October 13, 2021/CSL Research

Based on the recently updated external sector statistics of the Central Bank of Nigeria (CBN), FX consumed in the importation of Crude Oil between January to August 2021 summed up to US$690.19m, lower than US$930.24m in the corresponding period in 2020. Over time, the sustained lack of local refining capacity has resulted in the country’s total dependence on imported refined crude oil resulting in a significant portion of the country’s scare FX being spent on importation of petroleum products. Recently, Nigeria seems to have taken the short-term route to strengthen its FX position by issuing dollar-denominated bonds, exercising special drawing rights, and improving oil production amid rising prices. Nonetheless, the structural issues persist.

The Nigerian National Petroleum Corporation is the major supplier of petroleum products in the country and has been the sole importer of petrol in recent years as the market realities have forced petroleum marketers to stop the importation of the product. Over the years, successive governments have tried to revive the country’s ailing refineries with no evident results. Besides, protracted years of delay and disagreements on the oil and gas reform bill have muted investments in improving the entire value chain of the industry. Currently, the combined capacity utilization of the existing refineries stands at zero due to the ongoing revamping of the state-owned refineries according to available data from the Nigerian National Petroleum Corporation (NNPC).

Dangote’s integrated refinery has enormous economic potentials given its capacity to meet local demand and serve the needs of neighbouring countries. At a time when the Federal Government is exploring possible options to alleviate the pressure on foreign exchange reserves, the project will enable the government to conserve the much needed foreign exchange expended on the importation of petroleum products. The CBN governor earlier this year noted that the facility will sell the refined crude to the Federal Government in Naira. The Group Managing Director (GMD)` of Nigerian National Petroleum Corporation (NNPC), Mele Kyari earlier this year put Nigeria’s daily consumption of refined crude oil at 377,358bpd, implying that Dangote Refinery alone with its 650,000bpd capacity can more than meet local demand., and earn FX for the country through exports. The government has also been promoting the establishment of modular refineries.