Crude shortage threatens Dangote’s July petrol supply takeoff

Crude shortage threatens Dangote’s July petrol supply takeoff

Dangote Oil Refinery’s highly anticipated foray into the petrol supply market in July could be delayed due to a shortage of crude oil, industry sources have revealed.

The 650,000 barrels per day (bdp)-capacity refinery, located in Lekki, Lagos, was slated to begin operations this July, aiming to significantly reduce Nigeria’s reliance on imported petrol.

However, concerns are mounting that a lack of readily available crude oil could hinder Dangote’s ability to meet its petrol refining targets.

“The refinery is yet to receive the required volumes of crude oil needed to refine PMS for the July takeoff,” a source in the oil trading business said via phone.

Jide Pratt, country manager of Trade Grid, which supports a wide network of independent dealers across Africa, indicated that the Dangote refinery is unlikely to meet the 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 said.

He added, “A safe assumption may be August or September at best and December at worst.”

“It’s clear that subsidy still exists and the possibility of selling to NNPC is reduced, as it currently has trade account receivables with traders in excess of 160 days. The Dangote Refinery is a commercial entity and will unlikely toe this line of credit sales with its running cost and interest payments,” Pratt said.

Kalu Aja, a financial planning expert, questioned why Nigeria, the largest oil exporter in Africa, can’t produce enough oil for Dangote?

If Dangote needs crude, Nigerian National Petroleum Company (NNPC) should support its 20 percent investment by giving Dangote its oil equity,” Aja said.

Hector Igbikiowubo, publisher of Sweet Crude Reports, said the essence of having the NNPC refineries working is to guarantee energy security for the Nigerian state.

“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 on Channels TV program.

Efforts to reach Femi Soneye, chief communication officer of NNPC Ltd, proved abortive as he did not pick his calls.

NNPC Ltd, who holds a 20 percent equity in the project, has been widely expected to supply the bulk of Dangote’s crude demands, selling to the refinery due to its location in the Lekki Free Trade Zone. But this may be far-fetched.
In an interview with S&P Global Commodity Insights last year, Edwin Devakumar, vice president of Dangote Industries Limited, said that the NNPCL had committed its crude to other entities.

The Dangote Refinery VP did not disclose the other entities receiving the oil company’s crude, but the NNPCL had earlier disclosed in August 2023 that it entered into a $3bn crude oil-for-loan deal with the African Export-Import Bank.

The deal allowed the company to pledge future oil production to the bank as repayments for the loan.

To date, Dangote Refinery has only taken delivery of Nigerian and US crude grades. Still, it could increasingly seek alternative term contracts with other supply sources as it scales production, traders have speculated.

“It’s not unexpected that they would seek to cover base requirements for the refinery through term business in the same way that some Indian refiners do with Middle Eastern crude,” said one source.

Nigeria’s position as a leading continental oil producer should logically confer the benefits of ample supply to its refiners.

However, the reality is starkly different.

Nigeria currently boasts 25 licensed modular refineries. Five are operational, producing diesel, kerosene, black oil, and naphtha.

Modular refineries are simplified refineries that require significantly less capital investment than traditional full-scale counterparts. About 10 are in various stages of completion, while the others have only received licences to establish.

The rest remains stalled due to the unavailability of crude and other issues.

Only about five of our members have completed their refineries. The others are having a major challenge. This challenge is that the people who are supposed to finance them have not disbursed funding for construction because they want some level of guarantee,” Eche Idoko, publicity secretary, Crude Oil Refinery Owners Association of Nigeria, said.

He added, “They want a guarantee that if they finish the refinery, they are going to get feedstock, which, of course, is crude oil,” Idoko said.

The Nigerian Upstream Petroleum Regulatory Commission (NUPRC), on June 3, said it would mandate international oil companies (IOCs) to supply crude oil to Dangote oil refinery.

Olaide Shonola, spokesman of NUPRC, told BusinessDay that the commission is intervening to ensure the local sale of crude to Dangote and other refineries in the country.

Shonola stated this while reacting to a claim by president of the Dangote Group, Aliko Dangote, that the international oil companies are not ready to sell crude to the refinery.

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Crude shortage threatens Dangote’s July petrol supply takeoff
Crude shortage threatens Dangote’s July petrol supply takeoff
Oladehinde Oladipo
Oladehinde Oladipo

June 25, 2024

Dangote refinery to create $21bn annual market for Nigerian crude
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Dangote Oil Refinery’s highly anticipated foray into the petrol supply market in July could be delayed due to a shortage of crude oil, industry sources have revealed.

The 650,000 barrels per day (bdp)-capacity refinery, located in Lekki, Lagos, was slated to begin operations this July, aiming to significantly reduce Nigeria’s reliance on imported petrol.

However, concerns are mounting that a lack of readily available crude oil could hinder Dangote’s ability to meet its petrol refining targets.

“The refinery is yet to receive the required volumes of crude oil needed to refine PMS for the July takeoff,” a source in the oil trading business said via phone.

Read also: Dangote Refinery delays petrol production to mid July

Jide Pratt, country manager of Trade Grid, which supports a wide network of independent dealers across Africa, indicated that the Dangote refinery is unlikely to meet the 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 said.

He added, “A safe assumption may be August or September at best and December at worst.”

“It’s clear that subsidy still exists and the possibility of selling to NNPC is reduced, as it currently has trade account receivables with traders in excess of 160 days. The Dangote Refinery is a commercial entity and will unlikely toe this line of credit sales with its running cost and interest payments,” Pratt said.

Kalu Aja, a financial planning expert, questioned why Nigeria, the largest oil exporter in Africa, can’t produce enough oil for Dangote?

“If Dangote needs crude, Nigerian National Petroleum Company (NNPC) should support its 20 percent investment by giving Dangote its oil equity,” Aja said.

Hector Igbikiowubo, publisher of Sweet Crude Reports, said the essence of having the NNPC refineries working is to guarantee energy security for the Nigerian state.

“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 on Channels TV program.

Efforts to reach Femi Soneye, chief communication officer of NNPC Ltd, proved abortive as he did not pick his calls.

NNPC Ltd, who holds a 20 percent equity in the project, has been widely expected to supply the bulk of Dangote’s crude demands, selling to the refinery due to its location in the Lekki Free Trade Zone. But this may be far-fetched.

In an interview with S&P Global Commodity Insights last year, Edwin Devakumar, vice president of Dangote Industries Limited, said that the NNPCL had committed its crude to other entities.

The Dangote Refinery VP did not disclose the other entities receiving the oil company’s crude, but the NNPCL had earlier disclosed in August 2023 that it entered into a $3bn crude oil-for-loan deal with the African Export-Import Bank.

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The deal allowed the company to pledge future oil production to the bank as repayments for the loan.

To date, Dangote Refinery has only taken delivery of Nigerian and US crude grades. Still, it could increasingly seek alternative term contracts with other supply sources as it scales production, traders have speculated.

“It’s not unexpected that they would seek to cover base requirements for the refinery through term business in the same way that some Indian refiners do with Middle Eastern crude,” said one source.

Nigeria’s position as a leading continental oil producer should logically confer the benefits of ample supply to its refiners.

However, the reality is starkly different.

Nigeria currently boasts 25 licensed modular refineries. Five are operational, producing diesel, kerosene, black oil, and naphtha.

Modular refineries are simplified refineries that require significantly less capital investment than traditional full-scale counterparts. About 10 are in various stages of completion, while the others have only received licences to establish.

The rest remains stalled due to the unavailability of crude and other issues.

“Only about five of our members have completed their refineries. The others are having a major challenge. This challenge is that the people who are supposed to finance them have not disbursed funding for construction because they want some level of guarantee,” Eche Idoko, publicity secretary, Crude Oil Refinery Owners Association of Nigeria, said.

He added, “They want a guarantee that if they finish the refinery, they are going to get feedstock, which, of course, is crude oil,” Idoko said.

The Nigerian Upstream Petroleum Regulatory Commission (NUPRC), on June 3, said it would mandate international oil companies (IOCs) to supply crude oil to Dangote oil refinery.

Olaide Shonola, spokesman of NUPRC, told BusinessDay that the commission is intervening to ensure the local sale of crude to Dangote and other refineries in the country.

Shonola stated this while reacting to a claim by president of the Dangote Group, Aliko Dangote, that the international oil companies are not ready to sell crude to the refinery.

“We’ve been intervening and intervening. I am sure you’re aware of a recent meeting that was held with them on domestic crude oil supply. We will keep engaging them, NUPRC has been doing that,” Shonola said.

“I can’t say we will force them. But as the regulator, we can mandate. And that’s what we are doing, giving clear directives that this must be done. We will just keep on engaging and you will agree with me that most of these things have to be planned. We will keep on engaging. We will do our regulatory function in that area,” she stated.

Asked whether there would be sanctions, Shinola declined comments.