Last December, just around Christmas, Nigerians witnessed a sight that should be unthinkable in a country with our oil and gas resources – long, snaking queues for fuel at our nation’s petrol stations. So just why is our country – one which has such rich reserves of its own – struggling to supply adequate amounts of gasoline to keep our domestic economy moving?
An untenable situation
“Blaming these shortages on the petrol suppliers themselves is unacceptable,” says our Chairman Onajite Okoloko. “While I condemn the short-sightedness and opportunism of fuel merchants and petrol stations that hoard fuel in situations like this, their actions mask the root causes of this problem. It is clearly inexcusable that a country with the rich natural resources of Nigeria should be unable to supply enough fuel to its people – and of course much of this is down to a lack of investment in our own domestic refining capabilities. ”
The need for domestic infrastructure
Clearly, not having enough domestic refineries is having a damaging effect, not just on the oil and gas sector but on the broader Nigerian economy itself. Having more of our own oil refineries would allow us to take the raw crude oil that is extracted from our country’s plentiful reserves and transform it into usable products like the gasoline that power our nation’s cars. Yet without this capacity, we have become overly dependent on expensive foreign imports of refined petroleum products, which in turn leaves us dangerously exposed to the vagaries of other country’s production levels and their economic health.
Another cause of the fuel shortages that happened last December – above and beyond the deeper problem of a lack of domestic refining facilities – is the rising global oil price and the detrimental knock on effect that this is having on the ability of local petroleum marketers to make a profit.
Local Nigerian petroleum marketers have told the NNPC, our nation’s state oil company, that they want more concessions – such as subsidies or higher pump prices – to offset the rising oil price they are paying on expensive imports. As marketers see their profit margins reduce due to higher import costs, shortages loom, and the hoarding of petrol begins at a local level as a direct reaction to the threat of diminishing supplies.
A way forward?
What then is the answer to this issue? Well, further investment in domestic refining is clearly critical, and the huge refinery development at Dangote and Midwestern’s own investment in the new Oil and Gas Free Zone are hugely welcome, of course. It remains to be seen if other players in the industry – with the backing of our nation’s government – are also prepared to invest in this crucial area.
But it is also clear that the government also needs to listen to the demands of petroleum marketers who are seeing their margins squeezed on expensive imports. Of course, petroleum is always scarcer in the winter months anyway, but marketers are, unsurprisingly, using these shortages to pressure the government into action.
“We have to try to create a situation that is beneficial to all parties,” says Mr Okoloko. “At the moment, we are in a position where we are all too vulnerable to external pressures. We are over-dependent on expensive foreign imports, the supply chain is struggling to make money as prices increase, and ordinary people are suffering as a result. It is hugely important therefore that we build an effective domestic refining infrastructure that allows us to take full advantage of the rich resources we have in our country. I believe there is a big opportunity here – it’s now up to everyone within the Nigerian oil and gas industry to have the will and the vision to take it.”