Nigeria’s petroleum downstream sector is currently embroiled in a series of licensing disputes, regulatory reforms, and market transitions, creating an uncertain environment for major petroleum marketers. The recent lawsuit by Dangote Refinery against the Nigerian National Petroleum Company Limited (NNPCL) and the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) has added a layer of complexity to the already fraught industry. This comes at a time when the federal government is pushing its “Decade of Gas” initiative and more local and modular refineries are coming online, raising questions about the future role of major petroleum marketers in Nigeria.
The Licensing Dilemma: A Central Issue for Major Marketers
At the heart of the current disputes are the import licenses issued by NMDPRA, which regulate the importation of refined petroleum products into Nigeria. For years, major marketers have relied on these licenses to meet the country’s fuel demands, given the limited domestic refining capacity. The removal of fuel subsidies and the deregulation of petrol prices in 2023 further heightened the stakes, as marketers sought to navigate a more volatile market environment.
However, Dangote Refinery’s recent lawsuit, filed on September 6, 2024, has challenged the validity of these licenses, arguing that with the refinery’s production capacity now online, the country no longer needs to rely on imported petroleum products. Dangote contends that issuing licenses to marketers to import refined products like Automotive Gas Oil (AGO) and Jet Fuel (aviation turbine fuel) undermines the viability of its operations, which have invested billions of dollars to meet Nigeria’s refined product needs.
The Impact of the Dangote Refinery Lawsuit
The lawsuit has sent ripples throughout the industry, particularly for major marketers who depend on import licenses to keep their operations afloat. Dangote Refinery’s argument centres on the fact that the production of AGO and Jet-A1 from its refinery exceeds Nigeria’s current consumption, making the issuance of import licenses to other companies unnecessary and detrimental to local refining efforts.
The Federal High Court in Abuja is expected to hear the case in early 2025, and the outcome could significantly reshape the licensing framework for petroleum imports. A decision in favour of Dangote could lead to a reduction in the number of import licenses issued to marketers, compelling them to either source their products locally or invest in alternative energy distribution, such as compressed natural gas (CNG) infrastructure, to remain competitive.
The Role of Regulatory Agencies
The NMDPRA plays a pivotal role in this evolving landscape. Established under the Petroleum Industry Act (PIA) 2021, the agency is responsible for regulating and issuing licenses for both import and domestic refining activities. Its mandate includes ensuring transparency in the downstream sector, promoting competition, and enforcing safety and environmental standards.
However, the agency has come under fire from stakeholders, including Dangote Refinery, for continuing to issue import licenses despite the increasing local refining capacity. The lawsuit has highlighted concerns about whether NMDPRA is fulfilling its statutory duty to support local refiners, as required by the PIA, or if it is inadvertently favouring foreign interests and undermining domestic investments.
NMDPRA’s defence in the case is likely to revolve around the need to maintain a balanced supply of petroleum products in the short term while local refineries ramp up production. However, with more modular refineries and Dangote’s massive facility coming online, the agency will face growing pressure to adjust its licensing policies to prioritise local content and align with the federal government’s broader energy goals.
The Future of Major Petroleum Marketers in Nigeria
The future of major petroleum marketers in Nigeria is at a crossroads. With the Dangote Refinery now operational and additional modular refineries set to increase local refining capacity, the business model of importing petroleum products is becoming increasingly unsustainable. The government’s “Decade of Gas” initiative further complicates the outlook for traditional petroleum marketers.
As part of the initiative, the government aims to shift Nigeria towards a gas-based economy by 2030, reducing the country’s dependence on petrol and diesel in favour of cleaner, more abundant natural gas resources. This transition will require significant investment in infrastructure, including the retrofitting of filling stations to accommodate compressed natural gas (CNG) and liquefied natural gas (LNG).
Major marketers will need to adapt by diversifying their product offerings to include gas and renewables, or risk being left behind in the energy transition. The rise of local refineries also means that marketers may increasingly have to source products domestically, rather than rely on imports. For those who have long operated in the import-driven market, this shift represents both a challenge and an opportunity.
While some marketers are already investing in CNG infrastructure and exploring partnerships with local refiners, others may struggle to adapt to the new realities of the Nigerian energy market. The ability to pivot from a traditional fuel-import model to a more diversified energy distribution network will be key to their survival in the coming years.
Local and Modular Refineries: A Growing Challenge
The growing presence of modular refineries presents another challenge for major marketers. These smaller, locally-owned refineries are designed to address the shortfall in domestic refining capacity, particularly in remote areas. Although they currently produce a fraction of the output of larger refineries like Dangote, their numbers are steadily increasing, providing more localised supply chains and reducing the need for fuel imports.
In the long term, as more modular refineries come online and the Dangote Refinery reaches its full production capacity, the need for petroleum imports is expected to decline significantly. This will likely lead to a reduction in the number of import licenses issued by NMDPRA, further pushing marketers to explore alternative revenue streams, such as gas distribution or renewable energy.
Conclusion: A New Era for Petroleum Marketers
Nigeria’s downstream petroleum sector is at a turning point. The ongoing legal battle between Dangote Refinery and the NMDPRA, coupled with the rise of local refineries and the federal government’s push for a gas-based economy, is forcing major petroleum marketers to reconsider their business models. The days of relying on import licenses to dominate the market are coming to an end, as local production ramps up and the government shifts its focus to cleaner, more sustainable energy sources.
The future of petroleum marketers in Nigeria lies in their ability to adapt to these changes. Those who embrace the opportunities presented by the “Decade of Gas” initiative and invest in local partnerships and gas infrastructure stand to benefit from the energy transition. On the other hand, those who fail to evolve may find themselves left behind in a rapidly changing industry.
As the downstream sector continues to evolve, the role of regulatory agencies like NMDPRA will be crucial in shaping the future landscape. Ensuring a level playing field for both local refiners and marketers, while balancing short-term supply needs with long-term energy goals, will require careful management and a commitment to transparency and competition.
