Nigeria celebrated the commissioning of the Dangote Refinery on Monday, with hopes of transforming the country into a net exporter of petroleum products; however, analysts expressed concerns about securing crude supplies, which could affect achieving full production this year.
The Nigerian government sees the refinery as a solution to the country's recurring fuel shortages, with Nigeria spending $23.3 billion on petroleum product imports last year and consuming approximately 33 million litres of petrol daily.
Dangote's refinery, with a capacity of 650,000 barrels per day, aims to produce 53 million litres of petrol per day.
The refinery plans to export the surplus petrol, positioning Nigeria as an export hub for petroleum products. Aliko Dangote, Africa's richest man and the project's financier, also mentioned plans to export diesel.
The Dangote Refinery is one of Nigeria's largest investments, costing $19 billion to build after facing delays and surpassing initial cost estimates.
It currently carries an outstanding debt of around $2.75 billion, as reported by Nigeria's central bank governor. The complex also includes a 435-megawatt power station, a deep seaport, and a fertilizer unit.
During the commissioning ceremony, Aliko Dangote emphasized the priority of increasing production to meet Nigerian demand fully and eliminate import dependency.
The commissioning ceremony was attended by President Muhammadu Buhari and four other regional presidents.
Challenges with Crude Supply
While Dangote expects to begin refining crude in June, London-based research consultancy Energy Aspects suggests that the commissioning process is intricate and anticipates operations to commence later this year, reaching 50-70% capacity next year, with other units gradually coming online by 2025.
The refinery requires a constant supply of crude oil, but Nigeria's oil production has been declining due to issues such as oil theft, pipeline vandalism, and underinvestment. In April, production fell below 1 million barrels per day, lower than Angola's output.
Lower production levels could impact the ability of the Nigerian National Petroleum Corporation (NNPC) to fulfil its agreement to supply the Dangote refinery with 300,000 barrels per day of crude, according to economist Kelvin Emmanuel, who authored a report on oil theft last year.
NNPC, which holds a 20% stake in the refinery, has production-sharing agreements with major oil companies like Exxon Mobil, Shell, and Eni. The corporation is entitled to a portion of the crude, which it also swaps with traders for petrol and diesel.
As of now, the refinery has not signed agreements to purchase crude from oil majors in Nigeria. This could potentially lead Dangote to import crude from traders such as Trafigura and Vitol, said economist Kelvin Emmanuel, which contradicts the initial aim of local refining to save foreign exchange and maintain lower prices.
However, Energy Aspects suggests that in the long run, the Dangote refinery could address Nigeria's gasoline deficit, reshape the Atlantic basin gasoline market, and export diesel that meets European Union specifications.
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