Nigeria’s domestic refining system marred by inefficiency, corruption, underinvestment, and a lack of maintenance
By Gideon Osaka
In the past six decades, Nigeria has continued to pride itself as a leading nation in Africa. It has also established itself as the giant of Africa given its multicultural society, large economy and rich history in culture and governance as well as natural resources particularly oil and gas.
Nigeria’s endowment in terms of natural resources, particularly crude oil, has never been in doubt. The country’s proven oil reserves are estimated at 40 billion barrels with 203 trillion cubic feet gas which is three-times as substantial as the crude oil reserves. Its reserves make it, one of the most petroleum-rich nations in the world, and by far, the most affluent in Africa. Nigeria is the largest oil producer in sub-Saharan Africa and since 1971 a member of Organization of the Petroleum Exporting Countries (OPEC), with an estimated production volume of two million barrels/day and at some point, the world’s sixth-largest producer.
Since the late 1950s when Nigeria discovered crude oil, one of the enduring issues that continue to dominate the landscape is the country’s seeming inability to fix her domestic refining issues. Since gaining freedom from colonial rule in 1960, one would expect a country blessed with abundant crude oil resources to have a thriving local refining capacity. However, the reality paints a different picture. Six decades later, Nigeria’s quest to achieve self-sufficiency in petroleum refining remains a journey filled with both promise and pitfalls, the country’s refining sector has struggled to break free from the shackles of underdevelopment and inefficiency. The refineries have remained one of Nigeria’s biggest problems that have defiled every form of solution.
The historical perspective
Upon independence, Nigeria embarked on the journey to harness the vast potential of its oil reserves, with an ambitious goal to develop a self-sustaining petroleum industry. It established refineries to process its crude oil into various petroleum products. The four State-owned refineries operated by its National Oil Company—NNPC have a total installed capacity of 445,000 barrels per stream day (BPSD) and were strategically located across the country at Kaduna, Warri, and Port Harcourt. The Port Harcourt refineries comprise the two refineries built in 1965 and 1989 with a current capacity of 60,000-bpsd and 150,000-bpsd, respectively. The other two refineries were built in 1978 in Warri and 1980 in Kaduna with current capacities of 125,000-bpsd and 110,000-bpsd, respectively. These refineries, were envisioned as the cornerstone of Nigeria’s energy sector.
A Nigerian engineer who participated in all stages of the execution of the refineries, Engr. Alexander Ogedegbe wrote that they produced enough petroleum products in the early 1990’s to satisfy the national demand and exported the excess. But after then, a lot of things went wrong. From refining products enough for Nigerians and the remnant exported, Nigeria has witnessed the refineries painful downfall over the decades.
As a result of poor maintenance, theft, inadequate crude supply and corruption, none of these refineries have been fully operational thus confining the country to continuous import cycle of over 90 per cent of its daily consumption.
Former President, Olusegun Obasanjo had finalized the sale of two of the refineries before he left office in 2007. Africa’s richest man, Aliko Dangote, leading a consortium of investors had paid $750 million for the two refineries as the Federal Government was unable to manage them at the time, but late President, Umaru Yar’Adua, reversed the sale.
Successive governments have spearheaded the plants’ rot by lack of decisive action or political will to fix or outrightly sell them off.
In the absence of domestic refining system, Nigeria exports crude oil and imports petrol and is currently the largest importer of petrol in the world.
There was an effort in 2002 to improve the situation when the government issued 18 new licenses to build refineries. However, most of them could not take off.
Over time, the low productivity of these refineries gradually created a significant gap of refined petroleum products in the country. This gap was being filled by imports from Europe, the United States, and the Middle East, a situation which has left its energy security vulnerable to international market fluctuations.
The four major refineries have been for decades marred by operational inefficiency, corruption, underinvestment, and a lack of maintenance. These factors have collectively stifled the refining industry’s growth and hindered Nigeria’s ability to process its crude oil locally, a goal set as far back as independence in 1960.
Chronic maintenance woes
A consistent issue that has plagued Nigeria’s refineries is the chronic lack of maintenance. The struggle to keep these facilities in top working condition has led to periods of reduced output and, in some instances, complete shutdowns.
Valuechain analysis show that Nigeria’s refineries have suffered the worst maintenance failures in Africa for decades. Findings showed that aside the Dangote’s refinery which when fully operational will be Africa and the world’s largest single train refinery with a production capacity of about 650,000 barrels per day (bpd), Algeria’s Skikda refinery built in 1983 is among Africa’s largest refinery with daily production of 355,000 bpd. Next in ranking among Africa’s largest refineries are Libya’s Ras Lanouf refinery built in 1984 with a production capacity of 220,000 bpd and the Port Harcourt refinery built in 1965 and expanded in 1989 to 210,000 bpd. These refineries which were built about the same time as Port Harcourt refinery have been functioning optimally including undergoing scheduled maintenance and upgrades in the last decade, Nigeria’s Port Harcourt refinery, just like its counterparts in Kaduna and Warri have witnessed the worst maintenance record in the last decade despite billions of dollars being purportedly sunk in their repairs.
While these refineries continue to weather Africa’s difficult refining landscape, those in Nigeria, continue to struggle leaving the country’s refining system condemned to petrol imports.
Nigeria’s four refineries: two in Port Harcourt with the new 150,000 bpd capacity refinery built in 1985 at a total cost of $850 million; the 125,000 bpd Warri refinery built in 1978 at $478m and 110,000 bpd Kaduna refinery built in 1976 at the cost of $525 million, produced at grossly beneath capacity levels. The only publicly known turnaround maintenance carried on particularly the Port Harcourt refinery was a routine maintenance on the facility in year 2000.
Past Ministers for petroleum have admitted that conclusive turn around maintenance on the refineries have not been done for decades as this has left the plants “far dilapidated.”
In terms of performance, Valuechain’s findings from a comparative analysis of maintenance of top refineries in Africa corroborates findings by the National Refineries Special Task Force (NRSTF) set up in 2012 by former oil minister Alison-Madueke, who is currently facing corruption trial in London court. The NRSTF found that Nigerian refineries have the worst performance record among 42 African refineries, with an average capacity utilisation of only 18 percent, compared to 81 per cent and 85 percent respectively for Egypt and South Africa in 2006-2009.
The Task Force found that all the refineries had failed to meet the normal international benchmarking standards. “Since they were built, new technology has been introduced that has made much of their operating systems near obsolete,” the NRSTF informed.
Corruption and mismanagement
Corruption and mismanagement have further compounded the challenges. Industry experts disclose that the profiteers of the refineries lack of action over the years have been public officials who award or monitor contracts for the refineries’ maintenance. According to them, these profiteers have little incentive to see the refineries function well as that eliminates a lucrative personal income stream.
Ugo Nwokeji in a research for Baker Institute/Japan Petroleum Energy Centre, Rice University, found that the most important saboteurs of the refineries appear to be NNPC and highly placed government officials who benefit from the crisis.
In the policy report titled “The Changing Role of National Oil Companies in International Markets,” he wrote that the officials who sabotage the refineries to promote fuel importation benefit in two main ways.
“First, funds for maintaining the refineries go into private pockets, guaranteeing low-capacity utilization or complete breakdown. Second, heavily inflated supply term contracts and import licenses are awarded to cronies for the importation of refined products from abroad.”
Recent efforts and the road ahead
Despite these challenges, Nigeria continues to aspire for self-sufficiency in petroleum refining. In recent years, there have been concerted efforts to revamp the existing plants and incentivize modular and greenfield (brand new) refineries.
Valuechain reports that the NNPCL had since commenced the rehabilitation of the refineries and the 210,000 barrels per day Port Harcourt Refinery complex would begin operations in December this year, according to Minister of State for Petroleum Resources (Oil), Senator Heineken Lokpobiri.
The Nigerian government has also promoted initiatives to encourage private sector participation in building new refineries. Initiatives like the newly commissioned 650,000 barrels per day Dangote Refinery, one of the largest in Africa, are examples of the private sector’s growing interest in the sector. These steps signal a commitment to revitalizing the refining sector and achieving greater energy independence.
With this and federal government’s efforts at increasing domestic refining capacity through modular refineries which has achieved greater success, the country’s refining fortunes are set to change soon, as it is set to lead refinery capacity additions in Africa.
Policy makers, investors and other industry stakeholders agree that the government through the Nigerian Content Development and Monitoring Board (NCDMB) has recorded greater achievements in incentivizing the take-off of modular refineries.
Prior to 2015, Nigeria had only one functioning modular refinery which is the 1,000 barrels per day (bpd) Niger Delta Petroleum Resources Ltd (NDPR) refinery in Ogbelle, Rivers State. However, since 2016/17, construction has started on at least six modular refinery sites. As at January 2019, about 40 licenses were said to have been issued for modular refineries. Out of this, 10 have shown progress as construction has started on at least six of them. The modular refineries when completed, could add over 100,000 barrels a day refining capacity to the country.
The 7,000 bpd OPAC modular refinery at Kwale, Delta State, and the planned expansion that will increase crude processing capacity at the NDPR refinery to 11,000 bpd, are already at advanced stages. Others include Azikel Refinery, Bayelsa; AIPCC Refinery, Edo and the Phase 2 (25,000bpd) Waltersmith Petroman Oil Refinery, Imo State.
There are about four modular refineries being supported by the NCDMB under the Federal Government’s plan to use modular refineries to drive the development of the Niger Delta region. The refineries NCDMB had injected equity capital funds are the 5,000 bpd Waltersmith modular refinery at Ibigwe, in Imo state, the 12,000 bpd Hydroskimming modular refinery at Obunagha, Gbarain, Bayelsa, by Azikel Petroleum Ltd, and the 2,500 bpd modular refinery being developed by Duport Midstream Company as part of its Energy Park in Egbokor, Edo state.
The government forecasts that once these modular refineries come on stream, they should be able to close the petroleum product supply-demand gap for Nigeria.
As Nigeria marks 63 years of independence, the challenge of unlocking the full potential of its local refining capacity remains as pressing as ever. The country’s journey has been marked by missed opportunities and unrealized potential, but it’s a story that still carries the hope of a brighter, more self-sufficient future.
The path forward requires strong, coordinated efforts to tackle infrastructure challenges, confront corruption, and create an environment that encourages investment and innovation. Success in these areas will not only advance Nigeria’s energy security but also create economic opportunities, reduce reliance on imports, and foster greater self-sufficiency.
