The Dangote refinery, the flagship of the Nigerian oil industry with a processing capacity of 650,000 barrels per day, faces major challenges in securing a supply of crude oil. Since its start-up in January, the refinery has relied on supplies from the Nigerian National Petroleum Corporation (NNPC), 20% owner of the Dangote Refinery, and international oil companies (IOCs). However, the latter now impose high premiums, above $6 per barrel at market prices, thus complicating refinery operations.
Devakumar Edwin, Vice President of Dangote Industries, expressed frustration, accusing IOCs of deliberately making it difficult to purchase local crude. This shortage has prevented the refinery from achieving higher operating rates, thereby hampering its intended contribution to the transformation of the refinery sector in West Africa.
Delivery Delays and Financial Disputes
Delivery delays, often due to disputes over payment terms, make the situation worse. In May, two tankers carrying WTI Midland waited more than a month before being able to unload at the refinery, after Petrochina refused payment in the form of refined products. These incidents highlight the logistical and financial challenges facing Dangote, heightened by a recent investigation by the Nigerian Economic and Financial Crimes Commission into alleged poor management of foreign currencies.
The weakness of the Nigerian currency and limited access to US dollars add to the complications. In January, Dangote’s headquarters in Lagos was raided, in what the group called an attempt to cause “undue embarrassment.” However, relations with the Tinibu administration appear to be gradually improving.
Regulatory Interventions and Market Outlook
To address the IOCs’ reluctance, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) is considering introducing a domestic crude supply obligation. The measure, set out in the Petroleum Industries Act of 2021, would require Nigerian oil suppliers to deliver their product to local refineries before any export. However, the obligation does not include a tariff component, meaning that refineries must buy at the international price.
Devakumar Edwin stressed that local refineries must be ready to buy crude at the global market price. A trader confirmed that there is no “absolute necessity” to supply crude to the domestic market if it is not commercially viable.
IOC Departures and New Partnerships
The majority of IOCs, including TotalEnergies, ExxonMobil and Eni, are exiting Nigeria, selling their onshore and shallow water assets to Nigerian players. These sales are often delayed by oppositions and legal challenges. However, Chevron, which remains active, continues to establish supply links with the refinery. A Chevron spokesperson expressed support for NUPRC’s efforts to ensure crude supplies to local refineries in a transparent and commercially viable manner.
Consumption and Local Supply
Initially, NNPC, which has a 20% stake in the Dangote refinery, was expected to be the main supplier. However, uncertainties over the availability of its supply have emerged. Aliko Dangote, owner of the refinery, highlighted the variability in NNPC’s production, saying the refinery cannot afford to wait for inconsistent supplies.
In December 2023, the refinery received 6 million barrels of crude from NNPC, but has since sought to supplement its needs with a supply of 2 million barrels per month from the United States. Deliveries of Nigerian crude to Dangote hit a record 6.9 million in May and are expected to climb to 9 million in June, according to data from S&P Global Commodities at Sea.
According to the data, 38 of the 53 oil cargoes delivered to Dangote came from Nigeria, including 17 shipped by NNPC, seven by Shell and four by Chevron. TotalEnergies, after a supply agreement announced in May, only delivered a cargo of Amenam crude in April.
This complex situation highlights the multiple challenges that the Dangote refinery must overcome to ensure a stable and sufficient supply of crude oil. Regulatory efforts, tensions with IOCs and overall market dynamics will continue to play a crucial role in the evolution of this flagship project in the Nigerian energy sector.
