Decentralization has taken hold of Nigeria’s oil industry and is forcing changes in the Nigerian oil market, leading to the construction of oil refineries by Nigerian companies.
Nigeria has gigantic energy reserves that make an important contribution to the national budget, especially petroleum plays an important role in Nigeria. There are large natural gas production wells in the south of the country, some of which are located off the coast of Nigeria and the Lagos region. At present, Nigeria is concerned with whether the oil production, but above all the oil refinery business, should remain in state hands or whether the oil refinery business is handed over to private hands. The advantage of privatization is that Nigerian oil production would be less inefficient. At the moment, large quantities of natural gas are lost due to technical problems, that urgently need to be corrected, but this requires a lot of capital and manpower to solve. There are also many parties involved, which means stakeholder management is important. There are now investors willing to invest in Nigeria’s oil refining business, including some of Nigeria’s largest capital investors who want to expand their business activities in the energy sector, in their home market. These entrepreneurs are from Nigeria, they do not come from another country, which means they have a strong interest to invest long-term.
The time is well chosen, because the Nigerian economy is currently on the up, the demand for energy in Nigeria is growing steadily, even if the prices are still somewhat low. In addition, there are already many logistics companies that would be willing to take over the energy transport. However, it must be considered that there is a lot of resistance against decentralization of the energy system. Many Nigerians do not want that certain economic activities are taken over by market participants. On the state level things are a bit more specific, the Nigerian government does not want to see oil production being separated from the oil refinery business. So all in all, it appears there is some resistance to the privatisation of state infrastructure.
Nigeria will focus more on oil refinery business in the future, and on the construction of small liquefied gas terminals in Nigerian ports
One has to bear in mind that Nigeria has to import most of its energy supplies from abroad. The oil is therefore transported from the oil production sites to the ports, shipped to be processed in oil refineries abroad. There are technological reasons for this, but there are also cost reasons. Nigeria’s prices for crude oil on the domestic market do not yet make the processing of crude oil lucrative enough, which also explains why a large part of the oil produced is simply burned without being used, because these quantities cannot be refined. The idea is to establish LNG terminals in the domestic market in addition to own oil refineries in order to offer liquid gas to customers in the domestic market.
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This article is just meant to inform the reader of recent developments in the energy industry at large and to share knowledge and insights with a wider audience. The author does not put forth investment recommendations.
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