Nigeria’s push for energy independence through domestic refining is faltering as modular refineries face crude supply bottlenecks, punitive logistics costs, and a lack of incentives that leave them struggling to survive.
At the heart of the crisis lies a paradox. Nigeria, Africa’s largest crude producer with an installed refining capacity of 1.1 million barrels per day, continues to export around 70 percent of its oil, while modular refineries – smaller and cost-effective plants designed to plug the supply gap – operate at less than 10 percent of their capacity.
The result is a sector that bleeds cash, haemorrhages investor confidence, and fails to deliver the promised economic security that policymakers have long touted, according to an exclusive document presented to the Senate Committee on Downstream Petroleum Sector by Crude Oil Refiners Association of Nigeria (CORAN).
“While Nigeria exports roughly 70 percent of its crude oil, modular refineries inside its borders are starved of feedstock, making the country both a major crude exporter and an importer of refined products,” a senior executive in the energy sector told BusinessDay.
A promise undone
The ambition was straightforward. Modular refineries would act as nimble players in Nigeria’s oil landscape, producing diesel, kerosene, naphtha and residual crude oil.
With more than 40 licences issued and additional projects under construction, the strategy was to reduce imports, conserve foreign exchange, and stimulate local jobs.
But instead of thriving, many of these facilities are paralysed. Access to crude remains the most persistent hurdle. Section 109 of the Petroleum Industry Act (PIA) was supposed to enshrine a Domestic Crude Supply Obligation, compelling upstream producers to prioritise local refiners.
In practice, however, the provision has been watered down by the ‘willing buyer, willing seller’ clause, leaving smaller refiners to fend for themselves in a market where traders and international buyers exert greater bargaining power.
Refiners complain that crude is routinely offered at premiums of about $3 per barrel above official prices.
“This implies that local refiners are either being gouged with above-market prices or Nigeria is being short-changed by using below-market prices to compute royalties due to the government,” COREN said in the document.
Read also: Energy crisis: Which way Nigeria on proposed modular refinery licensing?
Logistics as hidden tax
Even when refiners do secure crude, moving it to processing plants and distributing finished products creates another layer of pain. Charges levied by the Nigerian Ports Authority (NPA) and the Nigerian Maritime Administration and Safety Agency (NIMASA) compound the financial burden.
Industry executives point out that discharging crude at Nigerian ports costs three times as much as lifting it at export terminals.
Loading products domestically is $3 per tonne more expensive than in Lome, the neighbouring Togolese hub that has quietly become a more efficient conduit for petroleum trade.
CORAN said, “High logistics costs fees charged by NPA & NIMASA disadvantage domestic refiners. For example, charges for discharging crude are 3x the charges for lifting it at the crude oil terminals. It costs $3/ton more to load products from a domestic refinery vs. Lome.
“The Dangote Refinery, with its massive marine and storage infrastructure, is somewhat shielded from these bottlenecks. Modular refineries, however, lack such scale and bear the brunt of high logistics costs, which act as a hidden tax on their operations,” said Wale Akintunde, a senior energy analyst in a modular refinery, told BusinessDay.
The logistics problem is structural as much as fiscal. Nigeria’s pipeline infrastructure is weak as truck movements are vulnerable to theft and sabotage, with barge transport remaining limited.
“For modular refineries, whose economics depends on lean supply chains, these inefficiencies function as an invisible tax, steadily eroding margins in a market already distorted by dumped imports,” Akintunde added.
Dumping and import paradox
BusinessDay’s findings showed the Nigerian market is flooded with petroleum products arriving at prices below import parity.
Data compiled in August showed ex-depot petrol prices falling 10 percent short of the delivered cost into Lagos, suggesting aggressive dumping, particularly from Russia. That may explain why Nigeria, despite its crude wealth, continues to import nearly half of its refined product needs.
“Domestic refineries continue to face several challenges, which include: difficulty in accessing sufficient crude oil to meet their requirements, dumping of petroleum products from abroad (especially from Russia), and high NPA/NIMASA port charges,” CORAN added.
This situation creates a vicious cycle. Imported fuel, priced artificially low, undercuts local refiners and makes their products unsellable without subsidies. Yet the same imports deepen Nigeria’s dependence on foreign suppliers, drain scarce foreign exchange, and undermine the central policy goal of self-sufficiency.
The contrast with peer producers is stark. BusinessDay’s findings revealed the United States, Saudi Arabia, Russia, and even smaller exporters such as Kuwait and Iraq supply nearly all their domestic demand through local refineries.
Nigeria, by contrast, is the outlier: A top-10 crude producer importing up to 57 percent of its refined fuel consumption, according to findings by BusinessDay.
CORAN noted that the World Trade Organization (WTO) recognised dumping as an issue and allows for import duties to close price gaps and protect the domestic industry
“Typically, anti-dumping action means charging extra import duty on the particular product from the particular exporting country to bring its price closer to the ‘normal value’ or to remove the injury to the domestic industry in the importing country,” CORAN said.
Dangote’s dominance
Amid the sector’s malaise, one giant stands apart. The Dangote refinery, Africa’s largest and the world’s biggest single-train facility at 650,000 barrels per day, has reached steady-state operations at around 550,000 barrels daily.
With dedicated marine facilities, vast storage capacity, and advanced process technology, it has already tilted the balance of Nigeria’s fuel supply.
Dangote now meets the country’s entire demand for jet fuel and diesel, turning Nigeria into a net exporter of both.
In less than a year of commercial operations, it has sold more than 20 million tonnes of refined products across five continents. Its scale minimises production costs and allows it to swing between crude grades, an advantage no modular refinery can match.
A regulatory thicket
The PIA, passed in 2021 after two decades of legislative wrangling, was meant to resolve these tensions. Instead, its ambiguities have left refineries in limbo.
For instance, Section 109 of the Petroleum Industry Act, 2021 enshrines the Domestic Crude Supply Obligation, which is aimed at ensuring the supply of crude oil to local refineries.
“In the gazetted regulations, the obligation is only imposed when there is a shortage, by which time it is too late, as a refiner will naturally look for all avenues to avoid a shortage,” CORAN said.
CORAN said local refineries continue to struggle to access a supply of locally produced crude oil to meet local refining capacity.
“Many modular refineries are operating at a very low capacity due to insufficient supply of crude oil,” CORAN added.
Lessons from abroad
International precedents show that protecting domestic refining capacity is neither novel nor radical. The United States imposed a crude export ban for four decades following the Arab oil embargo in the 1970s, prioritising domestic energy security. Indonesia and Argentina have taken similar steps in more recent years, mandating domestic supply before permitting exports.
“All three countries recognise that domestic refining cannot compete if crude is siphoned away to more lucrative export markets,” Tunde Adebowale, head of research at Alliance Capital, said.
CORAN appeals to the Senate Committee for a countervailing tariff on imported petroleum products to stem dumping, reduce port charges by NPA and NIMASA, and strict enforcement of the Domestic Crude Supply Obligation under the PIA.
“NMDPRA and NUPRC should be mandated to ensure sufficient supply of crude oil for local refineries in line with the PIA. NPA and NIMASA reduce port charges in order to support local refineries,” CORAN said.
