Kaduna, Dangote, and BUA refineries might import crude oil.

NNPCL, the Nigerian National Petroleum Company, may commence daily crude oil imports of 110,000 barrels from Saudi Arabia or Venezuela in order to operate the Kaduna Refinery, which is scheduled to begin operations the following year.

The Guardian reports that current contracts on crude oil swaps, oil production difficulties in Nigeria, and other commercial concerns could force refineries such as Dangote, Bua, and others to import an additional 1,322 million barrels of crude oil daily.

At present, the Dangote Refinery, boasting a refining capacity of 650,000 barrels per day, is dependent on imported petroleum. Conversely, the Bua Refinery situated in the South South region anticipates a daily crude oil demand of approximately 200,000 barrels beginning next year. Additionally, between next month and next year, NNPCL plans to recommence operations at its refineries, which produce 445,000 barrels per day. In contrast, the current modular refineries will only need 27,000 barrels per day.

It has been difficult for Nigeria to maintain its crude oil output. At present, the nation is 113.52 million barrels short of achieving its output quota as mandated by the Organisation of Petroleum Exporting Countries (OPEC). The aforementioned deficit amounts to approximately $8.9 billion during the initial seven months of 2023.

Nigeria is assigned an OPEC production quota of approximately 1.742 million barrels per day; however, data from the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) indicates that the country’s average daily output has been around 1.1 million barrels.

The NNPCL presently has contractual obligations to supply contractors with crude oil. However, due to its recent financing of $3 billion from Afreximbank, the national oil company’s capacity to supply crude to the local market would be significantly diminished.

In an effort to enforce Section 109 of the Petroleum Industry Act (PIA), which imposed the Domestic Crude Supply Obligation (DCSO) on Nigeria’s oil industry to prevent domestic refineries from going without crude oil, the Nigerian Upstream Regulatory Commission is presently dragging oil producers along.

Despite the regulator’s threats of a $10,000 fine, 50% of their fiscal price per barrel of un delivered crude oil to refineries, and denial of export permits, numerous crude oil producers are apprehensive about the commercial complications that could arise from such a transaction.

They are concerned about the security of their data and the logistics of the supply chain with NUPRC.

They further stated that refiners must persuade the off-takers that they have the financial means to purchase crude oil in a sustainable manner. In addition, the majority of producers are divesting due to theft of petroleum oil, insecurity in the Niger Delta region, and other issues that plague the oil and gas industry.

Prominent energy expert Dan Kunle stated that importation of crude oil for NNPCL-owned refineries is not ruled out for the upcoming year due to the fact that inadequate investment is impeding daily local production.

“The continued ownership of controlling shares by the federal government in all petroleum companies in Nigeria will ensure the absence of crude oil and gas.” “The industry will take shape once the assets are transferred to private sector investors,” Kunle said.

He made reference to the fact that the nation’s product pipelines are extremely brittle and obsolete.

“Too many cross-cutting issues exist within the infrastructure framework.” “The resumption of operations at the Port Harcourt Refinery is extremely unlikely,” he stated.

He remarked that a litre of petroleum products incurs astronomical local surcharges due to inadequate and unreliable infrastructure facilities that facilitate product movement.

Prof. Wunmi Iledare, an energy economist, expressed satisfaction regarding the commencement of operations at the Kaduna Refinery and other facilities.

As he asserts, refineries are specifically engineered to process particular types of crude oil and produce particular grades of fuel. Consequently, the Kaduna Refinery, which is intended to process heavy crude oil, would be obligated to import bitumen and heavy fuel from Venezuela and Saudi Arabia for industrial purposes.

“If PIA 2021 is implemented in accordance with the intent of the law and not necessarily the letter of the law with subjectivity, the current economic reality is inconsequential,” Iledare stated.

Road and pipeline infrastructure, as per his assertion, will constitute a significant obstacle in the way of the Port Harcourt Refinery’s imminent operations.

“I am convinced that there are persistent endeavours underway to restore the pipeline and road infrastructure in order to facilitate the distribution of products.” In order for refinery rehabilitation investments to generate value, Iledare stated that a credible strategy must exist to achieve this objective.

Segun Ajibola, a former president of the Chartered Institute of Bankers of Nigeria (CIBN) and a professor of economics at Babcock University, is concerned about the profitability and sustainability of Kaduna Refinery’s supply if it continues to import from Saudi Arabia or Venezuela.

He posits that the production costs could potentially become unattainable, consequently affecting the volume of sales at the pump.

He stated that while the current state of affairs may force private refiners to import, NNPCL’s capacity to administer such an arrangement effectively and efficiently is crucial.

Ajibola remarked, “One might assume that a more sustainable approach would be to devise resolutions for the persistent obstacles that impede crude oil extraction in the Niger Delta. It is my belief that Nigeria possesses sufficient hydrocarbon reserves. There is a pressing need for a comprehensive strategy to address the various obstacles that impede oil extraction activities, with a particular focus on the Niger Delta. This approach has the potential to be a more sustainable resolution in comparison to a stopgap measure for petroleum imports.

The expert was also concerned about the Port Harcourt Refinery’s imminent operations, stating that pipelines and roadways have a significant impact on the transportation of products from the refinery.

Other authorities agreed that the condition of the road leading to the refinery could potentially impede the timely removal of goods from the establishment.

It could take longer than a year to restore motorway access to the Eleme segment of the East-West road, close to the facility, despite the fact that Reynolds Construction Company (RCC) was observed on the job site last week.

Already, the development is inducing hysteria in the communities, which are terrified of the possibility that NNPC product pipelines or tankers will explode.

Bola Tinubu, who had deregulated the downstream petroleum sector, declared that the Port Harcourt Refinery would recommence operations the following month, in response to a massive subsidy payment that depleted the country’s foreign exchange and triggered an exchange rate crisis at an all-time high.

Iyabo Abayomi-Ojo, a spokesperson for NNPCL, was unable to provide details regarding the corporation’s precise evacuation strategy for refined products from the refinery for more than six days.

The principal origins of heavy crude refined at the Kaduna Refinery were Venezuelan and Saudi Arabian. The announcements made by Heineken Lokpobiri, the Minister of State for Petroleum Resources (Oil), and Mele Kyari, the Group Chief Executive Director of NNPCL, that the rehabilitated facility and other assets, valued at $2.2 billion, will commence operations the following year, suggest that the state oil company will be reliant on crude oil imports to function.

Abayomi-Ojo was unable to provide further details regarding the proposed importation, which may necessitate the NNPCL utilising tankers to convey the petroleum from Lagos to Kaduna due to pipeline complications.

The NNPCL emerged from allegations of clandestinely awarding contracts to northern companies last month by admitting that contracts for pipeline rehabilitation had been extended to approximately sixteen companies. LOT one will be managed by Oilserve Ltd, Chu Kong Steel Pipe Group Company Ltd, and Saudi Crown Oilserve. The Spanish National Association of Manufacturers, MacReady Oil and Gas Services, COBRA Instalicios S.A, Control Y Montajes Industriales & International De Pipelines, BauenEmpresaConstructora SAU, Batelitwin Global Services Ltd, Sanderton Energy Ltd, and Iron Products Industries Ltd are tasked with managing LOT two. A.A. Rano, Zakhem Construction Nigeria, Bablinks Resources Ltd., and VAE Controls S.R.O. are tasked with managing LOT 3. Lot four would be under the management of CPPE Nigeria Ltd. and MRS Oil and Gas. The contracts are to be implemented under Build, Operate, and Transfer (BOT) arrangements, given that the rehabilitation will be financed by specific partners. NNPCL refrained from providing information regarding the job costs, completion schedule, or the duration of asset operation by the companies.

Osaro Gomba, an authority on pipelines, informed our correspondent in Eleme that there were no indications that the refinery’s product pipeline was undergoing maintenance.

He warned that if products are transported through the pipeline, the NNPCL could cause a catastrophic detonation, given that the pipeline is already beset by severe integrity issues.

Yusuf Othman, the National President of the Nigerian Association of Road Transport Owners (NARTO), lamented that hauling products out of the region remained a pipe dream. The Heavy Truck section of the National Union of Road Transport Workers in the South South, Southeast corridors, which consists of eleven states, shared Othman’s apprehension regarding the persistent distribution challenges he attributes to the poor road network and diesel price.

The Chairman of the NURTW Monitoring Committee (South-South/South-East Heavy Truck), Muhammed Giwa, also expressed concern over the deteriorating road conditions in the regions, specifically from Port-Harcourt to Benin, Benin to Okene in Kogi State, Calabar to Taraba, and Enugu to Otukpo in Benue State. Giwa further revealed that more than fifteen union members have been abducted by gunmen in recent months, and that the organisation annually loses N194.4 billion to illicit and multiple tax collectors.