Dangote Sources Crude For Refinery Takeoff

The refinery is currently importing crude oil and expects its first crude cargo in two weeks’ time, the executive director, Dangote Group, Devakumar Edwin, has said.

Although the Nigerian National Petroleum Company Limited trades crude oil on behalf of Nigeria, Edwin in an interview with S&P Global Commodity Insights on Monday, said the NNPCL had committed its crude to other entities but did not disclose the other entities receiving the oil company’s crude.

This is as energy experts have called for drastic measures to prevent Nigeria’s continued reliance on importations to meet domestic requirements.

The company had last month said it had entered into a $3bn crude oil-for-loan deal with African Export-Import Bank which would allow the company to pledge future oil production to the bank as repayments for the loan.

However, industry operators who spoke with LEADERSHIP were of the opinion that inadequate production may also be responsible for the option taken by Dangote.

The NNPC has on its own confirmed it had entered into crude oil contracts with a number of entities, a development that made it impossible for the organisation to meet Dangote’s need earlier but plans were already underway to ensure Dangote’s refineries crude oil needs were met in November.

Former interior minister and chairman of Board of Trustees of Crude Oil Refiners Association of Nigeria, CORAN, Capt. Emmanuel Iheanacho, said Dangote as a business man may have considered the economic gains in importation of crude to run his business.

Iheanacho, also observed that supply reliability is a major consideration to business and that shrinking crude production may also be a case in study as no business would like to experience supply hiccups.

However the Dangote refinery executive director, pointed out that the importation of crude by Dangote refinery was temporary, as the firm would receive supply from NNPCL from November.

Edwin went ahead to state that the firm would begin the production of up to 370,000 barrels per day of crude that would give rise to Automotive Gas Oil, popularly called diesel, and jet fuel in October 2023.

In his reaction, public affairs analyst, Dan D Kunle, however said the above situation was long expected because of the poor and low investment in the Upstream oil and gas production.

According to Kunle, The reality and the hard truth is that Nigeria may end up importing crude oil to feed her refineries in the next three to five years,as the Dangote Refinery can not rely on the local crude oil productions from NNPC Ltd. “Crude oil supply guarantees are essential to the operation of a refinery. It is not a piece meal operation. It is a continuous operation, seamless and uninterrupted. Nigeria may also still import Gas, LPG and LNG. The FGN must put a rescue team in NNPC and the hydrocarbons industry if we are not to lose out completely. Very worrisome situations are looming in the Industry.” he opined.

Our Correspondent reports that a review of oil production by the Organization of the Petroleum Exporting Countries, OPEC, on September 13 indicates that though Brent crude is on the rise Nigeria has failed to significantly increase its oil production.

In August, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) reported a daily oil production of 1.4 million barrels, but analysts said that when condensate is excluded from the figure, the output drops to 1,181,133 barrels per day.

This quantity appears quite modest when juxtaposed with Nigeria’s substantial oil reserves, estimated at 38 billion barrels.

Although production continues to drag, oil price has been relatively stable in 2023. This year, the key assumptions in the country’s 2023 budget include an oil price benchmark of $75 per barrel; exchange rate at N435. 57 per dollar; oil production of 1.69 million barrels per day and inflation rate of 17.16 per cent.

The latest Monthly Oil Market Report from the Organization of Petroleum Exporting Countries (OPEC) presented a different perspective, indicating that Nigeria’s crude oil production, excluding condensates, amounted to only 1.1 million barrels per day.

Since the beginning of 2023, Nigeria’s crude oil production has ranged from its highest at 1,292,240 barrels per day in February to its lowest at 1,004,392 barrels per day in April.

Industry experts however noted that when condensate production is factored alongside the figures from January to August 2023, the range extends from its peak of 1,534,654 barrels per day in March to its lowest point of 1,252,114 barrels per day in April.

Evidently from these statistics Nigeria is therefore yet to meet its budget benchmark of 1.69 million barrels per day for 2023.

In contrast, the non-oil sector has exhibited substantial recovery, as highlighted in the OPEC report. This recovery is characterised by significant growth in services, manufacturing, and agricultural output during the second quarter of 2023.

The Nigerian economy has continued to grapple with high inflation. In July, inflation rates continued to rise, registering an annual rate of 24.1 per cent year-on-year, following 22.8 per cent in June and 22.4 per cent in May.

Nigeria’s oil sector lacks significant investments and stakeholders are currently battling crude oil theft.

The Nigerian National Petroleum Company Limited (NNPC) has consistently reported weekly crude oil theft incidents across the Niger Delta oil-producing areas.

Security agents are tackling the problem by destroying vessels and other materials used in the illegal trade, yet the theft industry keeps waxing stronger, leading to the loss of 400,000 barrels of oil daily, according to the National Security Adviser, Nuhu Ribadu.

The OPEC report also noted that among the top four oil producers in Africa, Nigeria (1.18 million) is still producing more than Angola (1.12 million), and Algeria (939,000). Although, it fell behind Libya (1.19 million) as of August 2023.

According to the OPEC report, the 2023 world oil demand growth forecast of 2.4 million barrels a day, mb/d remains consistent. Within the Organization for Economic Cooperation and Development, OECD region, OPEC anticipates a 0.1 mb/d increase in oil demand for 2023.

However, for Premium Motor Spirit, PMS, popularly called petrol, the Dangote Group’s boss said the plant would produce it by November 30, 2023.

This came as oil marketers stated that the prices of diesel and jet fuel would only crash when the Dangote refinery starts receiving crude oil from Nigeria, and not by importing crude.

Meanwhile, Edwin stated in the interview that the Dangote Refinery would initiate a gradual increase in petrol production, aiming to reach an impressive 650,000 barrels per day by November 30.

He emphasised the refinery’s readiness to receive crude oil, stating, “Right now, I’m ready to receive crude. We are just waiting for the first vessel. And so, as soon as it comes in, we can start.”

Regarding the shift in the original timeline, Edwin clarified, during his conversation with S&P, that the NNPCL had already committed their crude oil to another entity on a forward basis, causing a temporary delay.

He said the setback was momentary, and the refinery would soon run exclusively on Nigerian crude oil as from November 2023.

In mid-August, the NNPCL announced that it had secured a $3bn emergency crude oil repayment loan from the African Export-Import Bank.

It had announced the acquisition of the loan in a brief statement titled, ‘Relief for the naira: NNPC Ltd secures $3bn emergency crude repayment loan from AFREXIMBank.’

The statement read, “The NNPC Ltd and @afreximbank have jointly signed a commitment letter and term-sheet for an emergency $3bn crude oil repayment loan.

“The signing, which took place today at the bank’s headquarters in Cairo, Egypt, will provide some immediate disbursement that will enable the NNPC Ltd to support the Federal Government in its ongoing fiscal and monetary policy reforms aimed at stabilising the exchange rate market.”

Providing further explanation about the loan at the time, the Senior Special Assistant to President on Digital/New Media, O’tega Ogra, in several posts on X (formerly Twitter), explained that the $3bn was not a crude-for-refined products swap loan, but an upfront cash loan against proceeds from a limited amount of future crude oil production.

This confirmed that the national oil firm had really made commitments to other entities using the crude produced by Nigeria.

Ogra had said, “Is this loan risky for NNPCL or the Nigerian Treasury? No. The exposure for NNPC is very limited, covering just a fraction of their entitlements. Additionally, there are no sovereign guarantees tied to this loan.”

“How will the loan be repaid? The loan will be repaid against a fraction of proceeds from future crude oil production. It’s a strategic move that ensures a balance between our current economic needs and future production capabilities.

“What is the difference between this and previous swap deals? This is not a crude for refined products agreement where the government does not earn any proceeds from the swap.”

Meanwhile, during the latest S&P interview, Edwin said the Nigerian oil would be purchased in US dollars, and not naira because the refinery is located in a free trade zone on the outskirts of Lagos.

He said the NNPC would, however, supply some crude at knockdown prices due to its equity stake in the refinery

Edwin further stated that, aside from heavy Angolan grades, the Dangote refinery could process most African crude grades, as well as Middle Eastern Arab Light and even US light-tight oil.

He said, “We can even take some of the Russian grades… if the global system opens up to allow us to receive them. Basically, if you look at our production profile, 50 per cent of my production will meet 100 per cent of the requirements of the country.

“Excess gasoline – which will be 10 ppm sulphur Euro 5 quality — will be exported to other African markets as well as the US and South America, although the volumes will be relatively small. Meanwhile, jet fuel will be exported to Europe and diesel will be sold in sub-Saharan Africa.”

S&P also quoted Edwin as saying the refinery would be “enormously beneficial to the country” by establishing a reliable supply of “environmentally-friendly” refined products and bringing “a huge amount of foreign exchange into the country.”

Edwin also noted that the refinery would play a pivotal role in alleviating the fuel supply challenges faced by import-dependent West Africa, worsened by Nigeria’s recent removal of fuel subsidies, which had led to a thriving illicit gasoline market due to price fluctuations.

He added that the revenues generated from the refinery’s operations would be reinvested to fuel further developments, underscoring Aliko Dangote’s commitment to Nigeria.

“The money will be coming back in, and it will go for further investments. Aliko Dangote is from Nigeria and his focus is always on Nigeria,” Edwin stated.