The much-anticipated launch of Dangote Oil Refinery’s petrol supply operations in Nigeria, initially slated for July, is facing significant delays due to a critical shortage of crude oil, BusinessDay has reported, citing sources within the industry.
This setback underlines a broader issue: the Nigerian National Petroleum Company (NNPC)’s failure to meet its obligation to supply the refinery with the necessary crude oil.
The NNPC, which holds a 20% equity stake in the Dangote Refinery, was expected to be a primary supplier of crude oil. However, it has not fulfilled this role effectively. Industry insiders have revealed that the refinery has not received the volumes of crude oil needed to commence refining Premium Motor Spirit (PMS) as planned.
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“The refinery is yet to receive the required volumes of crude oil needed to refine PMS for the July takeoff,” a source within the oil trading sector disclosed.
This lack of supply has cast doubt on the refinery’s ability to meet its operational deadlines, with some industry experts predicting that operations may not commence until later in the year.
Dangote’s Efforts to Secure Crude
Faced with the NNPC’s inadequacies, Dangote Refinery has been forced to look elsewhere to secure the crude oil for refining. This has included jettisoning its tradition of keeping its search for crude oil within the domestic market, to source from the United States. While this strategy demonstrates Dangote Refinery’s resilience and proactive approach, it also underlines new challenges, thwarting its plans to begin fuel supply in Nigeria in earliest time.
Importing crude from the US involves navigating logistical hurdles and incurring additional costs. These factors have inevitably contributed to delays in the refinery’s operational timeline. Despite these efforts, the refinery has only managed to take delivery of a limited amount of crude, insufficient for full-scale operations.
Insights from Industry Experts
Industry experts quoted by BusinessDay have so much to say about this development, particularly, NNPC’s failure to supply the refinery with adequate crude oil as part of a 20 percent equity obligation.
Jide Pratt, country manager of Trade Grid, which supports a network of independent dealers across Africa, has expressed skepticism about the refinery’s ability to meet its July deadline.
“The issue of crude supply is still a major issue, and postulations on how the premium motor spirit (PMS) will be sold in USD are unattended to,” Pratt noted, suggesting that operations might be delayed until August or September at best, and December at worst.
Pratt also highlighted financial constraints, pointing out that the NNPC’s trade account receivables with traders exceed 160 days.
“The Dangote Refinery is a commercial entity and will unlikely tow this line of credit sales with its running cost and interest payments,” he added.
Financial planning expert Kalu Aja questioned why Nigeria, Africa’s largest oil exporter, cannot provide sufficient crude for Dangote’s operations.
“If Dangote needs crude, the Nigerian National Petroleum Company (NNPC) should support its 20 percent investment by giving Dangote its oil equity,” Aja suggested.
Hector Igbikiowubo, publisher of Sweet Crude Reports, echoed these sentiments, emphasizing the importance of having NNPC refineries operational to guarantee energy security for Nigeria.
“The question now is, how come the NNPC isn’t allotting all of its 445,000 barrels per day to the Dangote Refinery for refining?” Igbikiowubo asked during a Channels TV program.
Regulator’s Response
The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) has acknowledged the issue and has committed to intervening to ensure crude oil supply to Dangote and other local refineries. Olaide Shonola, NUPRC’s spokesman, stated that the commission is actively engaging with international oil companies (IOCs) to facilitate domestic crude oil sales.
“We will keep on engaging them. NUPRC has been doing that,” Shonola said, noting the regulator’s role in mandating crude supply.
Despite these assurances, the effectiveness of such interventions remains to be seen. The NNPC’s previous commitments to other entities, including a $3 billion crude oil-for-loan deal with the African Export-Import Bank, complicate the situation. This deal involves pledging future oil production to the bank as loan repayment, thereby limiting the crude available for local refineries.
Broader Industry Challenges
The struggles of the Dangote Refinery are reflective of broader challenges within Nigeria’s oil industry. The country currently has 25 licensed modular refineries, but only five are operational, producing diesel, kerosene, black oil, and naphtha. Many of these refineries face significant hurdles due to the unavailability of crude and financial constraints.
Eche Idoko, publicity secretary of the Crude Oil Refinery Owners Association of Nigeria, highlighted these challenges, noting that financiers require guarantees of steady crude supply before committing funds.
“They want a guarantee that if they finish the refinery, they are going to get feedstock, which, of course, is crude oil,” Idoko explained.
Experts have noted that the delay in Dangote Refinery’s operations, as a result of insufficient crude oil supply, boils down to Nigeria’s dwindling oil output.
They said that increasing Nigeria’s oil production, which currently stands at 1.46 million barrels per day, will ensure that local refineries receive adequate crude oil volume, which is essential not only for the success of projects like Dangote Refinery but also for reducing Nigeria’s reliance on imported petrol.