Oil and Gas

Dangote Refinery Needs Government’s Help Not Hindrance -Rewane

The Dangote refinery, which is expected to be the largest in Africa, will have a capacity of 650,000 barrels per day, enough to meet the Nigeria’s domestic demand for refined products, as well as export to other countries. However, the refinery faces some challenges and uncertainties, such as the availability and affordability of crude oil supply, the demand and profitability of the refined products, and the regulatory and policy environment. 

A renowned economic expert and CEO of Financial Derivatives Company, Mr. Bismarck Rewane, has criticized the government’s policy of exporting crude oil and not supplying it to the refinery, saying that it does not make sense to export crude oil at a low price and import refined products at a high price, while ignoring the potential benefits of the refinery. 

Also Read: Nigeria Embarks on Yet Another Oil Refinery Rehabilitation

Mr. Rewane made these remarks on Sunday during an interview on Channels Television’s Sunday Politics program. He said that the Dangote refinery, which is expected to start production in 2023, will have a capacity of 650,000 barrels per day, and will be able to meet the domestic demand for refined products, as well as export to other countries.

He argued that the government should support the Dangote refinery by supplying it with crude oil at a reasonable price, rather than exporting it to other countries that have refineries. He said that this would create value addition, employment, and revenue for the country, and reduce the dependence on imported refined products.

In his words, he said: “It doesn’t make sense for Nigeria to be exporting crude on Forward Contract and not be able to refine its own product for its own citizens and for West and Central Africa, it doesn’t make sense.”

Pointing out the potentials of the refinery, he said the refinery is likely to be listed in the Nigerian Stock Exchange 2024-2025. And by doing this, the refinery worth $19bn to $20bn will increase market capitalization of the Nigerian Stock Market by 60 percent.

“Not only that, the Dangote Group itself pays taxes of over N146bn a year and pays dividends to share holders of N357bn a year. So, N146bn a year and N357bn a year taxes; It is not a capitalistic investment,” he said. 

The Context

Nigeria is the largest oil producer in Africa, and the fifteenth largest in the world, with an average daily production of about 1.5 million barrels. However, the country has been unable to refine enough crude oil to meet its domestic demand, due to the poor state of its four refineries, which are owned by the state-owned Nigerian National Petroleum Corporation Limited (NNPCL). The four refineries have been operating at low capacity or shut down for maintenance for years, and have been plagued by corruption, mismanagement, and sabotage.

Also Read: Refined Petrol: Is Nigeria Moving from Imports to Domestic Surplus?

As a result, Nigeria imports most of its refined products, such as petrol, diesel, and kerosene, from other countries, mainly in Europe and Asia. This has exposed the country to the volatility of the international oil market, and has drained its foreign exchange reserves. According to the National Bureau of Statistics, Nigeria spent about N5.2 trillion on the importation of refined products in 2022.

To address this challenge, the Nigerian government has been encouraging the private sector to invest in the refining industry, and has granted licenses to several companies to establish modular and conventional refineries. One of the most prominent of these projects is the Dangote refinery, which is owned by the Dangote Group, a conglomerate led by Africa’s richest man, Mr. Aliko Dangote. The refinery, which is located in the Lekki Free Zone near Lagos, is expected to be the largest single-train refinery in the world, and the biggest in Africa.

At the same time, the refinery, inaugurated in May 2023, is expected to start production before the end of 2023, and will have the capacity to process about 650,000 barrels per day of crude oil, making it able to meet the domestic demand of about 300,000 barrels per day, and export the surplus to other countries. The refinery will also produce other products, such as polypropylene, fertilizers, and jet fuel, and is expected to create about 135,000 direct and indirect jobs, and generate about $21 billion per annum of revenue for the country.

Implications

The anticipated commencement of operations at the Dangote refinery in December marks a pivotal shift in Nigeria’s oil industry landscape. By locally refining crude oil, this facility is poised to revolutionize the nation’s economy on multiple fronts. One of the impacts is the potential to save Nigeria substantial amounts, presently spent on importing refined oil products. This move promises to bolster the country’s foreign exchange reserves, rectify its balance of payments, and fortify its resilience against fluctuations in the global oil market.

At the same time, the refinery’s local production is projected to significantly augment the availability of refined products like petrol, diesel, and kerosene within Nigeria. This surge in supply is expected to curtail previous challenges faced by consumers, including recurrent scarcities, hoarding, and illicit product smuggling. By making these crucial energy sources more affordable and accessible, the refinery aims to elevate living standards and improve overall welfare among the populace.

The impact extends beyond consumer benefits. Processing approximately 650,000 barrels per day, the refinery is poised to generate value addition, employment opportunities, and increased revenue for Nigeria. Its operation is anticipated to spur industrial growth and diversification, expanding the country’s economic horizons. Furthermore, the resulting tax revenues could potentially bolster government income and provide a catalyst for ancillary sectors like petrochemicals, agriculture, and manufacturing, all poised to leverage the refinery’s outputs.

In the long run, the Dangote refinery could elevate refining standards within the nation, potentially serving as a benchmark for other refineries. And as the refinery anticipates production launch, a series of challenges and uncertainties loom over its future operations and performance. One of the critical hurdles is ensuring a consistent and economically feasible supply of crude oil. 

According to a report by Reuters, the Nigerian National Petroleum Company Limited (NNPCL) plans to facilitate up to six shipments of crude for testing in December 2023. However, crucial decisions regarding pricing—whether at subsidized rates or market prices—export quotas, and production capacities await government determination. Moreover, safeguarding the pipeline infrastructure from potential sabotage or vandalism by militants or criminals is imperative to ensure uninterrupted transportation of crude oil to the refinery. 

Another challenge involves navigating uncertain market demands and profitability prospects for refined products. Competing with regional and global refineries while adapting to evolving consumer preferences poses a significant challenge. The ongoing energy transition towards renewable alternatives further casts ambiguity on the future demand and value of fossil fuels, potentially impacting the refinery’s viability. Though the global oil demand which dipped as low as 91 million barrels per day in 2020 due to COVID-19 lockdowns is currently recovering, economists at the IEA forecast the growth in oil demand is set to significantly low by 2028. 

The refinery faces a maze of regulatory compliance, including adherence to government laws and regulations established by agencies such as the Department of Petroleum Resources, Nigerian National Petroleum Corporation, Nigerian Content Development and Monitoring Board, and the Federal Inland Revenue Service. The Petroleum Industry Act, aimed at reforming the oil and gas sector’s governance and fiscal framework, adds further complexity. Adapting to evolving policies and fostering community engagement while maintaining stringent environmental standards are key challenges for the refinery.

Also Read: Shell to Close Major Refinery Amid Pandemic-related Slump in Fuel Demand

The successful navigation of these challenges will be pivotal for the refinery’s viability, its contribution to the economy, and its alignment with global energy transitions and sustainability goals.

Mr. Rewane’s criticism resonates as a clarion call for the government to urgently reassess its policies governing the management and utilization of Nigeria’s crude oil resources. His remarks emphasize the pressing need to realign these strategies with the nation’s development objectives. This viewpoint echoes the widespread sentiment among Nigerians and experts alike, who see the Dangote refinery a monumental success and all-time a great achievement in the oil and gas industry. 

Abdullah Tijani

Abdullah Tijani studied Law at Usmanu Danfodiyo University, and has over five years journalism experience, including writing on business and economy.

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