• Lack of supply to Dangote shameful, says FG, minister blames low production
The failure to supply crude oil to domestic refineries, including the multi-billion dollar Dangote Refinery, has stalled the production of refined petroleum products at the facilities.
This is also as the 650,000 barrels per day Dangote refinery in Lagos missed the October production projection it had earlier set.
The October production target miss made it the second time in 2023 that Dangote Refinery would raise hopes of Africa, especially Nigeria, of a possible end to petrol importation. However, the failure to begin production means that Nigeria will continue to rely on fuel importation.
It was gathered on Wednesday that amid Nigeria’s continued imports of refined petroleum products, its domestic refineries that would have helped refine the commodities were being starved of crude oil.
About five more modular refineries are ready to commence the production of refined petroleum products but cannot produce the commodities because of the unavailability of crude oil, according to industry sources.
Also, industry sources stated that the Dangote Refinery in Lekki, Lagos, had yet to receive the required volumes of crude oil needed to produce refined products.
On September 20, 2023, The PUNCH reported that the Dangote Petroleum Refinery was importing crude oil and expected its first cargo in about two weeks, according to the Executive Director, Dangote Group, Devakumar Edwin.
The report stated that though the Nigerian National Petroleum Company Limited trades crude oil on behalf of Nigeria, in an interview with S&P Global Commodity Insights at the time, Edwin revealed that the NNPCL had committed its crude to other entities.
The Dangote refinery boss did not disclose the other entities receiving the oil company’s crude, but the NNPCL had earlier disclosed in August that it had entered into a $3bn crude oil-for-loan deal with African Export-Import Bank.
The deal allowed the company to pledge future oil production to the bank as repayments for the loan.
Also, Edwin pointed out that the importation of crude by the Dangote refinery was temporary, as the firm would receive supply from NNPCL from November.
Edwin went ahead to state that the firm would begin the production of up to 370,000 barrels per day of crude that would give rise to Automotive Gas Oil, popularly called diesel, and jet fuel in October 2023.
For petrol, the Dangote Group’s boss said the plant would produce it by November 30, 2023.
He said, “Right now, we are ready to receive crude. We are just waiting for the first vessel. And so as soon as it comes in, we can start.”
However, despite the promise to begin production in October, there seemed to be no traces of diesel refining from the facility in October.
The facility was initially billed to begin refining in August, as announced by the President of Dangote Group, Aliko Dangote, at the inauguration of the Ibeju-Lekki facility in May.
“Your excellencies, distinguished guests, our first product will be in the market before the end of July or beginning of August this year,” Dangote had said.
However, it was gathered on Wednesday that the crude oil supply situation to the plant had not improved, as the NNPCL was still finding it tough to provide the crude oil required for the Dangote refinery to commence the production of refined products.
Sources at the Nigerian Upstream Petroleum Regulatory Commission and Federal Ministry of Petroleum Resources confirmed this in Abuja on Wednesday.
“Officials from the Dangote Refinery visited the NUPRC recently to complain about the lack of crude oil required by the plant and why it would be odd for the company to be importing crude when Nigeria produces the commodity,” one of the sources, who pleaded not to be named due to lack of authorisation, stated.
Efforts to get the reaction of the Dangote refinery were unsuccessful, as two spokespersons for the firm did not answer calls to their mobile phones. They also did not respond to text messages sent to them on the matter.
Although the Federal Government blamed the development on Nigeria’s low oil output, operators of domestic refineries raised concerns about the lack of feedstock (crude) for their refineries and how this was stalling the take-off of these plants.
Operators of the modular refineries confirmed on Wednesday that International Oil Companies preferred exporting the commodity to earn dollars, to the detriment of domestic refiners.
The NUPRC had on Saturday announced that more domestic refineries had issued notice to commence the production of refined petroleum products.
It also announced its readiness to enforce domestic crude oil supply obligations that would ensure the availability of crude to indigenous refiners.
Senior officials from the Federal Ministry of Petroleum Resources, the NUPRC, and the Crude Oil Refinery Owners Association of Nigeria further confirmed that the number of local refineries set to commence production was about five.
Modular refinery operators under the aegis of CORAN revealed that feedstock supply had remained a severe bottleneck.
They also told one of our correspondents that the three modular refineries currently in operation hardly have adequate volumes of crude.
CORAN is a registered association of modular and conventional refinery companies in Nigeria. Modular refineries are simplified refineries that require significantly less capital investment than traditional full-scale refineries.
Modular refineries ready
Confirming the readiness of domestic refineries, the Secretary of CORAN, Olusegun Ilori, said about five modular refineries were ready.
It was gathered that Aradel Holdings and OPAC modular refineries were among the plants ready to refine crude. Operators of the plants requested not to name their refineries at the moment.
Ilori stated, “We have a good number of our members that are ready to produce refined petroleum products, but the major problem limiting them, which is stopping their financiers, is the issue of guaranteed feedstock.
“That is, where are they going to get crude oil to refine? The Petroleum Industry Act has come, and it states that there must be a domestic supply of crude for those who want to refine.
“As I speak with you, we have about five or six more companies coming onboard and are ready to begin production. This is aside from the four modular refineries that are already producing. The four of them are facing a limited supply of crude,” Ilori stated.
Duport Edo Refinery, Walter Smith Refinery, and Niger Delta Refinery are among the modular refineries that are currently in operation. The facilities produce diesel but in limited volumes due to inadequate feedstock.
On why domestic refineries were being starved of crude, Ilori said, “It is because many of those producing the crude want to export it to earn dollars. Also, Nigeria still needs to meet the crude oil production quota approved by OPEC for export.
“So most crude oil producers don’t want to sell to local refiners because some are owing banks and have projected how to export the commodity to clear their debts.”
He however said, “There is a circular from the NUPRC that is now being distributed to oil companies, mandating crude oil production firms to give domestic refineries a particular percentage for local refining.”
This was earlier confirmed by the NUPRC on Saturday when it stated that it was taking steps to ensure the provision of crude oil to domestic refineries.
“As more private refineries indicate readiness to commence production soon in Nigeria, the NUPRC is taking all the necessary steps within the prescriptions of the Petroleum Industry Act (2021) to ensure adequate and consistent supply of feedstock to operators,” the regulator stated, as it cautioned that there would be consequences for sabotaging the process.
Low production
The Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, also confirmed the lack of crude to domestic refiners, noting that Nigeria’s inability to meet its crude oil production quota approved by the Organisation of Petroleum Exporting Countries was the major limiting factor.
The Organisation of Petroleum Exporting Countries in its World Oil Outlook, launched in Saudi Arabia this month, projected the establishment of new modular refineries in Nigeria would complement the Dangote refinery to lift crude oil sales in Africa.
The Outlook says Africa will see a medium-term distillation capacity of 1.2 million barrels daily due to the upcoming 650,000-capacity Dangote Refinery, which is projected to boost Nigeria’s capacity.
FG comments
In a voice note sent to one of our correspondents by the media aide to the petroleum minister (oil), on the issue, the minister confirmed that domestic refineries were not getting enough crude, but stated that the government was working hard to address this.
“Today, we have cases where we have modular refineries that can refine products, but they have no crude because our production is down. So if we don’t get the upstream right, the midstream and downstream will also not be successful.
“So all our efforts, first of all, should ensure that we resolve the problems bedevilling the upstream sector. Since we came, we have engaged the IOCs (international oil companies), and they told us their concerns.
“I’m sure you heard a short while ago when the IOCs, NNPCL, being coordinated by the Ministry of Petroleum and local content, signed an MoU that there should be timelines instead of allowing the contractual cycle in the sector to take forever.
“And so the era of doing something for two years, what could be done in one month, is gone. It is one of the innovations we have brought to the sector,” Lokpobiri stated.
He, however, noted that since the current administration came on board, “we are steadily increasing production.
“When we were sworn in, the President told me, ‘Lokpobiri, the sole mandate is to go and ensure that you grow our production.’
“And how do we grow our production? If we don’t grow our production, which is upstream, the midstream and downstream will also not be successful.”
The minister said efforts were being intensified to ensure that the modular refineries get crude oil and produce refined white products to keep the country wet.
Nigeria has been producing far below the about 1.8 million barrels per day of crude oil production approved by OPEC. For instance, figures from the NUPRC showed that Nigeria’s crude oil was 1.35mbpd in September 2023.
Findings showed that Nigeria’s crude oil production (excluding condensates) was precisely 1,346,562 barrels per day in September, higher than the 1,181,133 bpd produced in August.
Data from the NUPRC further indicated that in January, February and March, the country’s oil outputs were 1,266,659bpd, 1,292,240bpd, and 1,266,737bpd, respectively.
In April, May, June and July, Nigeria produced 1,004,392bpd; 1,189,332bpd; 1,260,928bpd; and 1,089,089bpd, respectively. All the above crude oil production figures showed that Nigeria’s output was still lower than the OPEC quota.
Marketers react
Meanwhile, oil marketers have kicked against the continued export of crude oil at the detriment of local refineries capable of producing refined petroleum products mainly diesel.
The marketers asked the Federal Government to provide crude to modular refineries to boost the local production of refined products, stressing that this would reduce the pump price of refined products when produced in large volumes domestically.
The National Public Relations Officer of the Independent Petroleum Marketers Association of Nigeria, Chinedu Ukadike, said the emergence of functional modular refineries was long overdue.
He told our correspondent that it was saddening to realise that modular refineries were being starved of crude oil by IOCs and NNPCL, while the crude oil producers exported the commodity.
“What is stopping the government from giving modular refineries’ operators the required support to reduce our continued dependence on imported petroleum products? You cannot continue to starve our domestic refineries because you want dollars through crude oil export.
“The emergence of functional modular refineries in their numbers in Nigeria is long overdue. We cannot continue to import products when we can build or have modular refineries to help refine some of our crude oil. Now the subsidy on petrol has been reduced, let the modular refineries work.
“We know that subsidies also contributed to their inability to come on stream as required. Now that it is reduced, we expect the government to also give them the required support by supplying them with crude oil so that many of them can start the refining process in the nearest future,” Ukadike stated.
On whether modular refineries would still be viable in the face of the Dangote Refinery which is estimated to produce 650,000 barrels of crude daily, the Deputy Chairman, CORAN, Mrs Dolapo Kotun, replied in the affirmative in a chat with our correspondent.
“Modular refineries are very viable and essential in securing Nigeria’s energy needs now and in the future. They are localised in multiple sites in the Niger Delta area, and not just one location as is the case with the Dangote Refinery.
“Hence, these modular refineries will be able to immediately provide world-grade quality refined petroleum products to the local markets around their different refinery sites.
“Dangote’s capacity alone cannot meet Nigeria’s present refined products’ needs and we are not even sure when it will start producing even though it was ‘launched’,” Kotun stated.
She noted that even if the country was producing excess capacity, “Who says we cannot export the excess?
The goal of domestically refining our crude oil is not to just meet demand, but to eventually surpass present demand so that the surplus will make products affordable and Nigeria can also become an export hub for these products.”
Fuel importation
Nigeria has imported more than 5.52 billion litres of Premium Motor Spirit, popularly called petrol, since the removal of the PMS subsidy on May 30, 2023. This is despite the high foreign exchange crisis across the country.
In September this year, the Group Chief Executive Officer, NNPCL, Mele Kyari, said the demand for petrol dropped by 30 per cent after the subsidy on the commodity was removed.
He said Nigeria’s estimated fuel consumption dropped from 66.7 million litres daily during the subsidy period to about 46 million currently, implying that between June and September, Nigeria imported over 5.52 billion litres of PMS. https://punchng.com/crude-shortage-delays-dangote-refinery-five-others-take-off/?utm_source=telegram&utm_medium=social
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Business › Crude Shortage Delays Dangote Refinery, Five Others’ Take-off by Ikaeniyan0(op): 7:32am On Nov 02, 2023
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