Encouraging local fuel refining

The call by the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) on the Federal Government to demonstrate commitment on local refining of crude oil is a welcome development. According to General Secretary of the association, Mr. Bayo Olowoshile, only domestic refining would end the crises in the oil and gas sector. He therefore advised that the importation of petroleum products be cut by 50 percent.

It is a sad commentary, that Nigeria as Africa’s largest crude oil producer is yet the continent’s biggest importer of refined petroleum products. This has undoubtedly created a lucrative market for refineries in Europe and the U.S.A. Only recently, Africa’s richest man, Alhaji Aliko Dangote advocated that for the country to surmount the current challenges of falling crude oil prices, it must increase local processing and consumption.

However, it is well known that progress in this area has been impeded by lack of investment in the downstream petroleum sector, as well as a very outdated policy and regulatory environment for the oil and gas sector. The problem is exacerbated by the fact that the largest importer of Nigeria’s oil, the United States of America, is now the world’s biggest producer of Shale gas which is effectively competing against crude oil at the world spot market.

Until very recently, sustained high oil prices as well as an increasing demand by growth-induced countries such as China, India and other emerging economies, has encouraged the development of new sources of oil. It is therefore a crying shame that a country with over 35 billion crude oil reserves and production of over 2.5 million barrels per day has no functional refineries to process its fuel needs. Of all members of the Organisation of Petroleum Exporting Countries (OPEC), Nigeria is the only still relying on importation of petroleum products for domestic needs.

So far, all efforts to reverse this development has been thwarted, apparently due to mismanagement of government-owned refineries and lack of incentives to stimulate growth in local private refining capacity. Of all the more than 243 by-products associated with crude oil, only three are maximised in Nigeria. Presently, the country spends about $60bn for importation of refined products. What this entails is that local refining will not only reduce the cost and stress of exporting crude to bring in refined products, it will also create jobs for the teeming unemployed Nigerians.

Currently, the country imports more than 35 million litres of petroleum products, representing about 85 per cent of domestic demand daily into the country at a cost of N3 trillion. Also, subsidy on imported fuel has been responsible for the enormous strain on the Federal Government budgets every year. Curiously, rather than spending the nation’s scarce resources on refining oil, government still prefer importing the refined products.

Unfortunately, the situation is unlikely to change any time soon because all the four refineries had been operating well below installed capacity, as they are at different states of disrepair. They should be rehabilitated and put to full use. We believe that domestic refining of petroleum products holds enormous economic benefits for the country and its citizens and should be given a chance.