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Crude Production Decline Dims Local Refining Hopes

As labour groups and other Nigerians seek the restoration of large-scale local oil refining, the reality of falling oil production begins to crystalise as the Dangote Refinery nears the commencement of operations.

The Port Harcourt refinery scheduled to start operation later this year would also face the familiar foes of crude theft, pipeline vandalism, and the illegal exportation of the product, among others, which pose a threat to ramping the country’s oil output.

Dangote Refinery, a privately owned refinery that has been delayed by political interference, swamp clearance, and other projects key to its success, is expected to come on stream next month.

At its full planned capacity of 650,000 barrels per day, the refinery would make Nigeria self-sufficient in fuels and leave plenty more for export. Currently, Africa’s biggest producer imports all its refined products, eroding its foreign exchange reserves. Yet delays and cost overruns led many to question whether Aliko Dangote – Africa’s richest man – would ever deliver.

With crude theft, galloping inflation, and an unsettling foreign exchange crisis, the country is expected to start ramping oil production in the short term with these developments.

Analysts say that the federal government, national and international oil majors and host communities need to have a dialogue on the impact of crude theft and sabotage on the state of the economy.

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“The government needs to appoint a special envoy that can meet with these local interest groups to explain to them and present to them the government of the day’s dilemma, propositions and requests regarding the need for crude oil production to recover,” said Muyiwa Adekoya, an energy professional.

He said most of Nigeria’s problems regarding crude shortage or reduction in production all stem from sabotage of pipelines, terminals and installations and crude theft for illegal export or refining. “All these are done by locals (individuals or groups) within the Niger Delta.”

Adekoya said: “In other words, they need to make a deal in the short-run that will see them have no interruption to crude production whilst they put other mechanisms in place to tackle social political issues in the long run.

“They cannot use force to cajole these interest groups anymore. There has to be a serious dialogue between all parties involved from the communities, to the producers to the government.”

The administration of President Bola Tinubu has said that by next year, the country will be a net exporter of petroleum products with the rehabilitation of refineries in the country, starting with the Port Harcourt refinery. However, antecedents have led to a trust deficit between the public and the government.

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In September 2022, Timipre Sylva, former minister of state for petroleum resources, said the Port Harcourt refinery would become functional by the end of last year. Six months later, he said the plant would commence refining activities before the end of the second quarter of 2023. This is the third quarter of the year and the projection moved by another quarter.

“To be candid, in the short term, the drive to ramp up production immediately is security to ensure zero loss to theft and vandalism. And I wonder if the government can achieve that,” said Jide Pratt, country manager of Trade Grid.

He said the refineries, with the crude assay, must begin to produce high-margin products to stay profitable especially as petrol subsidy has reared its head again.

He said: “The next thing the government can do is to restore confidence in oil corporations to come and keep drilling like we saw with ExxonMobil at the United Nations General Assembly sidelines.

“The problem has defied solution as we have not met our quota in a long while. Until this is sustained, it seems a long road ahead.”

S&P Global analysts said the Dangote Refinery will not hit full operating capacity until mid-2025, citing a recent note, with further delays still possible.

Source: Businessday

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