Nigeria will sell its unproductive refineries, reduce subsidy cost in 2016

Africa’s top oil producer Nigeria has three refineries but they are not working. Due to this the country has over the years, had to refine petroleum products needed locally abroad, making the products too costly for the average Nigerian. In 2015 alone, the government has spent over N1 trillion ($5 billion) to subsidize the cost of petroleum products. The country wants this to stop. But the first step in solving a problem is acknowledging there is one.

The Nigerian National Petroleum Corporation (NNPC) reiterated the problems facing Nigeria’s oil and gas sector, publicly yesterday, and announced steps being taken to address them, showing an unprecedented commitment to changing the way the sector is run.

Nigeria’s Minister of State for Petroleum, Emmanuel Ibe Kachikwu, who had once described the fuel subsidy regime as unsustainable has been given the assignment of restructuring the NNPC. One of the most important tasks he has set for the short-term is lowering fuel subsidy costs. He said a band of 87 and 97 naira per litre will be used to price refined products, as against the current fixed pricing system.

“So it’s no longer subsidy as in the air, it’s not a static number,” he told reporters in Abuja, Nigeria’s capital city on Thursday. “Probably once in quarter we say what is the price of crude, how can we reflect [it] in the price of the product to make sure we don’t pass the ceiling of 97 [naira].”

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Refining capacity utilization
source: NNPC

As the inefficiency of Nigeria’s refineries continue, NNPC has issued its 2016 crude oil term contracts to 21 companies, down from last year’s 43. The contracts cover crude of 991,000 barrels per day (bpd)  and the companies involved include Italy’s Saras, Spain’s Cepsa, ENOC of the Emirates and India’s IOC. Also included are trading houses Trafigura, Mercuria and Vitol and international oil companies ENI, Total, Exxon and Shell.

Nigeria has three refineries fitted with the capacity to process over 400,000 barrels of crude oil per day but in October, they produced nothing. Only the one located in Port Harcourt produced in September, using only 4.1 perecent of its refining capacity.

oil Nigeria

 

“As of now the refineries are still not working. We are going to try and repair them,” Kachikwu said.

Kachikwu expects oil production to rise to 2.4 million barrels per day in 2016 but the unproductive refineries are going to be put up for sale, but not before they are repaired. “We cannot sell the refineries in their present state. They will be worth nothing,” the minister stressed, adding that Nigeria was trying to secure external funding for the repairs.