Kaduna, Dangote, BUA refineries may source crude oil from abroad

• ‘It’s better to tackle challenges against local production’
• Doubts over Port Harcourt facility coming on stream next month
• Expert faults govt holding controlling shares in oil firms

The Nigerian National Petroleum Company Limited (NNPCL) may begin importation of 110, 000 barrels of crude oil per day from Venezuela or Saudi Arabia to operate the Kaduna Refinery due to come on stream next year.

Also, the Dangote, Bua and other refineries may be forced to import about 1.322 million barrels of crude oil per day amid oil production challenges in Nigeria, existing contracts on crude oil swap as well as other commercial issues.

Currently, the Dangote Refinery, with 650, 000 barrels per day refining capacity, is relying on imported crude, while the Bua Refinery within the South South region would need about 200,000 barrels per day of crude oil from next year. NNPCL is also looking to bring back its 445,000 barrels per day refineries between next month and next year, while the existing modular refineries will require 27,000 barrels per day.

Nigeria has been struggling to sustain its crude oil production. The country currently records 113.52 million barrels shortfall in meeting Organisation of Petroleum Exporting Countries (OPEC) output quota. That loss alone is about $8.9 billion in the first seven months of 2023.

While OPEC’s production quota allocated to Nigeria stands at about 1.742 million barrels per day, figures from the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) showed that output has been averaging about 1.1 million barrels.

The NNPCL is with current obligations to supply crude to contractors, but the recent borrowing of $3 billion from Afreximbank would drastically reduce the volume of crude the national oil company could provide to the local market.

The Nigerian Upstream Regulatory Commission is currently dragging oil producers in an attempt to enforce Section 109 of the Petroleum Industry Act (PIA), which introduced Domestic Crude Supply Obligation (DCSO) to Nigeria’s oil industry to ensure domestic refineries are not starved of crude oil supply.

Although the regulator is threatening a fine of $10,000, a penalty of 50 per cent of their fiscal price per barrel of crude oil not delivered to refineries and denial of export permits, many of the crude oil producers are worried over commercial issues that may come up in such a transaction.

They are concerned about the logistics side of supply and safety of their data with NUPRC.

They added that refiners would need to convince them that the off-takers have dollars to pay for crude oil sustainably. Besides, most of the producers are divesting owing to crude oil theft, insecurity in the Niger Delta region and other problems bedevilling the oil and gas sector.

Renowned energy expert, Dan Kunle, said crude oil importation would not be ruled out next year for NNPCL-owned refineries because the daily local production is being hampered by poor investment.

“As long as the Federal Government continues to hold controlling shares in all the petroleum companies in Nigeria, there will be no crude oil and gas. Once the assets are transferred to private sector investors, the industry will shape up,” Kunle said.

He alluded to the fact that the country’s product pipelines are very weak and long out of use.

“There are too many cross cuttings issues in infrastructural framework. It is very highly likely that the Port Harcourt Refinery may not resume operations,” he said.

He noted that there is huge local add-on cost to a litre of petroleum products owing to inefficient and unreliable infrastructural facilities to support movement of products.

Energy economist, Prof. Wunmi Iledare, stated that the coming on stream of the Kaduna Refinery and others was gratifying.

According to him, refineries are designed for a crude oil type and product yields, therefore, the Kaduna Refinery, being designed for a heavy crude type, would need import from Venezuela and Saudi Arabia for bitumen and heavy fuel, which are for industrial use.

“The current economic reality is inconsequential if PIA 2021 is implemented according to the intent of the law and not necessarily the letter of the law with subjectivity,” Iledare said.
According to him, road and pipeline infrastructure will be a major challenge for the coming on stream of the Port Harcourt Refinery.
“I have a strong disposition to believe there are ongoing efforts to rehabilitate the roads and pipeline infrastructure to facilitate products distribution. There just has to be a credible plan to do just that if value is to be created from the refinery rehabilitation investments,” Iledare said.

Former President of the Chartered Institute of Bankers of Nigeria (CIBN) and Professor of Economics at Babcock University, Segun Ajibola, is worried over sustainability of supply to Kaduna Refinery and the profitability if the import should keep coming from Saudi Arabia or Venezuela.

The cost of production, according to him, may become unrealistic, thereby, impacting the sale at the pump.

He said that though the prevailing situation might push private refiners to import, the ability of NNPCL to effectively and efficiently manage such an arrangement is important.

Ajibola said: “I would have thought that a more sustainable strategy is to find solutions to the recurring challenges militating against crude oil production in the Niger Delta. I believe Nigeria has enough oil reserves. The time is ripe for a holistic approach to resolving the multiple challenges limiting oil-drilling operations in especially the Niger Delta. This may be a more enduring solution rather than a stop gap measure of crude imports.”

The expert also expressed worry over the planned coming on stream of the Port Harcourt Refinery, saying pipeline and roads have strong impact on lifting of products from the refinery.

Other experts also concurred that the state of the road from the refinery may stall evacuation of products from the facility.

Although Reynolds Construction Company (RCC) was seen on site last week working on the Eleme section of the East-West road, near the facility, it might take more than a year to make the road motorable again.

Communities are already being thrown into panic over the development, as they fear possible explosion of NNPC product pipeline or tankers.

In the face of huge subsidy payment that drained the country’s foreign exchange and sparked exchange rate problem to record worst, President Bola Tinubu, who had deregulated the downstream petroleum sector, announced that Port Harcourt Refinery would resume operation by next month.

For over six days, NNPCL spokesperson, Iyabo Abayomi-Ojo could not provide information on the exact plan of the corporation to ensure evacuation of refined products from the refinery.

The Kaduna Refinery was designed to refine heavy crude, primarily from Venezuela and Saudi Arabia. The declaration by the Group Chief Executive Director of NNPCL, Mele Kyari and the Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, that the facility, being rehabilitated along with other assets for $2.2 billion would start work next year, is an indication that the state oil firm would have to import crude oil for its operation.

Abayomi-Ojo could not make clarifications on the planned importation, which could see the NNPCL transporting the crude with tankers from Lagos to Kaduna in the face of pipeline challenges.

Last month, after being accused of secretly awarding contracts to some northern companies, the NNPCL disclosed that some 16 companies were offered contracts to rehabilitate the pipelines. Oilserve Ltd, Chu Kong Steel Pipe Group Company Ltd, and Saudi Crown Oilserve, are to handle LOT one. LOT two is to be handled by MacReady Oil and Gas Services, COBRA Instalicios S.A, Control Y Montajes Industriales & International De Pipelines, Iron Products Industries Ltd, Batelitwin Global Services Ltd, BauenEmpresaConstructora SAU, Sanderton Energy Ltd and The Spanish National Association of Manufacturers. LOT three is to be handled by A A Rano, Zakhem Construction Nigeria, Bablinks Resources Ltd, and VAE Controls S.R.O. LOT four would be handled by MRS Oil and Gas, and CPPE Nigeria Ltd. The contracts are to be executed on Build, Operate and Transfer (BOT) agreements, as selected partners are to finance the rehabilitation. NNPCL was silent on the cost of the jobs, timeline for completion and how long the companies would operate the assets.

A pipeline expert, Osaro Gomba, told The Guardian in Eleme that there was no sign that product pipeline from the Eleme refinery was being repaired.

He warned that with the pipeline already facing serious integrity problems, the NNPCL could ignite serious explosion if products are transported through the pipeline.

The National President of Nigerian Association of Road Transport Owners (NARTO), Yusuf Othman, expressed worry over what he called persistent distribution challenges owing to bad road network and cost of diesel, while the Heavy Truck section of the National Union of Road Transport Workers within the South South, Southeast corridors comprising 11 states lamented that hauling products out of the region had remained a mirage.

Also lamenting the worsening state of road within the regions, especially Port-Harcourt into Benin, Benin into Okene in Kogi State, Calabar into Taraba and Enugu into Otukpo in Benue State, the Chairman of NURTW Monitoring Committee (South-South/South-East Heavy Truck), Muhammed Giwa, said over 15 members of the union had been kidnapped in the last few months by gunmen and that the group loses N194.4 billion yearly to illegal and multiple tax collectors.