Nigeria: What impact will the Dangote refinery have on prices and production?

The Dangote refinery in Nigeria, expected to provide a solution to fuel shortages, is raising questions about its real impact on domestic prices and supply strategy.

Share:

Raffinerie Dangote

Dangote’s refinery, due to open in May 2023 at Lekki, near Lagos, aims to transform the Nigerian fuel market.
With a production capacity of 650,000 barrels per day, the facility is expected to reduce Nigeria’s dependence on refined fuel imports.
Despite being Africa’s leading crude oil producer, the country imports almost all its fuels, a paradox that has persisted for decades.
Yet, despite high expectations, the refinery is still not operational, and questions persist about the timing and price at which gasoline will be sold on the domestic market.
Authorities and economic players remain cautious.
The Nigerian National Petroleum Company (NNPC), the sole purchaser of gasoline for the local market, has mentioned a possible start of sales on September 15.
However, successive delays and ambiguous communication have sown doubts among industry observers.
Fluctuating world crude oil prices and refining costs are also fuelling uncertainty about the possibility of maintaining competitive prices on the domestic market.

Sales Strategies and Price Uncertainties

The price outlook for gasoline produced by the Dangote refinery is far from clear.
According to SBM Intelligence’s Ayotunde Abiodun, market realities, including oil prices, logistics costs and refining margins, may make substantial price reductions impossible in the short term.
Many Nigerians, already hit by a 45% increase in pump prices following the removal of subsidies in May 2023, are hoping for stabilization.
However, economists believe that these expectations are over-optimistic, given that the Dangote Group must amortize a massive $20 billion investment to build the refinery.
To recoup this investment, Dangote may choose to sell a significant proportion of its production on international markets, where margins are higher.
This choice raises questions about the company’s commitment to meeting domestic needs.
If the sales strategy prioritizes exports, the expected impact on reducing domestic prices and ending shortages could be limited.
It would also pose challenges for NNPC, which continues to accumulate significant debt by buying fuel at a higher price than it resells it.

Crude Oil Supply: A Critical Issue

Crude oil supply remains a major sticking point between Dangote’s refinery and the Nigerian authorities.
According to industry sources, NNPC has not always been able to supply the necessary crude on competitive terms.
This situation forces Dangote to source crude from international markets, where crude is $3 to $4 per barrel more expensive than domestic prices.
In this context, sourcing strategy becomes crucial to the refinery’s economic viability.
Access to competitively priced crude oil could determine whether the refinery can offer reasonable prices on the local market.
Political tensions surrounding these supplies are also something to watch out for.
Current President Bola Ahmed Tinubu appears to be less close to Dangote than his predecessor Muhammadu Buhari, which could influence the dynamics of relations between the company and the state.
This political situation, combined with international competition, could alter the refinery’s operating conditions and its ability to meet national energy needs.

Monopoly risk and market reactions

The possibility of a Dangote monopoly on the Nigerian fuel market is causing concern among industry players.
If the refinery becomes the main source of gasoline for Nigeria, this could significantly restructure the market.
Local and international oil traders fear that this dominant position will hamper competition, altering the import and distribution dynamics that have prevailed for decades.
However, the Dangote Group rejects these concerns, claiming that current market conditions do not guarantee a monopolistic situation.
The company maintains that it remains open to collaboration with other players in the sector.
Despite this, the issue of competition and transparency in the Nigerian oil sector remains topical, particularly with national crude production falling to less than 1.2 million barrels per day by 2023, far short of the government’s target of 2 million.

Consequences for the Nigerian Energy Sector

Dangote’s refinery could represent a unique opportunity for Nigeria to restructure its energy sector.
However, economic, political and logistical challenges remain.
Sales strategies, crude supply and relations with the government will be crucial to the future of this facility.
The Nigerian fuel market is still waiting for clarity on the real impact of this new refinery on domestic prices and energy security.

Petro-Victory Energy announces the completion of drilling operations for the AND-5 well in the Andorinha field, Brazil, with positive reservoir results and next steps for production.
The Colombian prosecutor’s office has seized two offices belonging to the oil company Perenco in Bogotá. The company is accused of financing the United Self-Defense Forces of Colombia (AUC) in exchange for security services between 1997 and 2005.
Indonesia has signed a memorandum of understanding with the United States to increase its energy imports. This deal, involving Pertamina, aims to diversify the country's energy supply sources.
VAALCO Energy continues to operate the Baobab field by renovating its floating platform, despite modest production. This strategy aims to maintain stable profitability at low cost.
An empty reservoir exploded at a Lukoil-Perm oil facility in Russia, causing no injuries according to initial assessments pointing to a chemical reaction with oxygen as the cause of the accident.
The British Lindsey refinery has resumed fuel deliveries after reaching a temporary agreement to continue operations, while the future of this strategic site remains under insolvency proceedings.
BP and Shell intensify their commitments in Libya with new agreements aimed at revitalizing major oil field production, amid persistent instability but rising output in recent months.
The private OCP pipeline has resumed operations in Ecuador following an interruption caused by heavy rains, while the main SOTE pipeline remains shut down, continuing to impact oil exports from the South American country.
McDermott secures contract worth up to $50 million with BRAVA Energia to install subsea equipment on the Papa-Terra and Atlanta oil fields off the Brazilian coast.
Saudi Aramco increases its oil prices for Asia beyond initial expectations, reflecting strategic adjustments related to OPEC+ production and regional geopolitical uncertainties, with potential implications for Asian markets.
A bulk carrier operated by a Greek company sailing under a Liberian flag suffered a coordinated attack involving small arms and explosive drones, prompting an Israeli military response against Yemen's Houthis.
The Canadian government is now awaiting a concrete private-sector proposal to develop a new oil pipeline connecting Alberta to the Pacific coast, following recent legislation intended to expedite energy projects.
Petrobras is exploring various strategies for its Polo Bahia oil hub, including potentially selling it, as current profitability is challenged by oil prices around $65 per barrel.
Brazilian producer Azevedo & Travassos will issue new shares to buy Petro-Victory and its forty-nine concessions, consolidating its onshore presence while taking on net debt of about USD39.5mn.
Major oil producers accelerate their return to the market, raising their August quotas more sharply than initially expected, prompting questions about future market balances.
Lindsey refinery could halt operations within three weeks due to limited crude oil reserves, according to a recent analysis by energy consultancy Wood Mackenzie, highlighting an immediate slowdown in production.
The flow of crude between the Hamada field and the Zawiya refinery has resumed after emergency repairs, illustrating the mounting pressure on Libya’s ageing pipeline network that threatens the stability of domestic supply.
Libreville is intensifying the promotion of deep-water blocks, still seventy-two % unexplored, to offset the two hundred thousand barrels-per-day production drop recorded last year, according to GlobalData.
The African Export-Import Bank extends the Nigerian oil company’s facility, providing room to accelerate drilling and modernisation by 2029 as international lenders scale back hydrocarbon exposure.
Petronas begins a three-well exploratory drilling campaign offshore Suriname, deploying a Noble rig after securing an environmental permit and closely collaborating with state-owned company Staatsolie.