Crude Oil Value Chain Optimization Scenarios: Lessons from Nigeria- Kaase Gbakon1*, Omowumi Iledare2, Joseph Ajienka3 and Joshua Gogo1

Abstract

This paper optimizes the allocation of Nigeria’s projected oil production and refined products under three different possible scenarios - Business as Usual, Stated Policy, and Energy Transition. These scenarios capture the uncertainties offered by future oil production, increasing domestic products demand, energy prices, timing of domestic refining capacity buildup, and the calls for global transition from fossils. Based on the Reference Energy System developed by Gbakon et. al. (2021) for crude oil flow through the integrated oil value chain, the net benefit objective function is developed. The integrated oil value chain is optimized by maximizing the net benefit function under the different scenarios. Extending the framework by a Monte Carlo formulation of the problem allows greater flexibility in addressing questions of the likelihood of attaining policy outcomes such as product self-sufficiency. A family of curves is generated within the solution structure, representing the confidence interval within which policy performance outcomes can be located. Scenario analysis for example shows that under the “Energy Transition” scenario, net benefit of $ 192 billion is realized. Whereas, under the “Business-as-Usual” scenario the net benefit is $ 423 billion. Under the “Stated Policy” scenario, the net benefit is $ 718 billion. Implications for net system benefits and the respective drivers are further interrogated. The need to optimally allocate Nigeria’s future oil production and resulting refined products to diverse end-use cannot be over-emphasized. Midstream infrastructure such as refineries, pipelines and storage are critical to achieve optimal performance in the value chain. This will have impact on expected oil export earnings, domestic fuels’ imports, and the potential for petroleum products’ export earnings.