if Nigeria achieves sufficient production to meet domestic demand, imports would no longer be necessary except in emergencies.
“My only issue is that how many barrels a day are they dedicating to the Port Harcourt refinery? Because if NNPC is struggling to have sufficient production to give to Dangote, not talk of its in-house refineries. So, I think that Nigeria urgently needs to ramp up oil production. The good thing about this is that if we can ramp up oil production, then the oil can be sold to Dangote and utilised by the NNPC refineries when Warri and Kaduna join. That would be very helpful to Nigeria because the product can be sold in international markets and not be limited by the OPEC quotas,” he said.
Speaking on pricing, he highlighted that the cost of doing business and refining must be reflected, emphasizing that NNPC Limited operates as a private company, not a government entity offering free or subsidised products.
“The days of cheap PMS are over; the Nigerian consumer must accept it. Nigeria now needs to work on utilising our resources, which is our crude oil, and we should now find a way of putting the profits generated by that industry, both taxes paid by Dangote and by NNPC, to channel it into national development. Let’s forget about subsidising consumption.
“This is what we do. We are subsidising consumption, if we have to subsidise, let’s subsidise the production and sell to international markets and generate wealth for our country,” he said.