Kaduna, Dangote, BUA Refineries Consider Foreign Crude Sources

New Horizons for Nigerian Refineries Amidst Domestic Production Challenges

by Adenike Adeodun

The Nigerian National Petroleum Company Limited (NNPCL) plans a significant change. It aims to import 110,000 barrels of crude oil daily from Venezuela or Saudi Arabia. This move will support the upcoming operations of the Kaduna refinery next year.

This strategy isn’t just for NNPCL. Dangote, Bua, and other refineries might also import about 1.322 million barrels daily. The reason? Nigeria’s oil production faces challenges. Existing crude oil swap contracts and other commercial issues further complicate matters.

The Dangote Refinery, capable of refining 650,000 barrels daily, already depends on imported crude. The South-South region’s Bua refinery will need about 200,000 barrels per day starting next year. NNPCL also aims to restart its 445,000 barrels per day refineries soon. Modular refineries in the country will require an additional 27,000 barrels per day.

Nigeria’s struggle to sustain crude production is evident. The country is short of 113.52 million barrels to meet its OPEC quota. This gap has cost about $8.9 billion in the first seven months of 2023.

While Nigeria should produce about 1.742 million barrels per day as per OPEC, it’s only managing about 1.1 million barrels. NNPCL’s existing commitments and a recent $3 billion loan from Afreximbank significantly reduce the local market’s crude volume.

The Nigerian Upstream Regulatory Commission enforces the Domestic Crude Supply Obligation (DCSO) under the Petroleum Industry Act (PIA). This move ensures refineries get a steady crude supply. Despite the risk of fines and export permit denials, producers are cautious. They’re concerned about logistics and data safety with NUPRC. They also need assurance of payment in dollars for crude oil.

Energy expert Dan Kunle predicts NNPCL-owned refineries might import crude next year. Poor local production investment is a key factor. “The industry will shape up once private investors take over the assets,” Kunle said.

According to a report by The Guardian, He also pointed out the weak state of the country’s product pipelines. “The Port Harcourt Refinery may not resume operations,” he added.

Energy economist Prof. Wunmi Iledare finds the revival of Kaduna Refinery and others gratifying. “Refineries need specific types of crude. Kaduna Refinery, designed for heavy crude, requires imports for industrial use,” Iledare explained.

Segun Ajibola, former CIBN President, expressed concerns about supply sustainability to Kaduna Refinery. “Crude imports from Saudi Arabia or Venezuela may make production costs unrealistic,” he said. He suggests resolving issues in the Niger Delta to ensure a stable oil supply.

Road and pipeline infrastructure will challenge the Port Harcourt Refinery’s operations. Despite recent work on the Eleme section of the East-West Road, concerns about product evacuation persist.

Communities fear potential explosions from NNPC product pipelines or tankers. President Bola Tinubu’s recent announcement about the refinery’s resumption adds to these complexities.

NNPCL spokesperson Iyabo Abayomi-Ojo did not clarify plans for product evacuation. Last month, NNPCL awarded contracts for pipeline rehabilitation, but timelines and costs remain unclear.

In conclusion, NNPCL’s consideration of importing crude oil marks a pivotal shift in Nigeria’s oil sector strategy. This approach reflects the broader challenges in domestic production and infrastructure.

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