Nigeria, Africa’s largest oil producer, has exported approximately 1.4 billion barrels of crude oil over the past five years while its local refineries remain largely idle. This trend highlights a paradox where the nation prioritizes crude exports over domestic refining, perpetuating dependency on imported petroleum products despite its vast oil resources.
Current State of Nigeria’s Refineries
Nigeria’s four state-owned refineries have operated at less than 20% capacity for years. Despite having a combined refining capacity of 450,000 barrels per day, these facilities have been plagued by inefficiencies, technical challenges, and corruption.
The government has announced plans to revive these refineries, alongside the newly constructed Dangote refinery, which boasts a processing capacity of 650,000 barrels per day.
While authorities claim that these efforts will make Nigeria a net exporter of refined petroleum products by the end of the year, analysts remain skeptical due to persistent structural issues such as crude oil theft and inadequate infrastructure.
New Policy: Domestic Crude Oil Supply Obligation (DCSO)
To address the imbalance between exports and local refining, Nigeria recently introduced the Domestic Crude Oil Supply Obligation (DCSO). Under this policy, oil producers must supply a portion of their crude to local refineries before exporting. Payments can be made in naira or dollars, and penalties are imposed for non-compliance.
The policy aims to bolster refining capacity, reduce reliance on imports, and ease pressure on the naira. However, it does not specify the quantity of crude required for local supply, raising concerns about enforcement and effectiveness.
Challenges and Skepticism
Despite these initiatives, experts warn that local refining may not yield immediate benefits. The Nigerian Economic Summit Group (NESG) highlights key conditions for success: regulatory reforms, infrastructure development, investment in human capital, and technological advancement. Without addressing these underlying issues, Nigeria risks losing out on the socioeconomic benefits of local refining.
Additionally, analysts caution against overregulation. Oil and gas expert Toyin Akinosho warns that stringent policies could disrupt foreign exchange inflows and create economic instability. Meanwhile, NESG notes that high fuel prices may persist due to structural challenges in the sector.
Economic Implications
The export-first approach has significant trade-offs. While crude sales generate foreign exchange earnings for the government, prioritizing local refining could reduce these revenues in the short term. Furthermore, Nigeria lacks industries capable of fully utilizing refinery by-products. This gap forces refiners to export products like naphtha while importing finished goods made from these by-products, a missed opportunity for industrialization.
Path Forward
Experts agree that reviving Nigeria’s refining sector is crucial for economic growth and energy security. However, success hinges on comprehensive reforms and investments across multiple sectors. Authorities remain optimistic about achieving self-sufficiency in energy production by leveraging both state-owned refineries and private facilities like Dangote’s refinery.
As Nigeria navigates this complex transition, balancing crude exports with local refining will be critical to unlocking its full potential as an oil-producing nation.
