Rethinking Nigeria’s Oil Industry: A Call for Reform, Innovation, and Economic Resilience – Dr Kenny Odugbemi

The Paradox of an Oil-Rich Nation Dependent on Imports

Nigeria, Africa’s largest oil producer, has long been regarded as a major player in the global energy market. Yet, despite its vast crude oil reserves and a recent achievement of surpassing its OPEC production quota of 1.5 million barrels per day in 2024, the country finds itself entangled in a paradox—spending billions of naira on fuel imports while its local refineries remain underutilized or inefficient.

The numbers are staggering. The Nigerian National Petroleum Company Limited (NNPCL) reportedly spent over N400 billion on fuel importation in just four months and a total of N5 trillion in Q4 2024 alone. These figures raise serious concerns about the sustainability of Nigeria’s energy sector and the broader economic implications of such excessive expenditure. How does a country so rich in crude oil struggle to refine enough fuel for its domestic needs?

The situation is even more concerning given the efforts of private-sector players like Dangote, who have invested heavily in refining fuel locally. Dangote’s $2.4 billion investment in the rehabilitation of the Port Harcourt and Kaduna refineries is a step toward reducing reliance on imported refined products. However, this is just one piece of the puzzle. Many other refineries continue to produce low-quality fuel with poor anti-knocking ratios, which not only compromises vehicle efficiency but also affects the broader economy.

This paradox highlights deeper structural issues within Nigeria’s oil industry—issues that, if left unaddressed, will continue to drain the country’s resources and hinder its progress toward energy security and economic resilience.

Breaking the Cycle: Key Steps Toward Sustainable Growth

For Nigeria to transition from an import-dependent oil industry to a self-sufficient and globally competitive energy powerhouse, decisive action is required. The following strategies offer a roadmap to reform and sustainable development:

1. Invest in Refining and Infrastructure Development

A major part of Nigeria’s oil industry problem lies in its inadequate refining capacity. The country’s refineries have, for decades, operated far below their potential due to poor maintenance, corruption, and mismanagement. While the government has made efforts to rehabilitate refineries, these initiatives have often fallen short due to delays and inefficiencies.

To solve this, there must be a serious commitment to modernizing refining infrastructure. Upgrading pipelines, refining plants, and storage facilities will not only improve efficiency and reduce losses but also lower the cost of refined products for Nigerian consumers.

Additionally, government policies should encourage private-sector participation in refining. If more private refineries—like the Dangote refinery—are established and allowed to operate efficiently, Nigeria can significantly cut down on fuel importation and boost domestic supply.

2. Strengthen Security to Curb Oil Theft and Pipeline Vandalism

Oil theft and pipeline vandalism have long plagued Nigeria’s petroleum industry, leading to billions of dollars in losses annually. The Niger Delta region, in particular, has become notorious for illegal bunkering and pipeline sabotage, which further reduces the country’s ability to refine and distribute fuel efficiently.

To combat this, Nigeria must:

• Deploy advanced security technologies, such as drones and real-time surveillance, to monitor pipelines and oil facilities.
• Collaborate with international security experts to adopt best practices in oil asset protection.
• Enforce stricter penalties for oil theft to deter criminals and illegal operators.

By prioritizing security, Nigeria can significantly reduce leakages in the system and maximize its oil revenue.

3. Promote Transparency and Accountability in the Oil Sector

One of the biggest challenges facing Nigeria’s oil industry is the lack of transparency and accountability in oil revenue management. Billions of naira are unaccounted for yearly due to mismanagement, corruption, and opaque transactions.

To restore confidence in the sector, the government must:

• Conduct regular audits of NNPCL and other key players to ensure financial integrity.
• Publicly disclose oil revenue figures and spending reports to increase transparency.
• Implement a strong regulatory framework that holds oil companies and officials accountable for financial mismanagement.

A more transparent oil sector will not only boost investor confidence but also ensure that oil wealth benefits the Nigerian people, rather than a select few.

4. Diversify Nigeria’s Economy Beyond Oil

Nigeria’s overdependence on crude oil has made it vulnerable to global oil price fluctuations. Each time oil prices crash, the country experiences economic shocks that lead to inflation, job losses, and reduced government revenue. This cycle has been repeated for decades, yet little has been done to diversify the economy.

The government must take deliberate steps to develop other sectors, including:

• Agriculture – Investing in mechanized farming and agro-processing to make Nigeria a major food exporter.
• Manufacturing – Creating policies that encourage local production and reduce reliance on imported goods.
• Technology & Innovation – Supporting startups and tech-driven industries to create employment and boost the economy.

A well-diversified economy will not only reduce Nigeria’s dependence on oil but also provide more stable revenue streams for national development.

Reforming NNPCL: A Necessary Overhaul

For Nigeria’s oil industry to thrive, NNPCL must undergo a comprehensive restructuring. The company, in its current state, is too bloated, inefficient, and heavily politicized to function as a truly competitive and commercially viable entity.

Recommended Reforms for NNPCL:

• Unbundle and Restructure: Splitting NNPCL into separate entities for upstream, midstream, and downstream operations will improve efficiency, accountability, and competition within the sector.
• Adopt a Commercial Mindset: NNPCL must move away from government dependency and operate as a self-sustaining, profit-driven organization that competes globally.
• Leverage Technology and Innovation: Incorporating blockchain for transparent transactions, AI for predictive maintenance, and IoT for real-time monitoring can drastically improve efficiency and reduce losses.
• Enhance Transparency and Accountability: Mandatory audits, public disclosure of financial statements, and stakeholder engagement will help eliminate corruption and build trust in NNPCL’s operations.
• Diversify Revenue Streams: Instead of relying solely on crude oil exports, NNPCL should explore investments in petrochemicals, renewable energy, and natural gas markets to secure long-term profitability.

These reforms, if properly implemented, will position NNPCL as a global energy powerhouse rather than a state-owned liability.

The Time for Change is Now

Nigeria is at a crossroads. The choices made today will determine whether the country remains trapped in a cycle of fuel importation, mismanagement, and economic instability or whether it emerges as a self-sufficient, energy-secure, and economically resilient nation.

The government, industry stakeholders, and international partners must urgently align their strategies to drive meaningful reform. By investing in infrastructure, ensuring security, enforcing transparency, and diversifying the economy, Nigeria can finally break free from its oil dependency and achieve long-term prosperity.

The future of Nigeria’s oil industry is not just about sustaining current production levels—it is about reimagining and reshaping the industry to serve the people, drive innovation, and position Nigeria as a global energy leader.

The time to act is now.