Nigeria’s Oil Refining Sector Posts First Growth in Five Years, Driven by Dangote Refinery Expansion
The Nigeria oil refining sector recorded its first quarterly growth in five years in the fourth quarter of 2024, marking a crucial turnaround in a historically underperforming industry.
The latest gross domestic product report (GDP) of the National Bureau of Statistics (NBS) revealed that the refining sector increased by 9.59% in the fourth quarter of 2024, ending a prolonged contraction period which had persisted since 2018.
An analysis by Nairametrics Research shows that the last time that the oil refining sector posted positive growth was in the fourth quarter of 2018 when it developed by 33.6%. However, the sector has since undergone a continuous decline due to aging infrastructure, an inadequate refining capacity and a high dependence on imported oil products.
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The takeover in 2024 underlies a major change, widely motivated by the operational launch of the Dangote refinery of 650,000 barrels per day.
However, the nominal value of the refining sector was recorded at 20.5 billion Nairas in 2024, slightly less than 22.8 billion nairas recorded in 2023.
The expansion of the Dangote refinery fuels the growth of the refining sector
The main catalyst behind the resurgence of the Nigeria refining sector is the Dangote refinery, which began operations in mid-201. The refinery, recognized as the largest train refinery in the world, has considerably changed the Nigeria refining landscape by producing and providing refined oil products that are both national and international.
The Dangote refinery has actively extended its scope on international markets, exporting refined products to countries that previously counted on fuel imports from Europe and Asia. The entry of the refinery on these markets positioned Nigeria as a key player in global refining activity, while reducing the country’s dependence on imported fuel.
At the national level, Dangote has grown aggressively to win on Nigerian marketing specialists and consumers who have long been on fuel imports. The refinery has strategically reduced its supply prices, which makes locally attractive refined petroleum products than the imported alternatives. This competitive pricing strategy aims to capture a larger share of the domestic market, ensuring that more fuel comes from Nigeria rather than being shipped from abroad.
The ability of the Dangote refinery to support this growth trajectory should play an essential role in the perpetuity of expansion in the Nigeria refining sector. If the refinery maintains its competitive prices and continues to expand its export footprint, the refining sector is likely to undergo additional gains in 2025 and beyond.
Growth could have been greater if public refineries were functional
Although the growth recorded in the fourth quarter of 2024 is a welcome development, industry experts believe that expansion could have been much greater if Nigeria’s public refineries, managed by national Nigerian Petroleum Company Limited (NNPCL), were fully operational.
For years, the three main public refineries of Nigeria – located in Port Harcourt, Warri and Kaduna – have remained largely inactive, operating at an almost zero capacity despite multiple rehabilitation efforts. If these refineries operated on a still partial capacity, the production of interior refining of Nigeria would have been significantly higher, further reducing the import of fuel and strengthening the local refining sector.
The failure of the NNPC to relaunch these refineries has left the Dangote refinery as the only major player in the Nigeria refining sector. While Dangote operations help stabilize the offer, the lack of additional refining capacity for public facilities means that the Nigerian refining sector is apparently monopolistic.
Impact on the Nigeria trade balance and exchange stability
The resumption of domestic refining activities had a positive impact on the Nigeria trade balance. Previously, the country spent billions of dollars a year on fuel imports, which exerted immense pressure on exchange reserves and contributed to the depreciation of Nairas. With the production of Dangote refinery, the Nigeria fuel import bill began to decrease, reducing the demand for currencies and the relaxation of the pressure on the Naira.
However, the complete advantages of local refining must still be fully achieved. The Naira remains low and the import of fuel has not been completely deleted.
Global growth in the oil sector and government reforms
Beyond the refining sector, the wider oil industry experienced sustained growth throughout 2024, displaying an annual expansion of GDP of 5.54%. This represents a significant rebound in the 2.22% contraction recorded in 2023. On a quarterly basis, the oil sector has maintained positive growth over the four quarters, although the growth of the fourth quarter 2024 has slowed down to 1.48%, a sharp drop compared to 12.11% recorded in the fourth quarter 2023. The slowdown was mainly due to the basic effects, Strong growth in 2023 has established a complex of complex bench complex
Several factors have contributed to the overall recovery of the Nigeria oil sector. The increase in international prices for crude oil has provided a sharp increase in income for Nigeria oil profits, while crude oil production increased from 1.44 million barrels per day (MBPD) in 2023 to 1.5 MBPDs in 2024.
The administration of President Bola Tinubu has also implemented key political reforms aimed at revitalizing the sector. These included budgetary incentives for deep water and median water projects, the rationalization of the procurement processes to reduce approval times from 36 months to six months, and the adjustment of local content requirements to encourage foreign investments without increasing the costs of the project.
Improved security measures in the oil producing regions have also helped to reduce crude oil theft, ensuring that more production has reached the market and strengthening the confidence of investors in the sector.
Upcoming challenges
Despite the positive momentum in the Nigeria refining and oil sector, several challenges remain. Regulatory uncertainty continues to be a concern for investors, as changing government policies and unclear regulations create an unpredictable commercial environment. Infrastructure deficits persist, especially in transport and storage facilities for refined products. Security risks, including vandalism of pipelines and militant activities in the Niger Delta, remain a major threat to stable production and investment in industry.
In this context, global oil and gas investors have channeled around $ 80 billion in energy projects elsewhere, largely bypassing Nigeria over the past decade, according to Oli Verheijen, special advisor to President Bola Tinubu on energy.
To reverse this trend, she said that Tinubu had published three historic directives in February 2024 – Directives 40, 41 and 42 – designed to eliminate investment curls and improve the competitiveness of Nigeria on the world energy market.
