NIGERIA marked a significant milestone on Monday as it commissioned the Dangote Refinery, with hopes of transforming the country into a net exporter of petroleum products. However, analysts have expressed concerns about the challenges of securing crude supplies, which could impact the refinery’s ability to achieve full production this year.
The Nigerian government, led by outgoing President Muhammadu Buhari, views the Dangote Refinery as the solution to the country’s recurring fuel shortages, the most recent of which occurred before the disputed presidential election in February. Nigeria spent $23.3bn on petroleum product imports last year and consumes nearly 33 million litres of petrol daily. The Dangote Refinery, with a capacity of 650,000 barrels per day, plans to produce 53 million litres of petrol per day. The surplus petrol will be exported, positioning Africa’s largest oil producer as a hub for petroleum product exports. Aliko Dangote, Africa’s richest man and the project’s financier, stated that the refinery also plans to export diesel.
The Dangote Refinery, one of Nigeria’s largest investments, required $19bn to construct, exceeding initial cost estimates of $12bn to $14bn due to years of delays. It currently has outstanding debt of approximately $2.75bn, according to the governor of Nigeria’s central bank. In addition to the refinery, the complex includes a 435-megawatt power station, a deep seaport, and a fertiliser unit.
During the commissioning ceremony, Aliko Dangote emphasised the priority of scaling up production to meet Nigerian demand and eliminate the country’s dependence on fuel imports. The event was attended by President Buhari and four other regional presidents.
However, challenges related to crude supply loom over the refinery’s operations. Dangote expects crude refining to commence in June, but Energy Aspects, a London-based research consultancy, anticipates operations starting later in the year and reaching 50-70 percent capacity next year. The gradual commissioning process is expected to extend into 2025 for other refinery units. Maintaining a constant supply of crude is crucial for the refinery, but Nigeria’s oil production has been declining due to factors such as oil theft, pipeline vandalism, and underinvestment. In April, production fell below 1 million barrels per day, dropping below Angola’s output.
Economist Kelvin Emmanuel, who authored a report on oil theft, warned that lower production could hinder the Nigerian National Petroleum Corporation (NNPC) from fulfilling its agreement to supply the Dangote Refinery with 300,000 barrels per day of crude. NNPC, which holds a 20 percent stake in the refinery, has production sharing agreements with major oil companies but has not yet signed an agreement to supply crude to the Dangote Refinery. As a result, Dangote may need to import crude from traders like Trafigura and Vitol, which could impact the expected benefits of local refining, including foreign exchange savings and lower fuel prices.
Despite these challenges, Energy Aspects believes that in the long run, the Dangote Refinery has the potential to eliminate Nigeria’s gasoline deficit, reshape the Atlantic basin gasoline market, and export diesel that meets European Union specifications.