Lagos-based Dangote Refinery, led by Africa’s richest man Aliko Dangote, plans to purchase at least 24 million barrels of US crude oil over the next year as it scales up its processing capabilities.
According to a report by Bloomberg, the $20 billion refinery has issued a term tender to buy two million barrels per month of West Texas Intermediate (WTI) Midland crude, starting in July.
This procurement signifies a strategic move for Dangote Refinery, positioning itself as a major player in the global crude and fuel markets. The tender, set to close at 3 p.m. on May 21, underscores the refinery’s commitment to enhancing its operations and meeting both domestic and international demand.
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Meeting Domestic Challenges
Despite Nigeria’s status as a leading crude oil producer in Africa, the country faces persistent challenges in meeting its domestic demand and fulfilling its OPEC quotas. In response, Dangote Refinery has opted to leverage more affordable oil sources, with a substantial portion of its feedstock now originating from the United States.
Against this backdrop, Ronan Hodgson, an energy analyst at FGE, noted, “Foreign oil remains more cost-effective than local supplies. This pattern is expected to continue as units designed to enhance diesel quality in the refinery are set to begin operations in the coming months.”
The request for foreign oil by a refinery in Nigeria is said to underline the substantial impact Dangote Refinery will have on international markets, highlighting the refinery’s strategic role in meeting global energy demands.
Dangote Refinery, poised to become Africa’s largest once fully operational, is positioned to play a significant role in the global crude and fuel markets. Thus, its procurement of US crude oil is largely seen as part of its commitment to optimizing operations and ensuring cost-effectiveness.
Domestic Policy Changes
However, the refinery’s move is unraveling amid recent policy changes in Nigeria’s oil sector. The Nigeria Upstream Petroleum Regulatory Commission (NUPRC) has mandated that oil companies supply crude to domestic refineries unable to procure it locally. Producers can export crude only after fulfilling domestic supply obligations.
This policy aims to boost the domestic refining sector and reduce Nigeria’s dependence on imported petroleum products. It aligns with Dangote Refinery’s efforts to optimize its operations and mitigate supply constraints in the local market.
Despite its strategic procurement of US crude oil, Dangote Refinery faces delays in supplying petrol to local markets. According to Standard and Poor’s Global (S&P) Commodities Insights, the refinery is now projected to start supplying petrol in the fourth quarter of this year, rather than in May as initially stated.
Kelly Norways, an African energy expert at S&P, discussed these projections in a podcast titled “Exploring West Africa’s Oil Product Flows in a Changing Refining Landscape.” Analysts now believe the refinery may begin supplying petrol by June.
Impact on Product Markets
Despite these delays, Dangote Refinery has already made a significant impact on product markets. Hodgson from FGE commented, “The refinery is already having a sizable impact on product markets even running in its most stripped-back form at minimum rates.”
The refinery began selling diesel and aviation jet fuel to domestic marketers in April for as low as N1000 per liter. This move reflects Dangote Refinery’s commitment to meeting local demand and ensuring cost-effectiveness in the face of domestic challenges.