Special Focus: High Energy Cost and the need for domestic crude oil refining in Nigeria–MAN

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Inadequacy and high cost of Energy have been identified by manufacturers as the core challenges of manufacturing operations in the country.

Nigeria has over 200 million people and a huge productive sector that are energy-dependent, but electricity distributed in the country has been a mere 4000MW. This explains the reason in the various Manufacturers CEO Confidence Index (MCCI) reports, poor supply of electricity has been continuously ranked among the top challenges of the sector.

In addition, the energy challenges are variously represented as the cause for the poor competitiveness of the economy and manufacturing sector.

Nigeria is natural endowed with hydro-carbon with oil reserves of about 37 billion barrels in 2021 and gas reserves of about 5.8 trillion cubic meter. Unfortunately,  it has failed to exploit these resources to the benefit of the economy.

As a member of the Organization of Petroleum Exporting countries (OPEC), production of crude has continuously fallen below PEC quota for country due to gross inefficiency in the management of the oil sector. Of the 1.8 million barrels quota for Nigeria, the country has not been able to export beyond 1.3 million barrels even it has been officially admitted that this crude oil theft going on in the creeks.

In addition, Nigeria has four national refineries: Port Harcourt Refinery1 built in 1965 with a capacity to refine 60,000 barrel per day (bpd); Port Harcourt 2 was built in 1989 with a capacity of 150,000 bpd; Kaduna Refinery & Petrochemical was commissioned in 1980 and fully expanded in1986 with a capacity of 110,000 bpd; and Warri Refinery & Petrochemical was commissioned in 1988 with a capacity of 125,000 bpd. This bring the total joint refining capacity of the four national refineries to 445,000 bpd.

The refineries are designed to refine crude oil into Liquified Petroleum Gas, PMS, AGO, DPK, Jet A1, Fuel Oil, Sulphur, Bitumen and waxes which are needed to drive the economy and the industrial sector. Unfortunately, since the refineries were run down, access to these products are heavily import dependent notwithstanding the associated high cost and inconveniences. Unfortunately, these refineries are made moribund for preference of importation of refined products at exorbitant costs interlocked with the controversial Fuel subsidy scheme by inefficient management.

Consequently, the country has been locked up in an unbridled importation of refined petroleum products such as PMS, AGO, DPK, Aviation Fuel and many more Today the price of PMS varies across filling station; a litre of AGO is sold at about N800; DPK is sold at aver N750 per litre; and so are the prices other fuels, oil and gas.

Interestingly, it will be out of place for any individual that claim that the refineries are not working because they are old. There are refineries across the world that are older than even PH1 (1965, which are still functioning t ill date.

A very good example is the Singaporean 500,000 capacity Shell Palau Bukom refinery which was built in 1961 and is still active today. There is the need for a wake-up call to resuscitate the national refineries. Nigeria is about the only OPEC rank that imports refined petroleum products. India, Nigeria biggest crude oil trade partner has no hydro-carbon, built the largest refinery in the World, the Jamnagar with 1240000 refining capacity per day.

Observation across the African continental shows that Egypt is 6th largest crude oil producer in Africa, while Nigeria is 3rd behind Algeria (1st) and Angola (2nd) in the last quarters of 2022. However, Egypt is the biggest crude oil refiner in Africa with 12 operational refineries, covering over 65% of local demand, while Operators in the electricity value chain include seven electricity generating companies, a government-owned transmission company, and 10 electricity distribution companies.

Today, Egypt has installed capacity of about 55000MW with an electricity energy export valued at $8.1 billion between in July 2019. Consequently, to resuscitate domestic refining and improve energy situation in Nigeria, the following recommendation are critical.

  • Review the current status of the four national refineries to determine their current true state.
  • Commission the CHIYODA Group, the Japanese company that built the national refineries to rehabilitate them to resume domestic refining.
  • Review the Nigerian energy policy and ensures available energy sources, particularly natural gas is optimally explored and exploited.
  • Create functional incentive to attract private sector investment in gas aggregation to end the current gas flaring.
  • Create incentive to resuscitate private sector investment in the petrochemical industry.
  • Improve the capital expenditure on the energy sector for greater public investment in energy development • Carry out and utilize the outcome, the Egypt’s energy development strategy

 

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