Nigerian Refineries’ Crude Oil Demand Rises by 24% Amid Supply Struggles: What This Means for the Sector

The demand for crude oil by Nigerian refineries, including the newly inaugurated Dangote Refinery, has surged by 24% in the second half of 2024, pushing the required volume to 597,700 barrels per day (bpd). This increase from the 483,000 bpd requested in the first half of the year highlights the growing gap between the needs of domestic refineries and the ability of oil producers to meet these demands.

As Nigeria’s refining capacity expands, the pressure on oil producers to meet domestic demand is intensifying, raising concerns about the sustainability of the sector and its impact on the broader economy.

The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) recently reported that despite the increased crude oil requirements, only 177,777 bpd were secured from domestic oil producers in the first half of 2024. This shortfall is alarming, considering the critical role that steady crude supplies play in maintaining refinery operations and ensuring the country’s energy security.

The surge in demand is largely driven by the Dangote Refinery, which is the largest refinery in Africa. The refinery has expressed frustration with the NUPRC, accusing the commission of failing to enforce regulations that require oil producers to prioritize domestic refineries in their supply contracts. As a result, the Dangote Refinery has had to rely more on imported crude, leading to higher operational costs and potential setbacks to its long-term goals.

Dangote Refinery’s Operational Challenges

The Dangote Refinery’s struggle to secure sufficient crude oil domestically is a significant concern for the Nigerian oil sector. The refinery, which has a refining capacity of 650,000 bpd, is critical to Nigeria’s plans to reduce its dependence on imported petroleum products and boost its refining capabilities. However, the refinery’s reliance on imported crude is undermining these goals and increasing operational expenses.

In a statement, the Dangote Refinery highlighted the impact of the insufficient domestic crude supply on its operations, stating, “The lack of sufficient domestic crude supply is a major operational challenge for us. The NUPRC’s lax enforcement of supply regulations is forcing us to look abroad, which significantly impacts our cost structure.”

The NUPRC has acknowledged the challenges faced by oil producers, noting that some are dealing with operational issues, while others have already committed a significant portion of their output to international traders who financed their drilling operations. The commission has warned that forcing producers to redirect more crude to local refineries could violate existing contracts, complicating the situation further.

Despite these challenges, the NUPRC has projected a slight increase in national crude oil production, estimating that output will reach 1.7 million bpd by December 2024, up from the 1.57 million bpd forecasted for the first half of the year. However, this target remains ambitious, given the difficulties in meeting the current demand.

The increased crude oil requirements by Nigerian refineries come at a time when eight refineries, including the Dangote Refinery, are expected to be fully operational by August 2024, with a combined refining capacity of 864,500 bpd. This means that oil producers will need to supply more than half of this capacity to meet domestic refining needs, further straining the already limited resources.

Gbenga Komolafe, head of the NUPRC, emphasized the importance of understanding the projected crude oil needs for the second half of 2024. “This comprehensive data provides insight into the projected crude oil needs for the refineries, crucial for understanding the energy landscape in Nigeria for the second half of 2024,” Komolafe stated.

With 52 oil producers, including major international companies like TotalEnergies, Chevron, Shell, and ExxonMobil, expected to contribute to the supply, the struggle to meet the increasing demands of local refineries is set to be a critical issue in the coming months.

The challenges facing Nigeria’s oil sector extend beyond just the supply-demand imbalance. The reliance on imported crude by refineries like Dangote’s not only increases operational costs but also puts additional pressure on the country’s foreign exchange reserves. This could have broader implications for Nigeria’s economy, especially given the ongoing volatility in global oil prices and the economic pressures from inflation and currency fluctuations.

Moreover, the inability to secure sufficient domestic crude could undermine Nigeria’s energy security, making the country more vulnerable to external shocks. This is particularly concerning as Nigeria continues to grapple with the aftermath of the COVID-19 pandemic and the ongoing geopolitical tensions affecting global oil markets.

Addressing the challenges in Nigeria’s oil sector will require a multifaceted approach. Strengthening the enforcement of supply regulations by the NUPRC could help ensure that domestic refineries are prioritized in supply contracts. Additionally, incentivizing oil producers to allocate more crude to local refineries could help bridge the supply gap.

Investing in the operational efficiency of oil producers is also crucial. By addressing the operational issues that some producers face, the NUPRC can help increase overall production capacity, making it easier to meet the growing demands of domestic refineries.

In the long term, diversifying Nigeria’s energy mix could also play a role in reducing the country’s reliance on crude oil. Expanding investments in renewable energy sources and improving energy infrastructure could help mitigate some of the pressures on the oil sector and contribute to a more sustainable energy future for Nigeria.

The 24% increase in crude oil demand by Nigerian refineries underscores the growing challenges facing the country’s oil sector. As the Dangote Refinery and other local refineries ramp up their operations, the pressure on oil producers to meet domestic needs is intensifying. The situation highlights the need for stronger regulatory enforcement, increased investment in production capacity, and a broader strategy to secure Nigeria’s energy future.

While the coming months will be critical in determining how these challenges are addressed, it is clear that the balance between meeting domestic demands and fulfilling international obligations will continue to be a complex and pressing issue for Nigeria’s oil sector.