Lagos, May 22, 2023. President Muhammadu Buhari inaugurated the long-awaited Dangote Refinery on Monday, marking a significant milestone in the nation’s ambition to become a net exporter of petroleum products. The refinery, with a capacity of 650,000 barrels per day, holds the promise of ending chronic fuel shortages in the country while positioning Nigeria as a regional hub for petroleum exports. However, experts caution that the challenge of securing an adequate supply of crude oil might delay the refinery’s full production this year.
President Muhammadu Buhari’s administration views the Dangote Refinery as a vital solution to Nigeria’s persistent fuel scarcity issues, which have plagued the nation, most notably during the build-up to the disputed presidential election held in February. Nigeria spent a staggering $23.3 billion last year on petroleum product imports, consuming approximately 33 million liters (8.7 million gallons) of petrol daily.
The Dangote Refinery, financed by Aliko Dangote, Africa’s wealthiest individual, aims to export surplus petrol and diesel, thereby transforming Nigeria, Africa’s largest oil producer, into a prominent petroleum product export center. The construction of this massive petrochemical complex, touted as the world’s largest single-train refinery, incurred costs of $19 billion, surpassing initial estimates of $12 billion to $14 billion. Presently, it carries an outstanding debt of approximately $2.75 billion, according to Nigeria’s central bank governor.
In addition to the refinery, the complex encompasses a 435-megawatt power station, a deep seaport, and a fertilizer unit, further augmenting Nigeria’s industrial infrastructure. At the commissioning ceremony, Dangote emphasized the refinery’s crucial role in meeting domestic demand and eradicating the country’s dependence on fuel imports.
While Dangote aims to commence crude refining operations in June, experts at London-based research consultancy Energy Aspects anticipate a more gradual process, with operations starting later this year and reaching 50-70 percent capacity by next year. The full integration of all units into the refinery’s operations is expected to occur by 2025.
A major concern lies in the refinery’s constant need for a reliable supply of crude oil. Nigeria’s oil production has declined due to factors such as oil theft, pipeline vandalism, and underinvestment. In April, production fell below one million barrels per day (bpd), dropping even below Angola’s output.
Economist Kelvin Emmanuel, who authored a report on oil theft, cautioned that lower production levels could hinder the Nigerian National Petroleum Corporation (NNPC) from fulfilling its agreement to supply Dangote Refinery with 300,000 bpd of crude. NNPC, with a 20 percent stake in the refinery, maintains production-sharing agreements with major oil companies such as ExxonMobil, Shell, and Eni, entitling it to a portion of the crude, which it also exchanges with traders for petrol and diesel.
Currently, the Dangote Refinery has not signed agreements with Nigerian oil majors, potentially leading Dangote to import crude from traders like Trafigura and Vitol. This prospect contradicts the original intention of local refining, which aimed to save foreign exchange reserves and maintain lower prices.
Nonetheless, Energy Aspects predicts that in the long run, the Dangote Refinery could alleviate Nigeria’s petrol deficit, reshape the Atlantic basin petrol market, and export diesel that meets European Union specifications.
As Nigeria ushers in a new era with the commissioning of the Dangote Refinery, the nation stands on the cusp of transforming its petroleum industry, but challenges remain in securing a stable supply of crude oil to achieve the refinery’s full potential.