Inside $20 billion Dangote Refinery: A Game Changer for Nigeria.
February 20, 2024
By Olaye David
The Refinery was inaugurated by President Buhari in May 2023.Photo courtesy
Africa’s largest refinery, Dangote Petroleum Refinery and Petrochemical has commenced the production of refined petroleum products after receiving the fifth crude oil shipment of one million barrels of Bonny Light supplied by the Nigerian National Petroleum Company (NNPC) Limited.
In addition to this development, the $20 billion plant which boasts a capacity of 650,000 barrels per day, began importing crude oil from the United States for the first time.
Designed to handle 100 percent Nigerian crude oil while offering adaptability for various crude types, the refinery is equipped to process a wide spectrum of African crude grades, Middle Eastern Arab Light, US Light tight oil, and crudes from diverse global sources.
"We...thank Nigerians for their belief and support in this project. We have started the production of diesel and aviation fuel, and the products will be in the market within this month once we receive regulatory approvals," Aliko Dangote, Africa's richest man and Dangote chairman, said.
Analysts believe that the refinery coming on stream will potentially reduce reliance on crude exports for fuel purchases, alleviate financial strain on banks, and enhance fuel quality. However, they also caution against expecting significantly lower prices of refined petroleum products.
“Dangote refinery is a significant step towards revitalising the energy sector and shifting Nigeria from a major importer of refined petroleum products to achieving self-sufficiency in domestic refining capacity,” said Olufola Wusu, an oil and gas analyst.
Despite being the largest producer of oil in Africa, Nigeria relies on imported refined petroleum products due to challenges within its oil and natural gas sector.
Last year, the Chief Executive Officer of the state-owned NNPC Mele Kyari said that Nigeria is on track to stop the importation of refined petroleum products in 2024 and would emerge as a net exporter of the commodities in the same year.
He affirmed that all refineries are slated to achieve full operational status, forecasting that the nation will transition to being a net exporter of petroleum products by the conclusion of 2024.
Impact of Dangote Refinery
Kelvin Emmanuel, CEO of Dairy Hills, stated that the refinery's influence extends beyond traditional fuels such as petrol, diesel, and aviation fuel. He emphasized its ambition to catalyze a notable transformation by incorporating nine essential fuels, thus fundamentally altering Nigeria's energy terrain.
The CEO further highlighted that the Dangote refinery intends to tackle this challenge by refining lighter-grade crude sourced domestically, with a primary focus on transportation fuels. This strategic shift aims to diminish reliance on European imports, promising both financial benefits and enhanced fuel standards within Nigeria.
Board Chairman Aliko Dangote has been acclaimed for the vision in setting up the refinery
The refinery's pivot towards utilising locally sourced crude as its primary feedstock signifies a transition towards processing lighter-grade crude. Emmanuel underscored that approximately 80% of the refinery's output will be dedicated to meeting the demand for transportation fuels, with the remaining 20% allocated for non-transportation fuel products.
Fluctuations in pricing for transportation fuels
Despite high hopes for the commencement of operations at the Dangote refinery, analysts caution against expecting a significant drop in refined product prices. Experts emphasize that immediate price reductions may not materialise as swiftly as anticipated.
According to Dr. Kaase Gbakon, a Senior Economist at the Ministry of Energy and Resources in Saskatchewan, Canada, the refinery holds promise for easing financial pressures on banks, diminishing dependence on crude exports for fuel procurement, improving fuel quality, and strengthening foreign exchange availability for Dangote's enterprises.
However, he underscores the intricate nature of pricing transportation fuels. Dr. Gbakon engages in discussions regarding refinery gate, depot, and pump prices, shedding light on the multitude of factors influencing refinery gate prices. These factors include feedstock costs, transportation expenses, demand fluctuations, and competitor prices.
“Prices from the Dangote refinery will be set to enable the refinery to pay off its debts and other cost obligations and return a profit.”
There's a glimmer of hope among citizens that the new plant could swiftly alleviate the burden of soaring consumer gas prices, which have tripled since the government ceased decades-old subsidies.
However, analysts caution that any potential relief in prices hinges on various factors including industry dynamics such as crude oil costs, governmental interventions like subsidies, and the local currency's exchange rate against the dollar.
