Govt pushes domestic refining to reduce crude exports

The Nigerian government is urging the nation to transition away from an economy that primarily exports crude oil, instead focusing on domestic refining, petrochemicals and related industrial activities. This was emphasized by Senator Heineken Lokpobiri, the Minister of State for Petroleum Resources, during the third Nigeria Oil Refining Summit in Lagos.

Lokpobiri highlighted that Nigeria has produced vast amounts of crude oil in the past while still relying heavily on imported petroleum products. To address this, the government is reinforcing the Domestic Supply Obligation, ensuring refineries have dependable access to crude. The Domestic Supply Obligation is not merely a bureaucratic allocation method, but a crucial tool for enhancing national energy security and strengthening connections between upstream and downstream sectors.

The Nigerian Upstream Petroleum Regulatory Commission has been working alongside various stakeholders, including the Nigerian National Petroleum Company Limited and domestic refiners, to create a framework for steady crude supply. This framework aims to evolve into a dependable, transparent, and commercially viable system for supporting local refineries. The minister cautioned against scenarios where crude is accessible yet unable to reach refineries in a commercially viable manner.

Meanwhile, the Crude Oil Refiners Association of Nigeria's Chairman, Momoh Oyarekhua, raised concerns about refineries struggling to obtain crude on favorable terms despite Nigeria's abundant resources. Oyarekhua advocated for the full implementation of the naira-for-crude deal, stricter enforcement of the DCSO under Section 109 of the Petroleum Industry Act, and crude swap arrangements that would enable refineries near producing assets to access nearby crude.

Oyarekhua also stressed the importance of reducing petroleum-product imports progressively, using imports only to meet domestic supply shortfalls or for strategic stock requirements. He called for a domestic crude pricing template that considers crude quality and delivery points while accounting for local logistics and evacuation costs, but not international logistics costs and domestic evacuation expenses.

Adegbite Falade, the Chairman of the Independent Petroleum Producers Group, warned of potential crude supply challenges as domestic refinery demand rises. He estimated that domestic refineries might require over 1.5 million barrels of crude per day in the medium term. Falade stated that while Nigeria's liquid production is currently 1.68 million barrels per day, if domestic refinery demand increases towards 1.5 million barrels per day, the production system may struggle to meet existing export commitments, government revenue needs, and other obligations. He stressed that Nigeria must grow its production base, not merely redistribute existing crude.