Nigeria’s energy trade charts show internal strategy mess

Sopuruchi Onwuka

Nigerian energy trade losses entered a deceleration mode not because the volumes of imports championed by the Nigerian National Petroleum Company (NNPC) Limited reduced, but because the spirited audacity of private local businessmen that risked billions of Naira in private refining displaced more imports.

However, there appears to be no notice that the ongoing reforms in the domestic fuel market and associated price jumps are driving proportionate demand jumps in the forgotten coal sector where traders now bridge supplies with significant import from the international market.

In compiling the energy trade update from major exporters in the world, the Energy Information Administration (EIA) of the United States showed that Nigeria’s import and export figures stand out as significant paradoxes between 2019 and 2022 when the country’s private sector was exporting petroleum products while the public sector was intensive on importation.

The report showcased Nigeria as a country in which the national oil company has refused to use its strong demand prowess in the energy market to guarantee offtake from the rising pack of small indigenous refining companies that struggle with short term liquidity issues.

Instead, our enquiries showed, the Nigerian National Petroleum Company (NNPC) Limited continues to channel its dollar patronage to foreign refining companies, leaving local producers to shop market outside the country in order to service their foreign exchange credit lines.

The Oracle Today reports that internal trade and marketing of key petroleum products liquids in Nigeria were also dogged with the controversy of legitimacy in the period as illegal refiners entered the fray with huge volumes of products that substantially displaced significant imports an saved the country huge foreign exchange revenues.

According to the EIA report on global energy supply in 2022, modular refineries in Nigeria primarily operated by private investors fed critical fuel products into the global energy supply while government supplier, the Nigeria National Petroleum Company (NNPC) Limited, kept importing same set of products.

Already, the NNPC is no longer ashamed of round tripping petroleum commodity from the country to Europe, coming home with very costly refined products and also claiming cost recovery on commercial losses.

With Nigeria’s legend and status of lead African producer in the league of Organization of Petroleum Exporting Countries (OPEC), the role of small scalable refining plants as key exporters of liquid fuels to global maritime, aviation and heavy machinery fuels becomes confusing despite the hype of 650,000 barrels per day Dangote Refinery in which the government spun a $20 billion investment magic while its refineries operated by the NNPC remained in disrepair.

“Because Nigeria’s main state-owned refineries are currently offline as a result of long-term rehabilitation, Nigeria exports only a small amount of petroleum products, mainly liquefied petroleum gas (petrol) and diesel or gasoil.

 “Between 2019 and 2022, Nigeria exported an average of about 66,000 b/d of petroleum products; these exports originate from Nigeria’s small modular refineries, which generally have small capacities and lack complex refining capabilities,” the EIA reported.

“Nigeria imports substantially higher volumes of petroleum products; volumes averaged about 385,000 b/d between 2019 and 2022. Almost 90% of this volume was gasoline and its blending components, or diesel/gasoil products, which is used in the electric power and transportation sectors,” the report noted.

Product exported by the private refineries in the country include liquefied petroleum gas, naphtha, aviation turbine kerosene otherwise called jet fuel, blending components for petrol, gas oil also called diesel, biodiesel and “other petroleum products,” the EIA listed.

The Oracle Today reports that whereas there are about 23 companies driving onsite refining operations in the country.  And all of them are scalable projects that currently produce distillates while the promoters work to scale up the plants’ capacity for catalytic cracking and production of fuel spirits.

One of the companies is the Niger Delta Refinery, a subsidiary of Aradel Exploration and Production (NDEP), which currently produces fuel distillates for domestic and export markets.

Managing Director, Mr Gbite Falade, told The Oracle Today that the company which started with 1000 barrels per day topping plant at its production sites in the Niger Delta has expanded to 11000 barrels per day of divers products including not only AGO this time but also naphtha, MDO, DPK and HFO.

“We produce to very stringent standards of quality. All our products are quality tested. We run frequent sampling during production, as often as every 30 minutes. We have a full kitted laboratory where we run the basic test to ensure that each of the products conforms to specification pertaining to national quality standards. So there are SON standards and other quality standards that we must adhere to,” Mr Falade declared.

There is also another modular refinery operating onsite at its Ibigwe oilfield in Imo State. The operating company, Waltersmith, is currently working to scale up the plant’s capacity from current 5000 barrels per day to 400000 barrels per day.

Several other small scale refineries including Duport Refinery, Opac Refinery and  Amakpe Refinery are rapidly coming online to form the team of local small scale producers that would soon scale up to dominate the domestic refining space just as the NNPC Limited awaits endlessly for debt laden Dangote Refinery to stagger online.

Securing crude oil feedstock remains the biggest obstacle to the refinery investors who do not operate oil mining licenses in the upstream side of the industry. Thus, unlike Niger Delta Refinery and Ibigwe Refinery, some of the modular refineries are not linked to upstream crude oil production. Thus, they seek supply deals with petroleum producers to secure regular feedstock.

While the national oil company is also accused of frustrating the small players in the refining space by withholding crude supply requests, the Nigerian Content Development and Monitoring Board (NCDMB) is bold with programmes that support investments in the Nigerian midstream petroleum industry.

The agency which is staking huge resources in building local capacity for full loop industry operations in the country is also in joint commercial ventures with some private refiners, a strategy that widens the board structures and strengthens corporate governance of the companies.

Despite the visible traditional challenges in overcoming the NNPC in the industry, the small refining plants in the country still play credible roles in meeting significant internal demand and also pushing significant export into the international market.

Another set of players in the industry that is difficult to discount is the band of illegal artisanal refiners that operate on the blind side of the law.

The Oracle Today reports that there is no reliable data on the illegal distillation sites that dot difficult and most times impregnable swamp terrains that map pipeline routes in the Niger Delta region. However, this group of refiners maintain palpable presence in the industry with its disruptive nuisance on production operations and value creation in the local market.

What has become very difficult issue with artisanal refining is the negative footprint of the operators in the wider industry operations. From costly pipeline damages through production losses and massive environmental pollution, the colossal damage caused by the illegal refining activities begins to negate their positive value in the industry.

Another paradox in the EIA report on Nigeria is the resurging coal imports into the country where massive coal deposits still exist.

The situation creates commercial incentives for private importers to pump scarce foreign exchange into meeting domestic demand for the commodity. Although government regulators continue to play down the coal sector in the domestic economy, “the dirty fuel” still fires industry and utilities in major advanced economies of the world, including Europe, India and China.

 According to latest estimates by the American agency which provides market intelligence to the government, investors and financial institutions, Nigeria held about 379 million short tons in coal reserves in 2022 but produces and consumes relatively small amounts of the fuel commodity.

“Between 2012 and 2021, the country averaged about 51,000 short tons of coal production, all of which was bituminous coal. Nigeria consumed an average of about 86,000 short tons of bituminous coal in the same time period and so needed to import coal to meet its domestic needs,” the EIA stated.

It recorded in the report that “Nigeria imported an average of 35,000 short tons of coal between 2012 and 2021. Nigeria began importing coal in 2015 as higher domestic consumption needs outstripped domestic coal production.”

The EIA data showed that Nigeria’s internal coal demand shot up in 2014 when the government’s subsidy on kerosene was quietly pulled down, allowing the cost of the domestic fuel to adjust to international prices due to loss of local refining capacity.

The high cost of both diesel and kerosene, The Oracle Today reports, inadvertently provided strong market incentive for investments in local production of both products in addition to liquefied petroleum gas which was later to displace demand for kerosene as domestic kitchen fuel.

There has been little attention to the simultaneous rise in the demand for coal as the prices of both kerosene and LPG continue to rise far beyond the affordability of the poor Nigerian homes.

According to the EIA, strong demand for coal provided commercial opportunity for importation to hit 20,000 short tons in 2015 and scaled to about 62,000 short tons in 2021. The data showed significant demand growth within seven years.

The EIA report graphically showed total lack of coordination in Nigeria’s energy trade policies, indicating incongruity in the direction of commodity flows, and lack of harmony in resource valorisation and local demand satisfaction. 

The Oracle Today reports that until there is a harmonized domestic energy supply plan that is operated on permanent regulatory structure, flawed procurement processes and unsupervised roles will continue to feed funds into channels that deliver questionable results.