On September 15th, a truck loaded with gasoline left the site of the new Dangote refinery in Lagos, marking a major milestone for Nigeria. It was the first time in more than a decade that a Nigerian refinery was supplying fuel to the local market. In fact, for the first time in 70 years as an oil producer, Africa’s largest oil exporter can now refine most of what it pumps. This is thanks to the 650,000 barrels per day production capacity of the Dangote refinery, owned by Africa’s richest man, Aliko Dangote.
In September, the refinery began producing gasoline, the fuel of choice for Nigerians that powers everything from cars to bicycles to homes and offices. This will bring the refinery’s daily production capacity to 500,000 barrels per day, which began operations in January, and is expected to reach full production capacity of 650,000 barrels per day within a year.
The Dangote refinery and other smaller private refineries currently have a combined installed capacity of approximately 740,000 barrels per day. Adding the installed capacity of 445,000 barrels per day at four state-owned refineries operated by the Nigerian National Petroleum Corporation (NNPC), the country’s total refining capacity is approximately 1.2 million barrels per day. This should come as welcome news for Nigeria, a member of the Organization of the Petroleum Exporting Countries (OPEC), as it provides an opportunity to export higher value-added products with better returns.
local currency
After initial difficulties in securing feedstock from oil companies operating in Nigeria, the government developed an arrangement for the Dangote refinery to receive oil supplies in local currency. Refiners are similarly obliged to price their supplies to the domestic market in the same currency.
“This will bring great stability to the naira and eliminate 40% of the demand for dollars in the fuel import market,” Dangote told reporters at a news conference at a sprawling complex in Lagos. “This refinery is going to really change the whole dynamics (of fuel supply), not just in Nigeria but in sub-Saharan Africa…The capabilities we have will not only meet Nigeria’s demand; It also meets the needs of sub-Saharan Africa.
Other benefits of local refining include knowing how much gasoline Nigerians actually consume, often said to be more than 60 million liters per day. This is twice as much as some industry experts had predicted given the large amounts of fuel smuggled out of Nigeria to more expensive neighboring countries. Dangote also expects that local refining will eliminate fraudulent foreign exchange demands by speculators who complete the necessary documentation for fuel imports solely for the purpose of collecting foreign exchange without bringing in the product.
The refinery appears poised to reshape global flows of both crude oil and refined petroleum products. The Dangote refinery has received an average of 177,000 barrels per day locally since the start of the year, while also ordering multiple cargoes of West Texas Intermediate (WTI) crude oil from the U.S. and some Brazilian grades, as well as the South Atlantic region. changed the flow of crude oil. . Previously, Nigeria exported all its crude oil.
“The refinery is already impacting crude oil flows, with dozens of Nigerian cargoes remaining in the country and an equivalent light-sweet grade, U.S. WTI Midland, being imported,” S&P Commodity Insights said in a recent report. ” he pointed out. “Large refineries could therefore tighten the light, sweet crude oil market.”
Imports of refined fuel from European refiners are also at risk, with 250,000 barrels per day of refined fuel equivalent expected by 2023, said Chijoke Nwaozuzu, a professor of oil economics at a university in Nigeria’s oil hub. It is said to have cost Nigeria $10 billion. , Port Harcourt. “This represents a great deal of patronage for European refineries.Nigerian fuel importers also enjoy reasonable margins and are demanding further subsidy payments.” said. “Therefore, both European refiners and importers will do everything in their power to frustrate and disrupt local refining in Nigeria.”
decreased enthusiasm
Certainly, there are signs that those who benefited from the old system will not give up so easily. Under former President Muhammadu Buhari, the government saw the Dangote refinery as a panacea to the country’s fuel supply problems, and at his request NNPC acquired a 20% stake. Mr. Tinubu has not shown the same enthusiasm for the refinery, and he is likely the reason why NNPC did not acquire the remaining shares allotted to it after paying the initial 7.5% due to a change in business strategy. I guess he did what he said.
As a result, in July Farouk Ahmed, the head of the Nigeria Midstream and Downstream Petroleum Regulatory Authority, which oversees overseas refineries, told reporters that Nigeria would continue to import fuel despite sufficient local refining capacity. At the time, many assumed he was reading the government’s script. He said that apart from the fact that the refinery was not yet fully licensed, it was producing substandard products. “We can’t rely on one refinery,” Ahmed said. “It’s not good for the country from an energy security standpoint, and it’s not good for the market because of monopoly.”
These allegations brought Dangote activists to light. In a press conference in response, Mr. Dangote said that the NNPC and the regulator had no right to do so because some officials of the NNPC and the regulator owned a fuel blending plant in Malta from where they brought substandard petroleum products to Nigeria. They claimed that the company was interfering with local refining. NNPC group chief executive Mele Kyari denied the allegations, saying he personally does not own any such facility in Malta. Kyari later said on another occasion that some of what he knows about Nigeria’s oil industry can only be revealed when he leaves office.
It did little to dispel the perception that some influential forces in the Tinubu government did not want the Dangote refinery. There was also talk among Tinubu’s supporters that Dangote did not show enough support for the president during last year’s election campaign. Tinubu’s challenger in last year’s election, former vice president Atiku Abubakar, accused the government of deliberately frustrating Dangote, a charge denied by the presidency.
Still, Dangote praised Tinubu for bringing about a breakthrough that required refineries to receive crude oil in Naira and supply refined products in the same currency. It reflects the pragmatism of both men that Mr. Dangote recognized Mr. Tinubu’s incumbent power and that the president recognized that shutting down the refinery would have far-reaching negative political consequences.
NNPC officials remain vague about the Dangote refinery. For example, they initially denied statements that NNPC would be the sole purchaser of fuel for the local market, which later became true. The state oil company also has difficulty saying when its refineries will resume production after repeated delays. The Port Harcourt refinery cost $1.5 billion in repairs and was scheduled to restart in August and then in September. A new reopening date has not been determined.
This is emblematic of the situation at national oil companies, which are hampered by inefficiencies brought on by political interference. Poorly maintained refineries that continue to burn through maintenance budgets without producing product are one symptom, but not the only symptom.
Struggling production output
Oil production has struggled for the past three years, averaging 1.2 million barrels a day in the first eight months of this year, compared to an average of 2.5 million barrels a day two decades ago. The industry has long been the victim of unrest and disruption from rebellious communities that feel cheated out of local resources, and more recently the industry has been the victim of unrest and disruption caused by privileged industry and security officials. He is also facing theft.
Even what remains of Nigeria’s production is tied up in debt to joint venture partners and other creditors. As a result, refineries built to process Nigerian crude oil, including Dangote crude oil, could not find sufficient supply.
“Dangote has exposed the failure of NNPC by building a large-capacity refinery, which is what (NNPC) should do,” said Nwaozuzu, an oil economist. NNPC said, “It is not easy for us to accept that fact.”
