Six Months On, Modular Refineries Still Await NNPC’s Crude Oil Supply

Nigeria’s modular refineries are encountering significant challenges as they await crude oil deliveries from the Nigerian National Petroleum Company Limited (NNPCL), six months after the company committed to providing support. This delay has critically affected the operations of these refineries, which are essential for Nigeria’s objective of enhancing local refining capabilities and decreasing reliance on imported petroleum products.

The circumstances are alarming, with numerous modular refineries functioning below their potential or depending on alternative, often pricier, sources of feedstock. Some operators have turned to third-party suppliers for crude oil, while others have been compelled to halt their operations entirely.

Eche Idoko, the national publicity secretary of the Crude Oil Refinery-owners Association of Nigeria (CORAN), indicated that the majority of modular refineries are operating at reduced capacity due to the insufficient crude oil supply from NNPC. “They have had to seek feedstock alternatives from third parties, which tends to be quite costly,” Idoko noted.

Currently, Nigeria has 30 licensed modular refineries, of which five are operational, producing diesel, kerosene, black oil, and naphtha. However, the ongoing lack of crude oil supply from NNPC has significantly impeded the development of these refineries.

Big oil, Bigger favoritism?

NNPC has initiated negotiations with Dangote Refinery to extend their crude oil supply contract in naira, which is due to expire this month. The original six-month agreement, which began in October 2024, was designed to tackle the crude supply issues encountered by local refineries, including Dangote.

To date, NNPC Ltd has delivered 48 million barrels of oil to Dangote Oil Refinery under the current contract. However, despite intentions to supply seven additional smaller refineries, only Dangote Refinery has benefited from this arrangement, and even then, not at the originally stipulated volumes.

Negotiations for a new contract are underway, but specifics regarding the volume, pricing, and duration remain undisclosed. NNPC Ltd has confirmed that “discussions are ongoing towards” a new agreement, leaving the prospects for Nigeria’s smaller refineries in a state of uncertainty.

What next?

The Nigerian oil and gas sector is currently facing a pivotal moment. The ongoing delays in the supply of crude oil to modular refineries, despite the Nigerian National Petroleum Corporation’s (NNPC) commitment to assist, pose significant risks to the nation’s refining capabilities and overall economic development.

Compounding this issue is the fact that only the Dangote Refinery has received crude oil supplies from NNPC in naira, leaving smaller refineries in a precarious position. The absence of transparency and consistency in NNPC’s supply agreements has fostered uncertainty and hindered the advancement of Nigeria’s refining industry.

To overcome these obstacles, it is essential for the Nigerian government and NNPC to emphasize transparency, consistency, and equity in their interactions with refineries. This approach should involve establishing clear guidelines and timelines for crude oil supply, ensuring fair distribution of feedstock, and fostering a competitive environment for all refineries.

The advancement of Nigeria’s economic growth and energy security is contingent upon the establishment of a strong and sustainable refining sector. By tackling the issues faced by modular refineries and fostering a transparent and fair supply chain, Nigeria can fully harness its oil and gas resources, thereby enhancing economic prosperity for its populace.