Setting the stage for a more robust Nigerian petroleum landscape in Nigeria

The removal of fuel subsidy in the 2023 federal budget triggered a series of negative developments in the Nigerian economy, made worse by the floating of the local currency. Though necessary at the time, the measures precipitated unintended but unavoidable scenarios. The value of the naira dipped and inflation surged as commodity prices climbed in the markets. This decline in purchasing power was linked to the rising cost of fuel, principally the Premium Motor Spirit (petrol), which had significant repercussions on people’s livelihoods. The government stated it could no longer subsidise petrol imports;but hopes for local refineries to alleviate the situation were hindered by intense controversy in 2024 regarding crude supply for domestic refining.

The events surrounding the commencement of production at the 650,000 barrels per day (bpd) Dangote Refinery did not entirely take industry stakeholders by surprise. A lack of proper anticipation and inadequate scenario planning before launching operations at this massive facility were central issues. One major oversight was related to feedstock. It became evident that the existing crude production levels could not support significant production at the available refineries. This situation also posed a threat to those refineries still in development. Therefore, an increase in crude production levels became essential to avoid similar issues in the future.

At the 2024 Oil Bid Conference in Lagos in December of last year, the lead industry regulator, the Nigeria Upstream Petroleum Regulatory Commission (NUPRC), hinted at launching another licensing round in 2025 with a strong focus on fallow assets (discovered but undeveloped fields) and prioritising natural gas development. This initiative aligns with Nigeria’s commitment to the United Nations Sustainable Development Goals. Prior to this, the Commission had successfully conducted a bid round that was considered a pivotal step toward growing the country’s oil and gas reserves through aggressive exploration and development. The goal was to boost crude oil production while expanding opportunities for gas utilisation across the value chain, enhancing energy security and economic growth, attracting investments, creating job opportunities, enabling technology transfer and optimising the value of the country’s petroleum assets to ensure sustainable development.

Engr. Gbenga Komolafe, NUPRC’s Chief Executive, emphasised at the Conference the need for more frequent licensing rounds in Nigeria to unlock the country’s hydrocarbon potential, increase production levels, attract new investors and drive inclusive economic growth. One of the primary aims is to ensure effective capacity utilisation of the nation’s domestic refineries through a consistent supply of crude oil. This may explain why, at the end of 2024, the Commission unveiled the crude oil production forecast from oil-producing companies and the refining requirements of operational refineries in Nigeria for the first half (January to June) of 2025. Based on the volume of initiatives in the sector in 2024, the first half of 2025 is anticipated to witness increased collaboration between local refineries and oil-producing companies, setting the stage for a more robust and self-reliant petroleum landscape in Nigeria.

According to data compiled by the Nigerian Midstream and Downstream Petroleum Regulatory Authority (MDPRA), in accordance with Section 10(1)(2) of the Production Curtailment and Domestic Crude Oil Supply Obligation Regulations, 2023, the crude oil requirements for the first six months of 2025 from the nine operational refineries in Nigeria is estimated to be 123,480,500 barrels (bbls). The total nameplate capacity of these refineries is 974,500 bbls, with a projected daily crude requirement of 770,500 bbls and a monthly crude requirement of 23,812,000 bbls. This crude supply is expected to be sourced from more than 47 operators across various oil fields through approximately 30 terminal streams, with the largest contributions coming through the Forcados, Bonny, Qua Iboe, Escravos and Bonga terminals.

The nine refineries and their corresponding crude oil requirements are as follows: Dangote Refinery: 99,550,000 bbls,Warri Refinery and Petrochemical Company: 13,575,000 bbls,Kaduna Refinery and Petrochemical Company: 3,960,000 bbls,Old Port Harcourt Refinery Company Limited: 2,868,000 bbls,Aradel Refinery in Rivers State: 1,267,000 bbls, OPAC Refinery in Delta State: 900,000 bbls, Waltersmith Refinery and Petrochemical Company in Imo State: 814,500 bbls, DuportMidstream Company Limited: 360,000 bbls, and Edo Refinery and Petrochemical Company: 186,000 bbls. This provides valuable insight into the projected crude oil needs for the refineries, which is crucial for understanding Nigeria’s energy landscape in the first half of this year. The projected daily crude requirement represents about 37% of the estimated average daily production of 2,066,940 barrels for the first half of 2025.

In October 2024, NUPRC launched the “Project One Million Barrels Per Day Plus Initiative,” which aims to impact national production positively. Engr. Komolafe described this initiative as an industry-wide effort to unlock incremental production capacity over the short and medium terms. This aligns with Nigeria’s commitment to enhancing domestic refining capacity and ensuring the sustainability of the petroleum sector. The focus is to revitalise the upstream sector through infrastructure modernisation, security improvements and investment attraction which are currently seen as the main challenges of the industry. Others include regulatory uncertainties, market fluctuations and investment stagnation. Again, the ultimate aim is to increase oil production and position Nigeria as a key player in the global energy market.

One of the strategies to drive the initiative is leveraging the capacity of upstream operators to meet the target of 2.5 million barrels per day (bopd) in the short term. The government targets2.6 million bopd by 2026, 4 million bopd by 2030 and 10 billion cubic feet of gas output by the same year. This project focuses on enhancing investor confidence, improving regulatory frameworks and securing alternative funding for production growth. As indicated by the regulator, collaboration with producers, service providers, financiers, rig owners and crude oil off-takers is essential to ensuring sustainable growth. The regulatory agency also emphasises strict compliance with domestic crude oil supply obligations to provide adequate feedstock for local refineries and combat oil theft through collaborative efforts with security forces.

Another factor likely to boost oil production levels in 2025 is the acquisition of divested assets by local oil companies (LOCs). This is expected to significantly impact the country’s oil production landscape by increasing production capacity, potentially adding about 500 million barrels of oil reserves, and enhancing local content development, which could create a more robust local supply chain and reduce reliance on foreign expertise. Additionally, there will be opportunities for LOCs to innovate and adopt new technologies to enhance operational efficiencies. Improved regulatory support, including commitments by the NUPRC to facilitate smoother transitions of assets from international oil companies (IOCs) to LOCs, along with plans for a 2025 licensing round focused on undeveloped fields, may further stimulate investment and increase the numbers in the sector.

Overall, the three Executive Orders signed by President Bola Ahmed Tinubu on February 28, 2024, represent a significant step in a transformative agenda aligned with stringent international standards aimed at enhancing investment opportunities in the oil and gas sector. These orders seek to improve the efficiency and attractiveness of the sector, offering deliberate incentives for oil and gas development, including measures to prevent local content bottlenecks and firm directives to reduce contracting costs and timelines. This will enhance global competitiveness and achieve a higher rate of return on investments. These initiatives underscore the government’s commitment to improving production efficiency and stabilisingthe energy sector.

On the whole, there seems to be a deliberate commitment to stimulate the entire oil and gas value chain. Successful implementation of these initiatives will lead to increased oil production, job creation, enhanced government revenue, stabilised energy supply, improved access to essential services such as education and health, and generally foster economic vibrancy. Given past experiences, it is crucial to ensure community engagement in project planning and execution to maximise benefits and minimise adverse effects on local populations, particularly concerning land heritage and environmental factors. The extent of this impact will, however, depend largely on the ability of local firms to navigate existing challenges while leveraging new growth opportunities.

Ultimately, these initiatives reflect Nigeria’s determination to enhance energy security, boost economic resilience and reposition the country as a leading oil producer in the global market. Products from local refineries are already entering the international market. With all these initiatives receiving the necessary attention, the next phase is likely to meet the ambitious targets set forth by the government, regulators and operators. And the economy will be the better for it.