Editorial
Nigeria May Have Missed the Boat
By Dr. Gary K. Busch 23/3/07
Mar 24, 2007 - 8:26:00 AM

On Monday Nigeria withdrew the licenses awarded to 18 companies to set up oil refineries, five years after the companies failed to commence work. The licenses have expired; they are not forever, so the Energy Minister has canceled them. Nigeria handed licenses to 18 companies, mostly locals, in 2002 to build private oil refineries in a major restructuring of the country's downstream petroleum sector launched by the government to boost domestic supply of petroleum products. Nothing has been done or achieved. Nigeria, OPEC sixth largest exporter, currently has four oil refineries that are managed by NNPC. The plants have suffered from years of neglect and poor management and can meet just about 20% of the nation's fuel demand estimated at 40 million litres per day. The rest is bought in at world prices, through fuel dealers related by blood or amity to the current inhabitant of Aso Rock. Fuel, even at 150 Naira is in short supply. The turnaround maintenance underperformed by Emeka Offor, at great expense, has been a disaster. It is an absurd situation, with Venezuelan crude imported to Kaduna for refining while Nigeria exports 2.5 million barrels a day.

The SIR refinery in Abidjan is thriving, not only because it has an increasing supply of domestic oil, but also because it is the refinery of choice for the bunkerers of the Delta. Now that the election is coming, the Nigerian government is thinking of actually building new refineries. It may well be too late.

The African Refiners Association (ARA) held its second general meeting in Cape Town this week. The leadership spelled out the bad news. There is a veritable tsunami of oil products shortly to hit Africa from new refineries in Asia and the Middle East. Up to 50 million metric tons of refined product - or 78 percent of the annual consumption of the 48 sub-Saharan countries in Africa - is expected to be added to the world market by 2010. With Africa being one target, the imports could end up causing the shutdown of some of the continent’s refineries. There are 38 refineries in Africa. When one looks at installed capacity of these refineries, one can see a combined rated output of 68 million tons for an African consumption of 65 million tons. Theoretically, the supply should meet the demand. Unfortunately, there are certain refineries which are woefully underperforming – mainly in Nigeria. This will bring in external suppliers.

It is known that there is a capacity of fifty million tons of refining which is already built in the Persian Gulf and on the West coast of India; not far from Africa. The threat is that these large refineries subsidized by their governments will deliver their products at very low prices and below the production costs. They have the crude and need to move the refined product. As these refineries begin their deliveries to Africa it will be uneconomic for Africa (e.g. Nigeria) to actually build refineries. It will be far cheaper to buy in the refined products. Nigeria has missed the boat.

The greed and incompetence of the Nigerian oil magnates has condemned Nigeria to continued fuel vulnerability for the foreseeable future.

“The leech that does not let go even when it is filled, dies on the dry land”