Dangote refinery commissioned, Nigeria’s push for petroleum exports

LAGOS, May 22 – Nigeria marked a significant milestone on Monday as it commissioned the Dangote Refinery, raising hopes of transforming the nation into a net exporter of petroleum products. However, analysts have raised concerns about the refinery’s ability to achieve full production this year due to potential challenges in securing crude supplies.

The Nigerian government, under the leadership of outgoing President Muhammadu Buhari, views the refinery as the solution to the country’s recurring fuel shortages, the most recent of which occurred ahead of the disputed presidential election in February.

Nigeria spent $23.3 billion on petroleum product imports last year and consumes approximately 33 million liters of petrol daily. The Dangote Refinery, with a capacity of 650,000 barrels per day, plans to produce 53 million liters of petrol daily.

The refinery aims to export surplus petrol, positioning Africa’s largest oil producer as an export hub for petroleum products. Additionally, it plans to export diesel, according to Aliko Dangote, Africa’s wealthiest individual, who financed the refinery’s construction.

This massive petrochemical complex stands as one of Nigeria’s most significant investments. The refinery’s construction costs reached $19 billion after experiencing years of delays, surpassing initial estimates of $12 billion to $14 billion. It also carries outstanding debt of approximately $2.75 billion, according to Nigeria’s central bank governor. The complex is complemented by a 435-megawatt power station, a deep seaport, and a fertilizer unit.

During the commissioning ceremony, Aliko Dangote emphasized the priority of increasing production to ensure the refinery fully meets Nigerian demand, thereby eliminating the “tragedy of import dependency.” The event was attended by President Buhari and four other regional presidents.

From our Group President/CE, Aliko Dangote GCON#DangoteRefinery #WeAreDangote #EnergyForAll #AfricaEmpowered pic.twitter.com/2BYY4jQ3jN

— Dangote Group (@DangoteGroup) May 22, 2023

Dangote Refinery anticipates commencing crude refining in June. However, London-based research consultancy Energy Aspects cautions that commissioning is a complex process and expects operations to start later this year, reaching 50-70% capacity next year, with a staggered implementation of other units continuing until 2025.

The refinery requires a consistent supply of crude, but Nigeria’s oil production has been declining due to oil theft, pipeline vandalism, and underinvestment. In April, production dipped below 1 million barrels per day, falling below Angola’s output.

Lower production levels could impede the ability of the state-owned oil company, NNPC Ltd, to fulfill its agreement to supply the Dangote Refinery with 300,000 barrels per day of crude. Economist Kelvin Emmanuel, who authored a report on oil theft, points out that NNPC’s ability to meet this commitment could be affected. NNPC, holding a 20% stake in the refinery, has production sharing agreements with oil majors such as Exxon Mobil, Shell, and Eni, entitling it to a portion of the crude, which is also exchanged with traders for petrol and diesel.

Behold the spectacle that is Dangote Petroleum Refinery and Petrochemicals 📌#WeAreDangote #EnergyForAll #AfricaEmpowered #DangoteRefinery pic.twitter.com/1baUbTenO1

— Dangote Group (@DangoteGroup) May 20, 2023

The Dangote Refinery has yet to sign agreements to purchase crude from Nigerian oil majors. As a result, Emmanuel suggests that Dangote may resort to importing crude from traders like Trafigura and Vitol, which could potentially undermine the goal of local refining to conserve foreign exchange and maintain lower prices.

Energy Aspects, on the other hand, believes that in the long run, the Dangote Refinery could eliminate Nigeria’s gasoline deficit, reshape the Atlantic basin gasoline market, and export diesel that meets European Union specifications.

The commissioning of the Dangote Refinery stands as a significant step toward transforming Nigeria’s petroleum industry and achieving self-sufficiency in fuel production. However, securing a stable supply of crude remains a critical challenge that must be addressed to realize the refinery’s full potential.