The Struggle to Keep Nigeria’s Oil Refineries Operating Profitably

The Struggle to Keep Nigeria's Oil Refineries Operating Profitably -  TechCity

Culled From Techcity

Nigeria’s oil refining capacity utilization in 2019 declined a whopping 12.5% below their 2018 levels. The country’s petroleum refining margin has been volatile and it is difficult to reach a consensus on its profitability and ability to maximize long-term value.

Typically, higher oil prices push revenue upward as refineries pass along costs to fuel distributors. However, the consistent decline in Nigeria’s oil production has minimized refinery profitability. For instance, a 2019 review of the extractive industry by the Central Bank of Nigeria (CBN) suggests low capacity utilization of Nigeria’s three refineries, indicating decreased oil production, with little room for profitability. On average, the percentage of capacity utilization of the Warri Refining and Petrochemical Company (WRPC), Kaduna Refining and Petrochemical Company (KRPC), Port Harcourt Refining Company (PHRC), and was estimated at 13.3, 1.1, and 7.2 respectively.

Nigeria’s three refineries incurred ₦50.2bn in gross losses, but spent about ₦98.3bn in administrative/operating expenses, the 2019 report published by NNPC shows. In June of the same year, the NNPC blamed the shortfall in oil production on “…ongoing revamping of the refineries which is expected to further enhance capacity utilization once completed.”

So what’s the problem?

Despite a 445,000 BPD combined capacity to refine crude oil, Nigeria still imports over 90% of its local oil consumption demands. In fact, between 2015 and 2020, Nigeria’s oil refineries operated at an average capacity utilization of 7.87%.

In the wake of weak refining capacities of the three refineries, the Nigerian National Petroleum Corporation (NNPC) said the problem was “attributable to the ongoing revamping of the refineries are expected to further enhance capacity utilization once completed.”

One major reason for the abysmal performance of the refineries is operational failures. For instance, “operational expenses amounted to ₦10.27bn, resulting in an operating deficit of ₦10.23bn by the refineries,” according to NNPC’s report.

According to reports by the corporation, “In June 2020, Port Harcourt, Warri, and Kaduna refineries processed no crude and combined yield efficiency is 0.00% owing largely to ongoing rehabilitation works at the refineries.

For a country with a population of over 200 million people, a daily petrol supply need of 51.6 million litres, and a heavy dependence on oil revenue, this is a big cause of concern.

Table 1. Refineries in Nigeria

Add Comment