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Crunch time for Nigeria's refining ambitions

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Crunch time for Nigeria's refining ambitions

The state of Nigeria's oil refineries leaves a lot to be desired, for a nation so rich in crude oil reserves.

But with two major projects from the private sector in the pipeline, the government is finally starting to address this thorny issue.

Businessman Aliko Dangote, Africa's richest man, has been first in line to beef up Nigeria's refining capacity, with the construction of his 650,000 b/d refinery in Lekki under way.

Separately, new entrant Petrolex — in partnership with South Korea's Hyundai — has announced its own ambitions of creating a competing 200,000 b/d refinery in Ogun state, for which it has already built a 300,000 mt tank farm.

The scale of these independent projects is certainly impressive and, if realized, they could revolutionize the way Nigeria meets its monthly demand for around 1.2 million mt of gasoline.

But now it's the government's turn.

Nigeria already boasts four state-owned refineries dotted around the country, but these plants have been plagued by frequent stops and starts.

Nigerian National Petroleum Corp.'s refineries have a combined 445,000 b/d nameplate capacity, but they have failed to reach even a fraction of that level.

As a result, Nigerians rely heavily on the international market to buy gasoline and gasoil to fuel their cars and power generators.

When the government pledged to end its reliance on imports of oil products by as soon as 2019, it was met with some incredulity.

In early-September, state-owned NNPC took more decisive action, and committed to upgrades and maintenance to end years of underperformance by its refineries.

But why now?

Well, some say the looming 2019 self-imposed deadline has sprung NNPC into action, while others see the fear of losing market share to private sector refineries as a far greater incentive.

Either way, any change to Nigeria's reliable refining capabilities would have a major impact on the international suppliers that have long benefited from the country's refining inadequacies.

Reducing the import bill

Local refineries would have the advantage of easy access to Nigeria's light sweet crude output right on their doorstep, as well as low freight costs and proximity to end-users.

In addition, as a buyer, paying a local refiner in naira would be less of a headache than scrambling for dollars to pay European suppliers in the offshore Lome market.

Many Nigerian importers were burned earlier in the year by a lack of dollars that severely crippled the country's ability to import products.

A standstill ensued. Flights running on imported jet fuel were canceled, and large queues formed outside retail stations nationwide — perhaps a memory that will need time to shake.

The state and private refinery projects would also tackle another government target: Nigeria's recent pledged commitment to cleaner fuels.

Any new complex refineries would likely produce less sulfurous fuels, making it easier for Nigeria to enforce a much-discussed sulfur cap on fuels consumed in the country.

Lowering the sulfur content of fuels being used has been a wider ambition across the region, as West Africa seeks to replicate progress made by East Africa last year.

For Nigeria, bulking up its refining sector would not only service its own growing population, but would also let it act as a key refiner for a region that is more generally lacking capacity.

In reality, Nigeria needs to convert its posturing and headline-grabbing statements over its refinery upgrades into progress that is tangible.

The next two years will be critical for Nigeria and should provide concrete evidence of the government's will to achieve energy independence once and for all.