Dangote Refinery Begins Operations Amidst Lingering Fuel Crisis
The Dangote Refinery’s operations will not only reduce costs for Nigeria, but it will also ensure petroleum products are readily available and affordable to a considerable extent, writes OKECHUKWU NNODIM
Excitement is building among a variety of parties for the upcoming unveiling of the Dangote Oil Refinery and Petrochemicals on May 22, 2023. From oil industry experts and government entities to everyday consumers of petroleum products, this event is set to make an impact both domestically and abroad. Even the global oil market and economists are taking note. May 22, 2023, will mark a significant moment for the oil industry and beyond.
On Monday, The PUNCH reported that the Dangote Refinery, established by Africa’s richest man, Aliko Dangote, is scheduled to be inaugurated on May 22.
A presidential aide, Bashir Ahmad, had tweeted that the inauguration would be done by the President, Major General Muhammadu Buhari (retd.)
“Efforts by the Federal Government to make Nigeria self-sufficient in local refining of crude oil to save the scarce foreign exchange used in the importation of petroleum products have received a boost as the 650,000 barrels per day Dangote Refinery, the world’s largest single-train refinery, is set for inauguration on May 22, 2023, by President Muhammadu Buhari,” Ahmad announced.
The 650,000bpd facility, estimated to worth over $19bn, is an integrated refinery project under construction in the Lekki Free Zone, Lagos. It is expected to be Africa’s biggest oil refinery and the world’s biggest single-train facility.
The company, on its website, said the refinery would meet 100 per cent of the Nigerian requirement of all refined products and also have a surplus of each of these products for export.
“Dangote Petroleum Refinery is a multi-billion dollar project that will create a market for $21bn per annum of Nigerian crude. It is designed to process Nigerian crude with the ability to also process other crude,” the firm stated.
Meanwhile, the announcement of the planned inauguration of the facility on May 22 has elicited excitement and expectations among Nigerians, industry operators, government officials and other stakeholders.
“We are optimistic and excited to know that the refinery is set for inauguration, considering the humongous benefits that it is going to have on not just the oil sector, but on the Nigerian economy,” the National Public Relations Officer, Independent Petroleum Marketers Association of Nigeria, Chief Ukadike Chinedu, stated.
He told our correspondent that operators were hopeful that the facility would eradicate cases of poor petroleum product supply, that often led to incessant scarcity of Premium Motor Spirit, popularly called petrol, across the country.
“With the coming onboard of the Dangote Refinery, we believe that Nigeria will say goodbye to PMS scarcity, as well as the poor supply of other petroleum products.
“So, it is a welcome development and we are optimistic that this will also impact positively on the cost of petroleum products, although I cannot tell you by how much it will bring down the prices of these products,” he stated.
Cost saving
Other operators also confirmed that the refinery would save Nigeria billions of naira, based on the fact that PMS imports into the country would cease, going by the refining capacity of the plant.
The Group Chief Executive Officer of Nigerian National Petroleum Company Limited, Mele Kyari, for instance, recently explained how the Dangote Refinery and the in-country refining of crude would save Nigeria some costs on logistics.
Kyari had explained in February that the refining of crude oil into PMS in Nigeria would compress the logistics cost around petrol supply by about N17/litre, describing this as significant.
NNPC supplies over 60 million litres of petrol daily to keep Nigeria wet with the product. A N17/litre reduction in logistics cost would translate to N1.02bn savings daily.
Based on this, the country would be saving over N367bn annually when Dangote Refinery becomes operational.
Kyari, while speaking during a programme on Nigeria Television Authority, also stated that efforts were ongoing to get the Port Harcourt and Warri refineries ready in the first half of this year.
He, however, pointed out that the local refining of crude would not warrant a massive crash in the cost of petrol, though there would be some gains in price with respect to logistics.
“This understanding that once you start local refining prices will crash, this is not so. It is very unlikely to play out that way because firstly, crude oil will continue to be the major feedstock for every refinery. 70 per cent of your operation cost always comes from crude, as your feedstock, and this is priced at the international market.
“However, two things will change when we start local refining. It gives you the security of supply. Now, when you place an order, it takes you 14 days to get these (petroleum) products from Europe into our country and that can be a matter of concern.
“Any glitch with weather, war situation, or something happens, you will run into trouble, but once you are producing locally, the products become very close to you and the issue of energy security becomes much more assured.”
More so, he said the in-country refining of crude “reduces the logistics cost, because for you to move products from Europe to Nigeria, probably it is going to cost you about N21/litre today.”
Kyari added, “But when you bring it closer home, you are probably going to need N7 or N8/litre to move it from one location, all things being equal.
“So, it is going to compress your price in today’s context, maybe by N17 or so, and that N17 is quite significant. But more than anything, it gives you the security of supply because these products will be closer.”
Also speaking on the subject, a former CEO of Access Bank Plc, Aigboje Aig-Imoukhuede, explained that though the commencement of operations of the Dangote Refinery might not alter the global price of crude, there might be a drop in the transportation component of petroleum products once the refinery begins operations.
Aig-Imuokhuede, who is currently the Chairman of Coronation Capital, while speaking in Abuja recently, explained that the Dangote Refinery would operate as an international entity and that concerns around fuel subsidy had nothing to do with the facility.
“Let me explain something, because I kind of understand how the way the politics and economics of subsidy in Nigeria work. The decision to have fuel subsidy in Nigeria is not grounded in any economic thinking. It is a purely political one.
“So, from an economic standpoint, you now have the ability to refine 650,000 barrels of crude per day in Nigeria once that refinery is commissioned. As to whether or not it is going to mean that you can remove fuel subsidy, the first question should be, will Nigeria give Dangote subsidised crude oil? At what price will Nigeria give Dangote crude oil?
“So, if you want to continue with fuel subsidy, the only way that the Dangote Refinery is going to be able to generate fuel at sub-international market price is if you gave Dangote subsidised crude oil. Now, Dangote is not asking for subsidised crude oil, neither are Nigerians asking for subsidised crude oil,” Aig-Imoukhuede stated.
Also speaking, the Secretary, Independent Petroleum Marketers Association of Nigeria, Abuja-Suleja, Mohammed Shuaibu, stated that it was obvious that the Federal Government was waiting for the Dangote Refinery to come on stream.
This, he said, was one of the reasons the government had not put the desired effort to revamp Nigeria’s refineries.
He, however, admitted that the Dangote Refinery, due to its capacity to process 650,000 barrels of crude daily, had the potential of meeting the domestic demand of Nigeria considerably.
“The government is waiting for Dangote Refinery, and that shows you how important that facility is to Nigeria’s petroleum products’ demands,” he stated.
Shuaibu, however, stated that the refinery might become a monopoly, since the country’s refineries in Kaduna, Port Harcourt and Warri had remained dormant for decades, despite repeated promises by the government of revamping them.
“The Dangote Refinery is a welcome project and there is no doubt that it is going to improve products’ supply once it starts operations, both in Nigeria, Africa and globally.
“But the truth is that once that refinery comes on stream, it is going to operate as a monopoly. Of course, when there is no competition, what do you expect? Another thing is that while he sells to Nigeria, he will also focus on the international market,” the IPMAN official stated.
For the Executive Secretary of Major Oil Marketers Association of Nigeria, Clement Isong, the Dangote Refinery was an investment that came into Nigeria at a time when many investors were shying away from the country.
He applauded the courage of Dangote for investing billions of dollars in the project, and expressed hope that the facility would put an end to cases of incessant petrol scarcity in Nigeria, as well as shore up foreign exchange for the country.
He, however, explained that the investment in Dangote Refinery started after the government assured investors that they would recoup their investments when they invest in Nigeria’s oil and gas sector.
Isong further urged the Federal Government to support the Dangote Refinery by ensuring that it enforced and implemented the Petroleum Industry Act 2021.
“It takes a person with a heart like Dangote to borrow money to invest and build a big refinery like he has built, hoping to recover his investments and as well contribute to the economy.
“But to be clear, that investment started only after the policy of the government was written in 2017, where it quite clearly said we were moving to deregulation of the pump price,” the MOMAN executive added,
According to him, the PIA came into effect in August 2021, which confirmed what the government policy had said would happen.
“That is the most concrete assurance you can have from a government, when you write into law that if you bring your money, you will not lose it as a result of policies that did not make sense,” he added.
NNPCL’s 20% stake
In June 2021, The PUNCH reported that Kyari stated that NNPCL was borrowing to buy 20 per cent stake in the Dangote Refinery.
NNPC had announced in May 2021 that it was in advanced talks with Dangote Industries to acquire a 20 per cent stake in the 650,000 bpd refinery.
“We are borrowing on the back of the cash flow of this business. We know that this business is viable. It will work and it will return dividends. It has a cash flow that is sustainable because the refinery business, in the short term, will continue to be sustainable.
“That is why banks have come forward to lend to us, so we can take equity in this. There is no resource-dependent country that will watch a business of this scale, which is bordering on energy security and has implications for fiscal security of the country, and you don’t have a say. And for us, as a strategy, we started this process long before Dangote started his refinery project,” Kyari stated.
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