Nigeria's Dangote refinery caught between promise and reality

Nigeria's Dangote refinery caught between promise and reality

Nigeria's Dangote mega-refinery will aim to cover all the country's domestic petrol needs
Nigeria's Dangote mega-refinery will aim to cover all the country's domestic petrol needs. Photo: Pius Utomi EKPEI / AFP/File
Source: AFP

When will gasoline from Nigerian tycoon Aliko Dangote’s mega-refinery finally flood the home market? That's the question Nigerians are asking as Africa’s most populous country battles chronic petrol shortages.

Dangote -- again ranked Africa’s richest man by Forbes this year -- says he is awaiting the green light from the state-run Nigerian National Petroleum Company (NNPC), the only entity that buys gasoline for the domestic market.

The national oil company has talked about a date of September 15.

The mammoth plant, the continent’s largest refinery, with a full capacity of 650,000 barrels per day, is supposed to be an economic gamechanger by covering all domestic fuel needs.

The refinery in Lekki on the outskirts of the economic capital, Lagos, faced multiple start-up delays but was inaugurated in May last year.

Read also

Asian markets drop on economy worries, yen rallies

It has promised to resolve the Nigerian contradiction that sees Africa's largest oil producer and an OPEC member having to rely on costly gasoline imports to keep cars running because of a lack of refineries.

Yet, as the deadline for Dangote fuel to reach market approaches, optimism appears to be fading.

Just as Nigerians were already struggling with high living costs, they were hit with a surprise 45-percent increase in petrol prices by the state-run company.

NNPC did not respond to an AFP request for comment.

"These are policy issues that have to be jointly agreed between us and NNPC," a Dangote spokesman said, about talks on getting the fuel to market.

"For now, let's keep our fingers crossed."

'Market realities'

The other big question is how much Dangote’s petrol will cost Nigerians.

Read also

Battery maker Northvolt to cut jobs, slash operations

"The issue of pricing is the biggest elephant in the room," analyst Ayotunde Abiodun of Nigerian firm SBM Intelligence said.

Nigerians have faced chronic petrol shortages, meaning long queues at gas stations
Nigerians have faced chronic petrol shortages, meaning long queues at gas stations. Photo: FAWAZ OYEDEJI / AFP/File
Source: AFP

"Many Nigerians reasonably expect that the Dangote refinery's supply of refined products should come at a cheaper price," he added, pointing to the refinery theoretically cutting out import costs.

But "market realities" such as "global oil prices, the cost of oil supply and refining margins" make that unlikely, at least in the short term, he said.

Dangote must also cover production costs and repay the debt used to build the giant refinery.

It "will most likely prioritise markets where it can make higher profit margins" and sell some gasoline outside the country, Abiodun said.

When he came to power in May 2023, President Bola Ahmed Tinubu officially ended the costly fuel subsidy that had kept petrol prices low for decades.

Investors welcomed the reform but the price of petrol for Nigerians then tripled.

Read also

Europe needs 'unprecedented' investment surge, says key report

The NNPC has admitted continuing to subsidise petrol, an untenable situation for a company with debt of $6 billion.

To cover its costs, Dangote would have to sell its petrol to the NNPC at the international market price, "around 1,100 naira", according to Ademola Henry Adigun, of AHA Consultancies.

"The government will have to pay the difference between this price and the price at the pump" unless it increases the fuel price again, Adigun said.

But that would be very difficult for the population and could cause "riots", he added.

Monopoly?

"It is not guaranteed" that the launch of Dangote gasoline will end shortages, SBM's Abiodun cautioned.

He said NNPC -- which is the "sole intermediary between the Dangote refinery and the Nigerian fuel market" -- faces "a lot of inefficiencies" that have questioned its competence.

It might not be able to guarantee a continuous supply of crude to the refinery, which "would force Dangote refinery to import crude" that is more expensive, he said.

Read also

Greek economy on rebound but many still struggling

The refinery, inaugurated last year, has been built by Aliko Dangote, ranked by Forbes as Africa's richest man
The refinery, inaugurated last year, has been built by Aliko Dangote, ranked by Forbes as Africa's richest man. Photo: Pius Utomi EKPEI / AFP/File
Source: AFP

Dangote could then favour selling on foreign markets to ensure better margins, he added.

Nigerian oil production has declined in recent years to less than 1.2 million barrels per day in 2023 -- a far cry from the government target of two million barrels per day.

The issue of crude oil supply to the mega-refinery has already been the subject of tensions between Dangote and the Nigerian authorities.

Dangote has criticised the NNPC for not providing necessary quantities, forcing him to turn to international companies that sell a barrel of crude for $3 to $4 more than the national company.

Oil traders, meanwhile, fear that Dangote will create a monopoly where it is the only source of petrol, undermining their businesses.

Dangote's spokesman dismisses such a situation arising.

"Any attempt to disrupt a system that has worked in a certain way for a very long time was always going to meet significant resistance from those benefiting from that system," Clementine Wallop of Horizon Engage consultancy said.

Read also

Asian markets rebound from sell-off but US data keps traders wary

But, in the meantime, many Nigerian drivers still face an hours-long wait to fill up their tanks.

Source: AFP

Authors:
AFP avatar

AFP AFP text, photo, graphic, audio or video material shall not be published, broadcast, rewritten for broadcast or publication or redistributed directly or indirectly in any medium. AFP news material may not be stored in whole or in part in a computer or otherwise except for personal and non-commercial use. AFP will not be held liable for any delays, inaccuracies, errors or omissions in any AFP news material or in transmission or delivery of all or any part thereof or for any damages whatsoever. As a newswire service, AFP does not obtain releases from subjects, individuals, groups or entities contained in its photographs, videos, graphics or quoted in its texts. Further, no clearance is obtained from the owners of any trademarks or copyrighted materials whose marks and materials are included in AFP material. Therefore you will be solely responsible for obtaining any and all necessary releases from whatever individuals and/or entities necessary for any uses of AFP material.