Gradual shift to becoming West Africa’s refinery hub

At present, it looks like a huge joke but the potential is there. Nigeria has been pushing to refurbish its crumbling refineries, as the country is still largely dependent on imported refined petroleum products. The country has been seeking new investments to reduce reliance on imported oil products that consume a large portion of its scarce foreign currency reserves, especially with oil prices low.

Nigeria ranks as the 3rd highest importer of petroleum products in Africa, importing over 80 percent of products consumed. Ibe Kachikwu, Nigeria’s minister of state for petroleum, recently said its existing, ageing refineries have a daily domestic refining capacity of 6 million litres, while the daily consumption stands at 35 million.

Akin Akinfemiwa, chief executive, Forte Oil, during plenary session in the just concluded Society of Petroleum Engineers Nigeria International Conference and Exhibition (SPENAICE2017) in Lagos said “using about 50 percent of our foreign exchange earnings to import petroleum products denies the country the benefits it ought to make in bust period of low price, stripping the country the money it ought to invest in infrastructure”.

“We are aggressively pursuing M&A opportunities along the energy value chain,” Akinfemiwa said.

In May, Oando Plc said it was in talks to work with Italian energy company Eni to rehabilitate the Port Harcourt refinery, one of the nation’s four refineries. Also, Africa’s richest man Aliko Dangote is building a-$17 billion oil refinery with a capacity of around 650,000 barrels a day, planned to start operation by 2019. In addition, the federal government also said it will legalise currently outlawed mini-refineries in its Niger-Delta oil hub by the end of the year and supply them with crude at reasonable price, a move which could boost local refining.

All these point towards gradual shift as the emerging refining hub for the West Africa sub-region, an aspiration which could help wean Nigeria from vagaries of the volatility of the global oil prices.

According to a PwC report, by 2019, Nigeria could become Africa’s 3rd largest refiner of petroleum products and a net exporter of refined petroleum products. Its exports are estimated to exceed 37,000 bpd (approximately 6 million litres daily). Nigeria could also become West Africa’s refining hub by 2019, supplying the region with at least 37,000 bpd (approximately 6 million litres daily). By 2026, Nigeria’s exports to the region could also exceed 130,000 bpd (approximately 21 million litres daily), reducing the region’s imports from US and Europe by approximately 80 percent.

Despite recent news about countries setting targets to move fully towards adoption of electric cars, the world is still expected to continue to run primarily on fossil fuels to supply its energy in the near to medium term. Thus, aiming to become a sub-regional refining hub would add value to Nigeria’s petroleum sector.

At present, booming refinery profits are helping West African oil producers sell cargoes quickly, aided by a shortage in certain types of crude amid OPEC production cuts and Venezuelan troubles.

A fight for sour crude has helped keep Angolan oil in high demand and now, even long-suffering Nigerian grades are finding keen buyers in the United States and Asia as refineries run full steam on strong margins.

A cut in Venezuela’s supply of heavy crude to US refiner Phillips 66, in part due to quality problems, is helping to send more Angolan oil west. Angola, while participating in output cuts organised by the Organization of the Petroleum Exporting Countries, is benefitting from lower Saudi exports.

Competition among buyers has boosted offers for Nigeria’s Forcados to as much as $1.70 above dated Brent, while offer levels climbed for nearly all other grades. The cargoes are also selling smoothly, in contrast to recent months in which they lingered well after the programmes were issued.

But Akinfemiwa says Nigeria could enjoy the real cost of petroleum products as a result of the current glut if the shift to in-country refining was realized much earlier.

FRANK UZUEGBUNAM