Sopuruchi Onwuka

Propositions and actual projects that portend over 3.0 million barrels per day of local refining capacity may raise serious challenges to the nation’s fiscal and economic stability, given that the emerging refining boom may impose acute foreign exchange squeeze following the prevailing Naira for crude policy of the government.

With local demand for crude oil guarantees to outstrip total national production capacity and further outweighs government’s equity production from the upstream petroleum industry, concerns are high that the current foreign exchange squeeze would worsen with the Naira for crude policy.

President’s policy spinner, Mr Olu Verheijen

Whereas reactivation of the midstream and downstream petroleum industry has long been advocated as necessary for full optimization of resource value in terms of spurring industrialization, creating jobs and production of wider range of industrial and agricultural inputs from crude oil processing; the flip side remains that crude oil export remains Nigeria’s main foreign exchange earner.

Export of crude oil and natural gas, the two main petroleum exports commodities from the country, account for over 80 percent of the country’s forex income. It is also responsible for over 70 percent of total exports and over 90 percent of the country’s balance of payment.

With Dangote’s 650,000 barrels per day (650 kbd) and NNPC Limited’s 445 kbd refineries already in place; new refinery projects and propositions are calculated to post over 3.0 mbd of refining capacity in the short to medium term.

Dangote refinery

Some of the existing refineries and key refinery projects in the country include the 650,000 barrels per day (650 kbd) Dangote Refinery in Lekki, Lagos; the two plant Port Harcourt Refining Company (PHRC) Limited with total capacity of 210 kbd; the 125 kbd Warri Refinery and Petrochemical Company (WRPC) Limited; and the 110 kbd Kaduna Refining Company (KRC) Limited.

At its operated Ogbele crude oil and natural gas production site in Rivers State, Aradel Holdings also operates an onsite scalable refinery which is currently on irreversible growth movement. The refinery which started as a topping plant to strip distillates from crude oil for supply to the local market has now become a sizeable processing facility that promises to deliver some 3000 barrels per day of petrol as early as first quarter of 2026.

Company sources told our correspondent that the growth of the modular refinery would be sustained with more and more modules coming online drive calculated expansion programme by the company.

At Ibigwe oilfield in Imo State where it also operates a 5,000 barrels per day modular refinery, Waltersmith Petromann has committed to expand the plant to 40 kbd in the short to medium term. And company sources reveal that arrangements are advanced to ensure that the refinery continues to grow until it becomes a critical source of supply in the domestic fuel market.

New refinery projects and proposals in the country include a new 750 kbd refining plant that would redefine the Dangote Refinery as one of the largest in the world. When the new plant, which was announced by the company last month, comes online; Dangote Refinery would now flaunt total nameplate refining capacity of 1.4 mbd.

There is also the 200 kbd greenfield BUA Refinery which has reached critical project stages. The refinery which is located in Akwa Ibom State also has plans for further expansion after the initial plant comes online.

In Ondo State, an international energy consortium hosting Backbone Infrastructure Nigeria Limited and NEFEX Holdings plans to build a 500 kbd refinery. According to the companies, the proposed refinery would also host key downstream infrastructure and facilities including storage tank farms.

Oracle Intelligence reports that there is a plethora of smaller modular refining projects planned across oilfields in the Niger Delta. Whereas most of the refineries are necessary operating exigencies for stranded oilfields with no contiguous production evacuation pipelines, others are independent investments that take mutual advantage of stranded production sites to gain access to crude supply.

Some of the modular refining plants include the Edo Refinery & Petrochemical Company (ERPC), OPAC Refinery, Duport Midstream Refinery, and multiple modular refining projects driven by HSI Energies.

The Group CEO of HSI Energies, Engr Chike Nwosu, stated that the company and its partners would replicate a model of refinery-based industrial parks that also harnesses flare gas for power generation.

Our review of existing refineries, current refinery projects and approved refining licenses show that Nigeria is underway to host a myriad of variegated crude oil and condensate refining plants soon. And the cumulative plant capacity arising from the projects present a huge feedstock demand profile that far outstrips Nigeria’s total equity crude oil take from the operations of the industry.

It would be pointed out here that Nigeria’s upstream petroleum industry is predominantly operated by private exploration and production companies who are either in production sharing agreement or in joint venture with the NNPC Limited which represents national interest in the operated ventures.

The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) represents government in other special upstream operations, including sole risk ventures.

The visible challenge therefore is that Nigeria’s upstream sector cannot keep pace with this new demand.

And within the period of the imminent refining boom, the NUPRC which administers the nation’s oil prospecting and mining licenses estimates total country crude output to jump from current 1.75 mbd to about 2.5 mbd.

Even at that level, supply will still fall short of refinery demand by at least 500,000 barrels per day. And if the presidential directive on domestic crude supply obligation is limited to its equity crude through NNPC Limited, and tax oil and royalty oil through the NUPRC, then the gap becomes even wider.

Already, operating companies have indicated unwillingness to commit to domestic crude supply obligations. Most of them argue that such a directive was never part of the PSA and JV agreements that formed the bases for their licenses and investment decisions which were approved by both the NNPC Limited as government partner and the NUPRC as industry regulator.

Mostly international oil companies operating in the country tie in their equity production from Nigeria into their global supply commitment to client with which they hold binding sales and supply agreements.

One of the companies told our correspondent that their equity productions from global operations are tied to crude sales and supply agreements right from field development plans and final investment decisions.

“You can’t put money on the table without knowing how you will make returns. FID means that you have worked your commercial plans and are clear on how the market returns the investment plus margins,” one of them declared at a recent conference hosted in Lagos by Association of Energy Correspondents of Nigeria (NAEC).

Mainly indigenous independent companies point at their existing dollar denominated debt stock as the major reason why the Naira denominated domestic supply obligation pose existential threat.

It would be recalled that most if not all the indigenous companies in the upstream petroleum industry entered the industry through divestment of mature fields by international oil companies.

The scramble among indigenous companies to acquire assets during the divestment programmes by the IOCs compelled them to mobilize huge dollar denominated debt funds to close the acquisition delas. And poor performance of the loans has begun to create friction between the indigenous operating companies and some local banks which are beginning to deploy hostile recovery measures.

So, whereas the international oil companies point at their subsisting sales and supply obligations as the core reason for reject the domestic crude supply obligation, the indigenous companies make it clear that they are exposed to dollar denominated debts.

While the domestic crude supply obligation is closely tied to the Naira for crude directive of the government, the implementation beyond the scope of influence of the NNPC Limited and the NUPRC remains contentious and largely voluntary.

Oracle Intelligence analysts also concluded at the weekend that impending crude supply gaps that would arise from sharp rise in local refining capacity would inevitably weaken the role of the petroleum industry in the country’s external trade, foreign exchange earnings and balance of payments.

The emerging scenario would not only absorb the nation’s total crude oil production volumes for internal refining; it would also drain the country’s export capacity, worsen prevailing negative balance of payment, and ultimately drain the country’s foreign exchange reserves by importing crude oil to meet local feedstock demand.

Already, a presidential directive on the Nigerian National Petroleum Company (NNPC) Limited to sell crude oil to domestic refineries in the local Naira currently is envisaged to limit the capacity of the national oil company to make optimum forex returns from the international oil market into the economy.

There are unassailable arguments that emphasize other economic benefits of transforming the domestic economy from crude oil export to product export income earner with the added advantage of spurring industrialization, creating jobs and boosting balance of payments.

Whereas the proponents of domestic supply obligation and Naira for crude continuously point at paltry exports posted by the Dangote Refinery in recent times as examples of what to expect from a robust domestic refining capacity, other analysts including players in the upstream industry count the costs.

In few realities stand out. Private capital is not publicly distributable. Profits of private companies are not available for social services and infrastructural development.

Thus, the presidential directive ordering NNPC Limited to sell crude to local refiners in Naira weakens the company’s ability to generate foreign exchange. Less forex from crude sales means fewer resources for government, more pressure on the currency, and a harder fight against inflation. The private refineries, on the other hand, gain steady crude supplies at preferential terms while exporting finished products at global prices. They keep the margins. The public bears the consequences.

Supporters of the domestic supply rule say refined product exports will one day replace crude exports as a major earner. That may happen eventually, but the transition must be managed carefully. Conceding government’s foreign exchange revenue to enhance profitability of private businesses weakens the local economy and spins the inflationary wheels.

Right now, the structure is tilted. Public revenue is being traded for private gain. National forex stability is being weakened so private refineries can secure feedstock. And policymakers are narrowing the country’s export base at a time when the economy is already struggling.

If domestic supply obligations are to serve the public good, they must reflect commercial reality. Prices must be negotiated, not imposed. Producers must be free to sell under a willing buyer willing seller system that protects their contracts and protects national forex flow. Without this balance, Nigeria risks building a refining boom that enriches private operators while draining the country’s foreign exchange lifeline and leaving the public to absorb the fallout.