crude oil
Why Nigeria may not benefit from local refining of crude oil- NESG
The Nigerian Economic Summit Group (NESG) has stated that unless certain conditions are met, Nigeria may not reap the benefits of local crude oil refining which include economic growth, job creation and reduced dependency on imports etc.
The economic think-tank in its latest report titled, “Domestic Crude oil refining in Nigeria, Macroeconomics and Tradeoffs” listed the conditions to be met as regulatory reforms, infrastructure development, investment in human capital development etc.
According to the report, domestic crude oil refining should catalyze other sectors of the economy towards like manufacturing towards industrialization and enhance the welfare of Nigerians.
It referenced the case of Dangote refinery exporting Naphtha to Asia where goods produced with the product are further shipped to Nigeria as an example of how other countries would take advantage of local crude oil refining in Nigeria.
What the NESG is saying
“While the reactivation of the midstream segment is undoubtedly essential for the Nigerian economy to capitalise on the advantages of being an oil producing nation, it alone may not suffice to deliver short-term benefits. Previous studies indicate that certain conditions must be met to ensure that the commencement of these refineries leads to significant economic growth, job creation, reduced imports, and other anticipated economic and business advantages.”
“These conditions encompass factors such as regulatory reforms, infrastructure development, investment in human capital, technological advancement, and market liberalisation. Without addressing these underlying challenges and implementing necessary reforms, the reactivation of the midstream segment may fall short of its potential to drive transformative change in Nigeria’s oil and gas industry and foster sustainable economic development.”
“Failure to position Nigeria to capitalise on these opportunities by sticking to the status quo, the country would risk allowing other emerging economies to exploit them to fuel their economic growth process. A pertinent example is the recent export of Naphtha by the Dangote Refinery to industrial complexes in Asia with Nigeria as a principal destination for goods produced using inputs sourced from the country.”
Furthermore, the report highlighted that the absence of industries capable of utilizing all the refinery’s products significantly reduces the socioeconomic benefits Nigeria could have gained from local refining. Refiners are limited to selling specific products domestically while exporting other by-products. The finished goods made from these by-products are then imported back into the country.
The report further emphasized that Nigeria may not experience substantial economic growth solely through local crude oil refining, as the prices of petrol and diesel are likely to remain high due to structural challenges in the sector, such as crude oil theft, which results in limited crude oil supply.
Prioritise sale of crude oil to local refineries
To ensure the country does not lose out on the socioeconomic benefits of local crude oil refining, the NESG called on the federal government to ensure adequate crude oil supply which will reduce import and domestic crude oil pricing for local refiners to catalyse the allied benefits of local refining.
However, they noted that the tradeoff for prioritising crude oil supply to local refiners would mean reduced earnings from crude oil sale for the government.
On pricing, they stated that contrary to expectations of the populace on reduced prices of petroleum products due to local refining, petrol prices would remain high as current refiners such as Dangote are importing crude oil.
