The anticipated launch of the Dangote Refinery and Petrochemicals in 2024 was seen as a pivotal moment for Nigeria's energy landscape, especially as many skeptics regarded the $20 billion initiative as overly ambitious, given the historical failures of state-owned refineries to reduce Nigeria's reliance on petrol imports.
"This is one of the largest refineries ever constructed, so the speed at which it increases production will determine whether profit margins for refiners remain favorable or decline," stated Dan Evans, head of fuels and refining at S&P Global Commodity Insights.
The refinery has already demonstrated significant potential. Upon its activation in January, it led to a 38 percent drop in diesel prices, reducing costs from N1,600 to N1,000, while petrol prices decreased from N970 per litre to N899.50 per litre in December, providing essential relief for Nigerians ahead of the holiday season.
With an expanding refining capacity, Nigeria has transitioned into a net exporter of jet fuel, naphtha, and fuel oil. Projections indicate that next year, the country could export nearly 50,000 barrels per day more gasoil from Lagos than it imports, with volumes expected to nearly triple by 2026, according to forecasts from Commodity Insights.
From January to October this year, the refinery primarily supplied the Lome transshipment hub in Togo, while South Korea emerged as its largest export destination, importing 23,000 barrels per day of naphtha.
Significant quantities of gasoil have been sent to Ghana and other West African nations, and for the first time, Nigerian-produced jet fuel has reached airports as far as Iceland, Tenerife, and London’s Heathrow.
One of the biggest changes lately has been the complete elimination of fuel subsidies, a move that kicked off in 2023 and has now become a solid part of the policy landscape.
This shift has opened up billions of dollars for the federal government, lifting a financial weight that’s been around for over a decade.
With the subsidies gone, the energy market has become way more competitive. Fuel prices are now in line with global trends, which is drawing in private investments in the downstream sector.
“We’re finally seeing the market function as it should,” noted an analyst from a Lagos energy consultancy. “These reforms are setting the stage for efficiency and growth.”
The Kaduna and Warri refineries are back in action, which is a big plus for the country’s refining prospects.
On the divestment front, major projects like the Bonga North deep-water initiative and the Ubeta oilfield (OML 58) development are about to ramp up crude oil and gas production.
Nigeria has also greenlit a $1.3 billion deal for local firms to acquire Shell’s onshore assets, reinforcing its status as Africa’s top crude producer.
This sale to Renaissance, one of Africa’s leading energy companies, shows Nigeria’s strong belief in its local businesses.
Renaissance is a consortium that includes ND Wester Ltd., Aradel Holdings Plc, Petrolin Group, FIRS Exploration and Petroleum Development Co., and Waltersmith Group, all of which are key players managing a diverse range of oil and gas assets while focusing on making a positive socioeconomic impact in Nigeria.
“The African Energy Chamber is supportive of the Nigerian government’s commitment to supporting local companies operating in the oil and gas sector. Nigeria is continuing its focus on becoming a leading force in the global energy market, and this approval is poised to steadily improve the positive impact the industry will have on domestic companies operating in the country,” N J Ayuk, executive chairman of African Energy Chamber, said.
In October, the government announced four divestment transactions involving Mobil Producing Nigeria Unlimited transferring assets to Seplat Energy Offshore Limited, Equinor Nigeria Energy Company Limited divesting to Project Odinmin Investments Limited, TotalEnergies EP Nigeria Limited selling to Telema Energies Nigeria Limited, and the Nigerian Agip Oil Company Limited divesting to Oando Petroleum and Natural Gas Company Limited.
Challenges in Oil Production
Recent estimates from S&P Global Commodity Insights indicate that Nigeria, Africa's largest oil producer, has averaged 1.5 million barrels per day (bpd) this year. This figure falls short of its estimated capacity of 2.2 million bpd, primarily due to issues such as theft, insufficient investment, and technical difficulties in aging oil fields.
In recent years, Nigeria has faced persistent challenges in reaching its full production capacity. In January, the country experienced a reduction of approximately 200,000 bpd in its Organisation of Petroleum Exporting Countries (OPEC) quota, a reflection of its ongoing underproduction and a sign of diminishing influence within the organization.
President Bola Tinubu, who pledged to reform the oil sector during his campaign, declared a state of emergency in the industry in June. He instructed security forces to target oil thieves and vandals operating in the Niger Delta region.
Olu Verheijen, the presidential adviser on Energy, stated on November 14 at an industry event that these initiatives have significantly enhanced the operational efficiency of the Trans Niger Pipeline in the eastern Niger Delta, allowing all companies along the pipeline to contribute to this critical infrastructure.
The reforms in the oil sector also encompass an improved fiscal framework for producers, including those in deepwater areas, aimed at attracting new investments that could unlock approximately 1.3 billion barrels of oil equivalent in oil and gas resources. According to data from the National Liquid Hydrocarbon Production reports by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), the country's oil output has risen to 1.485 million bpd.
According to data from the NUPRC, oil production increased by 152,334 barrels per day (bpd) in November, marking an 11.43 percent rise from the 1,333,322 bpd recorded in October.
Including condensate, Nigeria's total oil output rose to 1.69 million bpd in November, up from 1.53 million bpd in October.
With proven gas reserves of 209.5 trillion cubic feet, Nigeria is the ninth-largest gas-rich nation globally. Despite this wealth of resources, much of it remains underutilized for both domestic consumption and export.
Since taking office on May 29, 2023, President Tinubu has expressed a strong commitment to transforming Nigeria's energy landscape by leveraging the country's gas resources.
In May, Tinubu launched three significant projects: the expanded AHL Gas Processing Plant, the ANOH Gas Processing Plant, and the 23.3 km ANOH to Obiafu-Obrikom-Oben (OB3) Custody Transfer Metering Station Gas Pipeline.
“When these projects become fully operational, approximately 500MMscf of gas in aggregate will be supplied to the domestic market from these two gas processing plants, which represents over 25 percent incremental growth in gas supply,” Tinubu said at the commissioning.