Nigeria’s 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 (GDP) report from the National Bureau of Statistics (NBS) revealed that the refining sector grew by 9.59% in Q4 2024, ending a prolonged period of contraction that had persisted since 2018.
An analysis by Nairametrics Research shows that the last time the oil refining sector posted positive growth was in Q4 2018 when it expanded by 33.6%. However, the sector has since suffered a continuous decline due to aging infrastructure, inadequate refining capacity, and heavy dependence on imported petroleum products.
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The recovery in 2024 underpins a major shift, largely driven by the operational launch of the 650,000-barrel-per-day Dangote Refinery.
However, the nominal value of the refining sector was recorded at N20.5 billion in 2024, slightly lower than the N22.8 billion recorded in 2023. This suggests that while real output has improved, the monetary value of refining activities still trails pre-2018 levels, emphasizing the fragility of the recovery.
Dangote Refinery’s Expansion Fuels Growth in the Refining Sector
The primary catalyst behind the resurgence of Nigeria’s refining sector is the Dangote Refinery, which began operations in mid-2024. The refinery, recognized as the world’s largest single-train refinery, has significantly altered Nigeria’s refining landscape by producing and supplying refined petroleum products both domestically and internationally.
Dangote Refinery has been actively expanding its reach into international markets, exporting refined products to countries that previously relied on fuel imports from Europe and Asia. The refinery’s entry into these markets has positioned Nigeria as a key player in the global refining business, while also reducing the country’s dependence on imported fuel.
Domestically, Dangote has been aggressively pushing to win over Nigerian fuel marketers and consumers who have long relied on fuel imports. The refinery has strategically reduced its supply prices, making locally refined petroleum products more attractive than imported alternatives. This competitive pricing strategy is aimed at capturing a larger share of the domestic market, ensuring that more fuel is sourced from within Nigeria rather than being shipped in from abroad.
The ability of the Dangote Refinery to sustain this growth trajectory is expected to play a vital role in ensuring continued expansion in Nigeria’s refining sector. If the refinery maintains its competitive pricing and continues to expand its export footprint, the refining sector is likely to experience further gains in 2025 and beyond.
The Growth Could Have Been Bigger if State-Owned Refineries Were Functional
While the growth recorded in Q4 2024 is a welcome development, industry experts believe the expansion could have been much larger if Nigeria’s state-owned refineries, managed by the Nigerian National Petroleum Company Limited (NNPCL), were fully operational.
For years, Nigeria’s three major state-owned refineries—located in Port Harcourt, Warri, and Kaduna—have remained largely inactive, operating at near-zero capacity despite multiple rehabilitation efforts. If these refineries were functioning at even partial capacity, Nigeria’s domestic refining output would have been significantly higher, further reducing fuel importation and strengthening the local refining sector.
The failure of the NNPC to revive these refineries has left Dangote Refinery as the sole major player in Nigeria’s refining sector. While Dangote’s operations are helping to stabilize supply, the absence of additional refining capacity from state-owned facilities means that the Nigerian refining sector is seemingly monopolistic.
Impact on Nigeria’s Trade Balance and Foreign Exchange Stability
The resumption of domestic refining activities has had a positive impact on Nigeria’s trade balance. Previously, the country spent billions of dollars annually on fuel imports, which placed immense pressure on foreign exchange reserves and contributed to naira depreciation. With Dangote Refinery ramping up production, Nigeria’s fuel import bill has started to decline, reducing the demand for foreign exchange and easing pressure on the naira.
However, the full benefits of local refining are yet to be fully realized. The naira remains weak, and fuel importation has not been completely phased out.
Overall Oil Sector Growth and Government Reforms
Beyond the refining sector, the broader oil industry experienced sustained growth throughout 2024, posting an annual GDP expansion of 5.54%. This represents a significant rebound from the 2.22% contraction recorded in 2023. On a quarterly basis, the oil sector maintained positive growth across all four quarters, although growth in Q4 2024 slowed to 1.48%, a sharp drop from the 12.11% recorded in Q4 2023. The slowdown was primarily due to base effects, as the high growth in 2023 set a tough benchmark for year-on-year comparison.
Several factors contributed to the overall recovery in Nigeria’s oil sector. Higher international crude oil prices provided a strong revenue boost for Nigeria’s oil earnings, while crude oil output increased from an average of 1.44 million barrels per day (mbpd) in 2023 to 1.5 mbpd in 2024.
The administration of President Bola Tinubu also implemented key policy reforms aimed at revitalizing the sector. These included fiscal incentives for deepwater and midstream gas projects, streamlining contracting processes to reduce approval timelines from 36 months to six months, and adjusting local content requirements to encourage foreign investment without driving up project costs.
Enhanced security measures in oil-producing regions also helped reduce crude oil theft, ensuring that more output reached the market and boosting investor confidence in the sector.
Challenges Ahead
Despite the positive momentum in Nigeria’s refining and oil sector, several challenges remain. Regulatory uncertainty continues to be a concern for investors, as shifting government policies and unclear regulations create an unpredictable business environment. Infrastructure deficits persist, particularly in transportation and storage facilities for refined products. Security risks, including pipeline vandalism and militant activities in the Niger Delta, remain a major threat to steady production and investment in the industry.
Against this backdrop, global oil and gas investors have funneled an estimated $80 billion into energy projects elsewhere, largely bypassing Nigeria over the past decade, according to Olu Verheijen, Special Adviser to President Bola Tinubu on Energy.
To reverse this trend, she said Tinubu issued three landmark directives in February 2024—Directives 40, 41, and 42—designed to remove investment bottlenecks and enhance Nigeria’s competitiveness in the global energy market.