Nigeria’s Hopes for Energy Sufficiency Bolstered with Recently Inaugurated Local Refinery

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In the just concluded week, the Federal Government’s refinery roadmap which includes the construction of greenfield plants, rehabilitation of the existing refineries and collocation of new refineries, recorded a major milestone on Tuesday at the inauguration of a 5,000 barrels per day (bpd) Waltersmith Modular Refinery and the groundbreaking for a 45,000bpd plant in Imo State.

According to the Chairman, Waltersmith Group, Mr Abdulrazaq Isa, the refinery which began operations in November 2020 and had already supplied five million litres of petroleum products to the domestic market is expected to deliver over 271 million litres of refined petroleum products yearly, including kerosene, diesel, naphtha and heavy fuel oils, to the domestic market.

Nigeria’s Hopes for Energy Sufficiency Bolstered with Recently Inaugurated Local Refinery

Government-owned refineries with a combined installed capacity of 445,000 bpd, had historically operated at very low capacity – and in recent times, failed to produce refined products as at June 2020 despite significant amounts spent to rehabilitate them – and has resulted in the government relying on its oil for fuel swap arrangement with foreign refiners since 2016 to exchange about 300,000 bpd of crude oil for imported fuels in order to meet domestic demand estimated to somewhere in the range of 38 to 60 million litres per day according to varied DPR and NNPC estimates.

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In a related development, the House of Representatives, on Tuesday, passed Petroleum Industry Bill for second reading and announced its plan to pass the elusive bill by the end of the first quarter of 2021. The PIB, which set out to provide the legal, governance, regulatory and fiscal framework for the Nigeria petroleum industry and cater to the development of host communities had yet to see daylight since the journey for its passage began in 2007.

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The inauguration of the private-sector refinery is quite an opportune development given the need to increase private sector participation in meeting local fuel demand at cost-efficient prices. In the meantime, however, the increasing difficulty by local downstream players to source foreign exchange for the importation of refined petroleum products will continue to hobble the country’s efforts to deregulate pump prices and completely remove petroleum subsidy.

We, therefore, expect Dangote’s 650,000 bpd refinery to be a game-changer when it begins operations in 2021 as this will not only satisfy the local need for fuel but also reduce pricing inefficiency as it eliminates avoidable freight, insurance and other associated costs of importation.
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