Nigeria’s quest to overcome its chronic fuel shortages may soon see a glimmer of hope as the highly anticipated Dangote Petroleum Refinery prepares to take center stage.
However, as the country eagerly awaits relief, concerns arise regarding the availability of crude oil, posing a potential risk to the refinery’s success.
Despite Nigeria’s status as Africa’s largest oil producer, its aging and neglected refineries have left the nation heavily reliant on fuel imports. This dependence has not only strained the economy but has also resulted in recurring fuel shortages, including the recent scarcity leading up to the disputed presidential election in February.
In a bid to address these challenges head-on, Africa’s wealthiest individual, Aliko Dangote, embarked on an ambitious project – the construction of the Dangote Petroleum Refinery. Boasting a massive complex that includes a 435-megawatt power station, a deep seaport, and a fertilizer unit, this refinery stands as one of Nigeria’s most significant investments. With a daily refining capacity of 650,000 barrels, it holds the potential to meet the country’s fuel demands and alleviate the persistent shortages.
However, the success of the Dangote refinery hinges on a critical factor: the availability of crude oil. Nigeria’s oil production has faced a downward trajectory due to various factors, including rampant oil theft, pipeline vandalism, and insufficient investment.
In April, daily production fell below one million barrels, lagging behind Angola’s output and putting additional strain on the state-owned oil company, NNPC Ltd.
NNPC, with a 20% stake in the Dangote refinery, is obligated to supply it with 300,000 barrels of crude oil per day. Yet, the declining production poses a significant challenge for NNPC to meet this commitment. Economist Kelvin Emmanuel, who extensively studied oil theft, points out that the decreasing production levels directly impact NNPC’s ability to provide the required crude oil feedstock.
The eagerly awaited commissioning of the Dangote Petroleum Refinery is scheduled for June as Aliko Dangote anticipates commencing crude oil refining operations. However, experts at Energy Aspects, a London-based research consultancy, caution that the commissioning process is intricate and predict that operations may start later this year. Their projection indicates that the refinery’s production capacity may reach 50-70% by next year, with the gradual integration of additional units continuing until 2025.
To mitigate the risks associated with crude oil supply, Dangote may explore importing oil from renowned traders such as Trafigura and Vitol. However, this alternative introduces potential challenges, including increased prices. The purchase of oil in dollars and the subsequent sale of refined products in the local currency, the naira, could potentially impact profitability.