The drop In Crude Production Dampens The Prospects For Local Refining


As labor organizations and fellow Nigerians aim to revive extensive local oil refining, the reality of declining oil production is becoming more apparent as the Dangote Refinery approaches its commencement of operations.

The Port Harcourt refinery, set to begin operations later this year, will also encounter familiar challenges such as crude theft, pipeline vandalism, and illegal product exports, all of which pose a threat to increasing the country's oil output.

The Dangote Refinery, a privately owned facility that has faced delays due to political interference, swamp clearance, and other crucial projects, is anticipated to start operating next month.

Once it reaches its planned capacity of 650,000 barrels per day, the refinery will enable Nigeria to become self-sufficient in fuel production and have a surplus for export. Presently, Africa's largest producer imports all refined products, which depletes its foreign exchange reserves. However, due to delays and cost overruns, there have been doubts about whether Aliko Dangote, Africa's wealthiest individual, would ever complete this project.

Given the challenges of crude theft, rising inflation, and a concerning foreign exchange crisis, the country is expected to increase oil production in the near future with these developments.

Analysts argue that the federal government, national and international oil corporations, and local communities should engage in a dialogue to address the impact of crude theft and sabotage on the economy.

Muyiwa Adekoya, an energy professional, suggests that the government should appoint a special envoy to meet with local interest groups and explain the government's current predicament, proposals, and requests related to the need for oil production recovery. Most of Nigeria's problems with oil shortages or production reductions result from pipeline, terminal, and installation sabotage, as well as crude theft for illegal export or refining, often carried out by local groups in the Niger Delta.

Adekoya emphasizes the necessity of a short-term agreement that ensures uninterrupted crude production while long-term solutions to socio-political issues are developed. Forceful approaches to these interest groups are no longer viable; instead, there must be a serious dialogue involving all parties, including communities, producers, and the government.

The administration of President Bola Tinubu has expressed the expectation that, with the rehabilitation of refineries in the country, starting with the Port Harcourt refinery, Nigeria will become a net exporter of petroleum products by next year. However, past experiences have created a trust deficit between the public and the government.

In September 2022, Timipre Sylva, the former minister of state for petroleum resources, initially stated that the Port Harcourt refinery would be operational by the end of the previous year. Six months later, he adjusted the timeline to the second quarter of 2023, which has now shifted to the third quarter of the year.

Jide Pratt, the country manager of Trade Grid, highlights the need for immediate efforts to enhance security and prevent theft and vandalism in the short term. He questions whether the government can achieve this goal. Additionally, he suggests that refineries should produce high-margin products to remain profitable, especially with the reemergence of petrol subsidies.

Pratt also emphasizes the importance of restoring confidence in oil corporations and maintaining production levels as seen with ExxonMobil at the United Nations General Assembly sidelines. The persistent shortfall in meeting production quotas presents a significant challenge.

According to S&P Global analysts, the Dangote Refinery is not expected to reach its full operating capacity until mid-2025, and further delays are still possible, as indicated in a recent note.

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