LAGOS (Reuters) – On Monday, Nigeria inaugurated the Dangote Refinery to turn the country into a net exporter of petroleum products; however, analysts have stated that securing crude supplies may prevent the refinery from reaching its full production potential this year.
The administration of Nigeria’s outgoing President, Muhammadu Buhari, views the refinery as the solution to Nigeria’s recurring fuel shortages, the most recent of which affected the nation in the days leading up to the contentious presidential election in February.
Nigeria imported petroleum products to $23.3 billion in the last year, using approximately 33 million liters of gasoline daily. The refinery that Dangote is building will be able to process 650,000 barrels per day, equivalent to 53 million liters per day.
The factory intends to export any gasoline produced in excess, transforming Africa’s most important oil producer into an export hub for petroleum goods. According to Aliko Dangote, the richest man in Africa and the person who funded the development of the refinery, it also wants to export diesel in the future.
One of Nigeria’s most significant financial commitments is the construction of a major petrochemical plant. After years of delay, the refinery was built for $19 billion, higher than the early predictions of between $12 billion and $14 billion. According to Nigeria’s central bank governor, the refinery also has an outstanding debt of approximately $2.75 billion.
In addition, there is a deep seaport, a 435-megawatt power station, and a fertilizer unit within the complex.
During his speech at the event to officially open the refinery, Dangote stated that the most important task was to increase production to ensure that the refinery could fully supply the demand in Nigeria and end “the tragedy of import dependency.”
At the ceremony, in addition to Buhari, four other regional presidents were in attendance.
PROBLEMS With the Supply of Crude
However, London-based research group Energy Aspects said commissioning was a complex process and anticipates operations to start later this year, reaching 50-70% next year, with a phased process of other units into 2025. Dangote wants to begin refining crude in June, but Energy Aspects said commissioning would take longer than expected.
The refinery requires a steady supply of petroleum, but Nigeria’s oil production has been falling because of pipeline vandalism, oil theft, and underinvestment in the country’s oil industry. Production dropped below 1 million bpd in April, lower than Angola’s output.
According to economist Kelvin Emmanuel, who produced a report on oil theft in 2017, lower production will hinder the ability of state-owned oil corporation NNPC Ltd to fulfill an agreement to provide the Dangote refinery with 300,000 bpd of crude. Emmanuel was the author of the research on oil theft.
The Nigerian National Petroleum Corporation (NNPC), which has a twenty percent investment in the refinery and has production sharing agreements with oil majors like Exxon Mobil, Shell, and Eni, is entitled to a portion of the crude, which it also trades with traders in exchange for gasoline and diesel. NNPC holds a twenty percent ownership in the refinery.
The refinery has not yet contracted to buy oil from Nigeria’s major oil companies.
According to Emmanuel, this might result in Dangote purchasing oil from international merchants such as Trafigura and Vitol at a time when domestic refining was anticipated to conserve foreign exchange and keep prices lower.
However, Energy Aspects believes that in the long run, the Dangote refinery may eliminate Nigeria’s gasoline deficit, alter the market for gasoline in the Atlantic basin, and export diesel compliant with the European Union’s criteria.