What repairs of Nigerian refineries mean for West African market

Africa’s biggest oil-producing country is planning to take advantage of a golden opportunity to play regional dominance in the West African refining market following the move by the Federal Executive Council to approve contracts for the rehabilitation of Warri and Kaduna refineries at a cost of $1.4 billion.

Nigeria stands a good chance of benefiting from the current plunge in international crude oil prices if the managers of its economy, especially those in the oil and gas sector, take a holistic view and see opportunities in the West African market.

The downstream market in West Africa is largely underdeveloped and, is mostly under the control of governments, riddled with inefficiencies, and leading to most countries depending heavily on imports to fulfil their requirements for petroleum products.

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To take advantage of this opportunity, Timpre Sylva, minister of state for petroleum resources, announced the government’s plan to rehabilitate Warri and Kaduna refineries.

The contracts will be awarded to Messers Saipem SPA and Saipem Contracting Limited at the combined total sum of $1.484 billion and will be rehabilitated in three phases of 21, 23 and 33 months.

The breakdown shows that $897 million is earmarked for the Warri refinery and $586 million for the Kaduna refinery, Sylva told State House correspondents after the Federal Executive Council meeting chaired by Vice President Yemi Osinbajo on Wednesday.

In March 2021, FEC approved the sum of $1.5 billion for the rehabilitation of Port Harcourt refinery in Rivers state

Fixing the refineries

Nigeria has four refineries – including two in Port Harcourt – but all have struggled to function optimally as the country continues to import petroleum products.

The rehabilitation is expected to turn around the refineries and set them up to meet national oil demands.

In June, the managing director of the National Nigerian Petroleum Corporation, the national oil company, Mele Kyari, said the rehabilitation of the refineries, in conjunction with private efforts such as the Dangote Refinery, will transform Nigeria into a “hub of petroleum products and supply”.

“It’s going to change the dynamics of petroleum supply globally in the sense that the flow is coming from Europe today and it is going to be reversed to some other direction,” he said.

He added, “we will be the supplier for West Africa legitimately and also many other parts of the world”.

West Africa’s market

Playing regional dominance in the West African petroleum products market will enable Nigeria’s downstream sector to act as an enabler to other critical industries such as petrochemical, construction, agricultural and industrial sectors.

“The West African market holds significant potential as refineries such as Ivory Coast, Gabon and Senegal cannot meet current demand for refined products in the region, estimated at 39 billion litres. There is an opportunity for potential uptake by neighbouring countries if the market has Nigeria’s refined products readily available,” multinational professional services network with headquarters in London, PricewaterhouseCoopers (PwC) said in a report titled Nigeria refining revolution.

PwC noted that this shift will see Nigeria become a net exporter of refined products and the refining hub of West Africa by the start of the next decade.

The advent of the Dangote refinery – which is set to produce 650,000bpd of refined products – and other modular refineries will significantly impact the current landscape in the downstream sector.

When completed production from Dangote’s refinery will exceed domestic consumption levels and subsequently export excess refined products to neighbouring African countries.

Aderonke Onadeko, industry expert with Nigeria Natural Resource Charter (NNRC) said Nigeria would have switched to refining more petroleum products locally and supplying them to the rest of the West African sub-region and Africa at large, which would earn more revenue for the country.

Stakeholders have asked the government to speedy the kick-off of full deregulations of the downstream sector which has been crippled by poor pricing, obsolete regulations, undue government interference, harsh operating environment, dearth of infrastructure, insecurity, and other challenges, which continue to deter investment.

Other industry experts have also said the present precarious situation of the sector have taught Nigerian regulators that investment is no respecter of political parties, it only responds positively to a business-friendly environment, where financiers are certain about the short or long term outlook of their investment, especially under a clear regulation backed by acts of parliament.

With a comprehensive, holistic and modern downstream sector, the federal government, especially the Buhari-led administration would not only achieve its campaign promises of lifting over 10 million Nigerians out of poverty through meaningful direct and indirect employment, but it will also develop byproducts that would fast-track industrialization will be made available for sectors like agriculture.