The Nigerian oil refining sector recorded a significant expansion in the fourth quarter of 2024, marking the first quarterly growth in five years.
According to the recently published Gross Domestic Product (GDP) report by the National Bureau of Statistics (NBS), the sector posted a real GDP growth of 9.59% in Q4 2024.
A trend analysis by Nairametrics Research highlights that the last time the oil refining subsector recorded positive growth was in Q4 2018 when it expanded by 33.6%. Since then, the sector has been in persistent contraction due to various structural challenges, including inadequate refining capacity, aging infrastructure, and reliance on imported refined petroleum products.
In nominal terms, the oil refining sector was valued at N20.5 billion in 2024, slightly lower than the N22.8 billion recorded in the previous year.
Key drivers of growth
The revival in the oil refining sector is largely attributed to the commencement of operations at the Dangote Refinery in mid-2024. The 650,000-barrel-per-day facility, recognized as the world’s largest single-train refinery, has begun supplying refined petroleum products both domestically and internationally.
This development has reduced Nigeria’s dependence on imported fuel and is expected to improve the country’s trade balance by curbing foreign exchange demand for fuel imports.
The oil sector maintains growth momentum
Beyond refining, the broader oil sector sustained growth throughout 2024, recording an annual GDP expansion of 5.54%. This marks a significant rebound from the 2.22% contraction witnessed 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%, primarily due to base effects from the high 12.11% expansion recorded in Q4 2023.
- Several factors contributed to this turnaround in the Nigerian oil industry. Favourable international crude oil prices have provided support for Nigeria’s oil earnings, coupled with increased crude oil output.
- According to the NBS, Nigeria’s average crude oil production improved from 1.44 million barrels per day (mbpd) in 2023 to 1.5 mbpd in 2024, reflecting gradual recovery efforts in the sector.
- Also, several reforms by the federal government targeted at the oil sector has supported increased activities in 2024. Worthy of note is President Tinubu’s signing of executive orders introducing fiscal incentives for non-associated gas midstream and deepwater developments, streamlining of contracting process to compress the contracting cycle to six months, and the application of the local content requirements without hindering investments or the cost competitiveness.
- Similarly, enhanced security measures and targeted interventions have helped reduce crude oil theft, ensuring improved output and boosting investor confidence in the sector.
Bottom line
The sustained growth in Nigeria’s oil refining and upstream sectors presents a positive outlook for the country’s economic diversification efforts.
- The operationalization of the Dangote Refinery, coupled with ongoing government reforms, is expected to enhance domestic refining capacity, reduce import dependency, and improve foreign exchange stability.
- However, key challenges remain, including regulatory uncertainties, infrastructure deficits, and security concerns in oil-producing regions.
- Addressing these bottlenecks will be critical to ensuring the long-term sustainability of growth in Nigeria’s oil and gas sector.
As the country continues to implement policy reforms and attract investments into the energy sector, the momentum seen in 2024 could lay the foundation for a more resilient and competitive oil industry in the years ahead.
