This strategic shift was announced by Mele Kyari, the Group Chief Executive Officer of NNPC, during the ongoing conference of the Nigerian Association of Petroleum Explorationists (NAPE) in Lagos. The conference centers on the theme "Resolving the Nigerian Energy Trilemma: Energy Security, Sustainable Growth, and Affordability."
This development occurs amidst claims from some petroleum marketers who assert that they will continue to import petroleum products and offer them at prices lower than those from the $20 billion refinery.
In August, President Bola Tinubu indicated that the nation was spending an average of N2 trillion monthly on fuel imports.
According to Tinubu, the introduction of compressed natural gas in the country could potentially save over N2 trillion each month that is currently allocated to importing petrol and diesel, thereby allowing for greater investment in healthcare and gas education.
The President's remarks suggest that Nigeria spends approximately N24 trillion annually on importing petrol and diesel, not accounting for aviation fuel, kerosene, and gas.
Despite being an oil-producing nation, Nigeria has relied on fuel imports for years due to insufficient local refining capacity.
During the NAPE Conference, Kyari confirmed that NNPC is no longer importing fuel, stating, “Today, NNPC does not import any product; we are sourcing solely from domestic refineries.”
It is important to note that NNPC was the exclusive off-taker of Dangote PMS until the Federal Government allowed other marketers to engage directly with the refinery for fuel lifting.
Kyari also refuted claims that NNPC was undermining the Dangote refinery, addressing concerns about the company's support for domestic refining amidst various media narratives.
The circumstances are not as they may initially appear, and I will address this matter head-on. We take immense pride in our stake in the Dangote refinery, without question. We recognized a substantial opportunity, given the evident demand for at least 300,000 barrels of our production. As time goes on, we foresee that many will encounter difficulties in securing markets for their output.
This trend is already manifesting. Oil discoveries in various unexpected regions around the globe are providing alternatives for consumers. As a result, we have identified an opportunity to supply not only the Dangote refinery but also any other refinery operating within the country, making this a strategic business decision.
From the beginning, we recognized that supplying crude oil to local refineries would be beneficial for us. We do not need persuasion or external influence to pursue this; our commitment is already established, he emphasized.
On the topic of Nigeria prioritizing domestic oil production, he noted that Nigerian crude is comparable to 'Lamborghini crude,' suggesting that the resulting products would carry a high price tag.
Kyari pointed out that the issue of high-quality fuel is subjective, as many refineries tend to avoid Nigerian crude due to its expense. He revealed that some international traders buy Nigerian crude and blend it with lower-quality fuel to cut costs.
He remarked, "We must keep in mind that Nigerian crude is 'Lamborghini crude.' If we insist that all products in this country must come from domestic production, we need to address the pricing issue. Otherwise, in the global market, many opt to purchase Nigerian crude and mix it with inferior crude for processing. Very few refineries process Nigerian crude directly, as this creates a value gap."
As a nation, I firmly believe that we should maximize the processing of all crude oil produced within our borders. By creating intermediate products for the market, we are still adding value to our resources. There is no necessity to export gasoline derived from Nigerian production.
We have the opportunity to process this crude domestically, ensuring that the quality remains high. It is widely recognized that we are capable of producing high-quality products, but it is important to note that this is not a requirement. For instance, if you are operating a Keke-Napep, you do not need fuel of Lamborghini quality. The perception of quality is relative and varies by geography and location, and we are committed to localizing this process.
Currently, NNPC does not import any petroleum products; we rely solely on domestic refineries. However, I acknowledge that we are collaborating with the government to address pricing challenges that may arise from sourcing all our supplies domestically. This is a concern we are actively working to resolve, and I can assure you that significant progress has been made, which will alleviate this issue moving forward.
Regarding the sale of crude oil to Dangote in naira, the NNPC leader refuted allegations that the company was unwilling to sell crude oil to Dangote in naira as a means of undermining the refinery’s operations.
“There are numerous assertions suggesting that the NNPC is intentionally refraining from selling crude to the refinery in naira as a tactic of sabotage. This is simply not true! Selling crude to a domestic refinery in naira and purchasing the refined product in naira results in a net zero effect. There is no loss, and likely no gain.
“Regardless of the approach taken, foreign exchange will still be necessary for any imports. Therefore, if imports are halted and sales are conducted in naira, it merely represents a substitution. This serves as a settlement mechanism, and we should acknowledge the President for introducing this initiative.”
The impact on our country will be significant, as the primary source of foreign exchange pressure stems from the importation of Premium Motor Spirit (PMS), which represents the highest value. By effectively managing this aspect, we can eliminate speculation surrounding the naira related to the foreign exchange needed for domestic product supply.
This control over speculation will lead to reduced inflation and alleviate foreign exchange pressure, as it would stabilize the exchange rate for half of our imports. This initiative is commendable, and I would like to acknowledge the President for introducing it.
The Group Chief Executive Officer highlighted that Nigeria currently lacks energy security. He pointed out that 50 percent of the population lacks access to electricity, while 70 percent do not have access to clean fuel.
When discussing energy security, many immediately think of PMS; however, it encompasses much more than that. Today, it is evident that over half of our population is without electricity, and more than 70 percent lacks access to clean, quality fuel. This reality has been reiterated consistently over the past three to five years.
Have we made any concrete efforts to bridge the gap in electricity access and the availability of clean fuel? I believe significant progress has been made. Without hesitation, NNPC is committed to addressing these challenges, and we take pride in our role as NNPC Limited.
Kyari emphasized that the oil and gas sector has never been oriented towards supplying energy for the domestic market, indicating that this was not its intended purpose.
"Every investor present, despite the evolving landscape, is primarily focused on extracting oil or gas, exporting it, and generating profit. This is the reality. As NNPC, we are tasked with ensuring that these resources are made available for domestic consumption. This involves ensuring the availability of products for local processing, supplying finished products to the domestic market, and facilitating gas delivery within the country," stated the NNPC leader.
$2.4 billion Debt
Kyari announced the resolution of NNPC's long-standing $2.4 billion cash-call debt owed to International Oil Companies operating in Nigeria. He confirmed that the company is now free of any outstanding payments, marking a significant achievement following the complete removal of subsidies.
The cash-call debts represent funding requests from NNPC and its joint venture partners, including Mobil, Chevron, Shell, TotalEnergies, and Agip, to cover capital and operational costs for oil projects.
According to our correspondent's investigation, the total cash-call debt stood at $4.68 billion as of May 31, 2022, with NNPC settling $3.81 billion, leaving an outstanding balance of $873.34 million. However, by 2023, the debt had reportedly increased to $2.4 billion, as per the Nigerian Extractive Industries Transparency Initiative.
Kyari noted that the company can now concentrate on its primary focus in the upstream sector, explaining that the burden of subsidies often compelled the company to reallocate funds, resulting in defaults on cash calls with joint venture partners.
He praised Tinubu for his bold decision to eliminate the subsidy, recognizing that while this removal may lead to short-term financial challenges, it will promote more responsible energy consumption.
As industry professionals, it is important to recognize that PMS has significantly diverted our focus upstream. We have allocated substantial resources and cash flow to ensure its viability and continuity. This diversion has occasionally led to cash flow defaults, particularly affecting our partnership with NNPC.
With that distraction now resolved, we can confidently state that we are not in arrears regarding cash flow. To maintain this positive trajectory, it is essential to eliminate any remaining distractions, allowing the industry to produce the energy that the nation requires in a sustainable and cost-effective manner.
The Group Chief Executive Officer also indicated that by the first quarter of 2025, the country will have established 12 CNG mother stations.
"By the first quarter of 2025, we will have a minimum of 12 mother stations operational for CNG. Additionally, we are in the process of constructing a mini Liquefied Natural Gas plant, which will supply gas to the market, ensuring the quality of CNG delivery and making gas accessible to mini power plants throughout the industry in the near term," he stated.
He emphasized that this initiative will facilitate the availability of more affordable and cleaner fuel while maximizing the utilization of the country's resources.