Allow a Dummy Introduce you to Oil and Gas
Driven by my frustration at buying a full tank of fuel for my car at 50 thousand naira, as opposed to the 12 thousand naira I was used to before May 29, 2023, I decided to learn about what fuel is, what makes it expensive, the challenges we face as a country, and generally about oil and gas.
Although I lack a background in petrochemical engineering, I do understand most of the terms I have researched. However, I won’t bother you with explicit jargons, as I would have loved to learn it like a layman also. Allow me to break it down for you as simply as I can, in three steps.
First things first, the petrol we use in our cars (also called PMS) is refined from a hydrocarbon (a chemical element) called crude oil. This crude oil is being dugged and extracted from the earth’s surface.
The process of extracting this crude oil and other hydrocarbons, such as natural gas is called Drilling. Drilling operations are like digging holes in the ground to get or extract hydrocarbons. It is a complex job that involves several stages, specialized equipment, and a skilled workforce. You can imagine, right?
Now when these hydrocarbons are brought to the surface of the earth, they are as dirty as you could imagine, thus the need to refine them.
They are moved in tankers from the drilling/production sites and then stored in tank farms or underground storages like reservoirs.
The next line of action is to sell some portions of these hydrocarbons to international markets to make a profit, and transport the remaining to refineries within the country where they would be converted into usable products like gasoline, diesel, jet fuel, heating oil, and petrochemicals. Bringing crude oil and natural gas to the earth surface is achieved using methods including natural flow, artificial lift, etc.
The final step after the refining process is the distribution of these usable oils within the country to NNPC filling stations and retailers like AA Rano, AYM Shafa, Conoil, Total, Mobil, Shema, etc. Some refinery outputs are also converted into chemicals used in the production of plastics, fertilizers, and other industrial products.
In summary, the exploration (or extraction) and production of hydrocarbon, which was our first step, is popularly referred to as Upstream activities.
We then have the Midstream activities which involve the transportation, storage, and wholesale marketing of hydrocarbons.
Lastly, the refining of crude oil, processing of natural gas, and marketing and distribution of the finished products is referred to as the Downstream activities.
Now that we know all these, where does the Nigerian oil and gas sector lack?
From my not-so-extensive research, I have come to understand that there are loopholes right from the upstream activities to the end of the downstream activities. The major issue being that we have refineries, but have become almost extinct. What then did our leaders decide to do to cover this loophole? Exporting crude oil internationally to be refined and imported back to Nigeria. Uhm? I know.
Other issues range from upstream activities, which could involve factory accidents, human labor, human error, oil spillages that damage the ecosystem, and oil theft. To midstream issues like vandalism of warehouses, pipeline problems, poor transportation and storage facilities, insecurity, and lack of inspection and surveillance of refineries. Additionally, upstream issues like data collection, processing, and keeping track of production capacity are also problematic.
Now, let’s revisit the critical issue: REFINERIES.
Nigeria has three major refineries: the Port Harcourt Refining Company (PHRC), Warri Refining and Petrochemical Company (WRPC), and Kaduna Refining and Petrochemical Company (KRPC), all operated by the Nigerian National Petroleum Corporation (NNPC).
However, the operational status and efficiency of these refineries have been a matter of concern for years due to frequent breakdowns, maintenance issues, and inadequate investment in modernization. These challenges have led Nigeria, despite being a major oil producer, to rely heavily on imported petroleum products to meet domestic demand.
You must remember that Nigeria is blessed with the natural resource of crude oil, which is the major driver of the country’s economy. What happens when you export your abundant oil to another country for refining, then re-import it? You incur cost for export, import, and refining services — all conducted in international currency. Additionally, you bear the risk of oil theft. Yes, this contributes to our ridiculous exchange rate.
But that is not only as far as it goes, because the government pays for fuel subsidy, again, leading to significant losses.
So what is fuel subsidy? Fuel subsidy is a government measure to reduce the cost of fuel for it’s citizens. It is pretty clear that the cost of fuel is a significant component of the overall cost structure in an economy. Lower fuel prices can help maintain stable prices for goods and services, and also makes transportation and goods more accessible for the poor.
Let’s not forget its direct impact on energy for electricity, prompting a massive push for renewable energy these days. But that’s a topic for another day.
Why was there a push to remove fuel subsidy then?
Now that I have a slightly better understanding of how the systems works, removing it seems like the only logical choice. It has become apparent that the funds allocated for fuel subsidy have been flowing through questionable channels, often disappearing altogether. Therefore, the decision was made to redirect the money intended for subsidy towards other essential aspects of governing the country.
The fuel subsidy was removed on the inauguration day of President Bola Ahmed Tinubu, on May 29th, 2023, during his inauguration speech.
As a fellow Nigerian, let’s discuss. How has life been since then? How has the economic situation affected your daily life? What are your thoughts on the current state of the Oil and Gas sector? And regarding the new Dangote Refinery, which is a private enterprise, how do you think the government will leverage its efficiency?
This article merely scratches the surface. I thoroughly enjoyed learning and writing this article, and I hope to further educate you on this topic, covering challenges and proposed solutions.
Now that you are armed with all this knowledge, go out there and impress your friends. Or better yet, bore them with these facts until they plead for mercy.
Until next time,
Benazir.
