By Gideon Osaka
The advent of the Dangote refinery and the recent commencement of oil refining at the revamped Port Harcourt refinery has caught the downstream oil and gas sector in Nigeria in a paradox of some sort. On one hand, is the revelation that imported petroleum products are cheaper than those refined locally. On the other hand, are the oil marketers led by NNPC who are still massively importing petroleum products to the country despite sufficient supplies from local refineries led by Dangote.
The downstream sector is now regularly enmeshed in pricing instability and turbulences. Aliko Dangote, CEO of Dangote Refinery, recently complained that marketers are avoiding purchasing petrol from his facility, despite having over 500 million litres of petrol in storage. In response, marketers represented by the Independent Petroleum Marketers Association of Nigeria (IPMAN) and the Petroleum Products Retail Outlets Owners Association of Nigeria (PETROAN) argued that the refinery’s prices are higher than the landing cost of imported fuel. The oil dealers therefore said they can import petrol at lower prices than what is being sold by the Dangote Refinery.
Dangote’s woes and more recently the Port Harcourt refinery are further compounded by the passive importation of fuel to the country. A report by a media outlet, Nairametrics revealed a rise in petrol importation by marketers despite calls for patronage of local refineries. According to the report which cited sources with knowledge of the matter, between October 1 and November 11, Nigeria imported volumes of petroleum products that translated to over 2 billion litres of petrol, 500 million litres of diesel, and 17 million litres of jet fuel, with a cumulative cost of nearly N3 trillion. This was even as the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) approved licenses for an additional 3.5 billion litres of PMS (petrol) by December, despite reports of excessive supply at Dangote Refinery. NNPC has also clarified it would not cease importing petrol into the country but prioritise the patronage of local refineries, such as the Dangote.
This has led Dangote Refinery to seek legal action to void import licenses issued to NNPC and other companies which it said is in violation of Sections 317(8) and (9) of the Petroleum Industry Act which prohibits issuing licenses for the importation of petroleum products. According to Dangote, import licenses for petroleum products should only be granted when there’s a proven shortage in domestic production.
The marketers in their response cited major oil-producing countries such as the United Arab Emirates, Saudi Arabia, the United States of America, China, Venezuela and a host of others that are still importing petroleum products despite being a net exporter of the same products. They told the court that it takes an average of two months for Dangote Refinery and Petrochemicals FZE to supply products ordered from it, adding that it “hardly ever meets the demand, as trucks wait for months to be loaded at the Dangote refinery, whereas it takes about three weeks to import petroleum products from offshore refiners.
Economic & security implications
Beyond economics, the debate over cheap imports versus local refining is said to have national security implications. Heavy reliance on imports leaves Nigeria vulnerable to global supply disruptions and geopolitical tensions. A sudden shock in the global oil market could lead to fuel shortages and social unrest.
Local refining, proponents argue, offers a buffer against such vulnerabilities. It also has the potential to create jobs, stimulate industrialisation, and retain foreign exchange that would otherwise be spent on imports.
“Energy security is critical for any nation, and Nigeria is no exception,” notes retired Colonel Ibrahim Bala, a national security expert. “Investing in local refining is not just about economics; it’s about safeguarding the country’s strategic interests.”
However, local refining is proving to be more expensive than expected. Domestic refineries face high operational costs and limited technical expertise. Moreover, regulatory uncertainty and foreign exchange volatility further complicate operations.
“Refining in Nigeria is not cheap. Unlike in developed economies, where refineries operate with precision and efficiency, our local plants face persistent challenges,” says Tony Elumelu, a downstream sector entrepreneur. “If we are serious about local refining, we must be ready to absorb the higher costs or find ways to make it competitive.”
Consumers paying the price
For the average Nigerian, the debate over local refining versus imports is academic. What matters most is the price at the pump. Since the removal of subsidies, the cost of petrol has increased by over 300%, triggering a ripple effect across the economy. Transportation costs have soared, food prices have surged, and small businesses are struggling to stay afloat.
“Whether it’s imported or locally refined fuel, Nigerians are bearing the brunt of higher costs,” says Bisi Afolayan, a trader in Ibadan. “We just want affordable fuel, but it seems like neither option is giving us that.”
Balancing Act
The federal government finds itself in a difficult position. While it recognizes the strategic importance of local refining, it cannot ignore the short-term economic relief that imports provide. The deregulation of the downstream sector aims to attract investment and promote competition, but the transition is proving to be painful.
“The government must strike a delicate balance,” says energy policy expert Dr. Maryam Sule. “Policies that encourage local refining should be complemented by measures to cushion the impact on consumers. Otherwise, the backlash could undermine the reforms.”
As the country grapples with this emerging downstream dilemma, experts argue that a multifaceted approach is needed. This includes: Revamping the country’s aging refineries (Warri and Kaduna) to improve efficiency and reduce production costs. Creating a favourable regulatory and financial environment to attract both local and foreign investors into refining and petrochemicals and promoting Compressed Natural Gas (CNG) and Liquefied Natural Gas (LNG) as alternative fuels to reduce reliance on imported petroleum products.
The debate over cheap imports versus costlier local refining underscores the emerging complexities of Nigeria’s downstream oil and gas sector. While imports offer immediate relief, they are a band-aid solution to deeper structural issues. Local refining, though more expensive, holds the promise of long-term economic and energy security.
For Nigeria, the path forward will require careful planning, significant investment, and a commitment to balancing short-term needs with long-term goals. Until then, Nigerians will continue to navigate the painful realities of a downstream sector in transition.