One of Nigeria’s fundamental problems is that we’re not a productive country.
Productivity explains how efficiently an economy converts inputs (land, labour, capital) to output. Without a doubt, we’re blessed with natural resources, but we haven’t quite figured out how to maximise the returns from our natural resources.
While there’s a global refining shortage, the NNPC’s refineries are stuck in rehab, and the Dangote refinery remains a work in progress, so refinery utilisation remains at 0%.
However, other companies like Shell, Exxon and Aramco are making record earnings from downstream refining operations.
But, even if the NNPC’s refineries were working, their ability to record such staggering profits would still be in doubt.
This problem shows up in two ways. Despite an optimal crude oil production capacity of 1.8 million barrels per day (mmbpd), Nigeria’s 2022 OPEC average has been about 1.2 mmbpd.
But what happens after extraction? Crude oil is useless to final consumers in its raw form; it has to be refined for it to be useful. Crude oil in Nigeria benefits us only because the government earns revenue from selling it; we can’t consume it unless it’s been converted to petrol, diesel, jet fuel, kerosene, or any other petrochemical.
Unfortunately, this is the second and infinitely worse way Nigeria’s lack of productivity shows up. The benefits we get from our (inefficiently produced) resources are limited. As a result, the government and the Nigerian National Petroleum Corporation Limited’s (NNPCL) earnings from crude oil are also capped.
So how much is the NNPCL losing from its lack of refining capacity? To answer this question, we have to look at the state of global refining and what other companies are earning from refining operations. Then we’ll assess what our refineries could have earned us if they worked.
Let’s start with reality.