Strong competition looms for Dangote refinery as Nigeria’s NNPC partners Saudi Aramco to revamp local refineries


    There is a looming competition for Dangote 65,000 refinery, as Nigeria’s Nigerian National Petroleum Corp. and Saudi Aramco partner to revamping local refineries in Africa’s top crude producer and other energy investments.

    Buhari, who is currently in Saudi Arabia for the Future Investment Initiative, met with Yasir Al-Rumayyan, chairman of Aramco and Saudi Arabia’s Public Investment Fund in the capital, Riyadh, to discuss areas of cooperation, Nigerian presidential spokesman Garba Shehu said Wednesday in an emailed statement.

    Buhari directed officials of the petroleum ministry and the state oil company to work with the Saudis to “expedite the modalities for investments and collaborations,” according to the statement. Both countries are OPEC members.

    The NNPC operates four refineries that have long run at a fraction of their capacity. The newest is almost four decades old. Nigeria imports more than 90% of products like gasoline and diesel, swapping its prized export — crude — for petroleum products that people need in their everyday lives.

    Refining Revamp

    The West African country of about 200 million people imports more than 90% of products like gasoline and diesel, swapping its prized export — crude — for petroleum products that people need in their everyday lives.

    The Nigerian National Petroleum Corp., or NNPC as the state energy company is known, operates four refineries that have long run at a fraction of their capacity. The newest is almost four decades old. By successfully making its own fuels, Nigeria would stop being reliant on traders bringing supplies on tankers from thousands of miles away — with all the extra costs that entails.

    History of failed revamp
    The skepticism that state-run plants can return to full operation stems from NNPC’s previous attempts. Efforts to overhaul its refining industry — in 2007, 2010, 2012 and 2016 — all failed to work out. The state energy company has to compete with other domestic demands for funding, such as health care, education and other social services.

    “For our refineries that have not been been properly maintained for years, it might be easier to build a new one,” said Cheta Nwanze, head of research at SBM Intelligence, a Lagos-based risk advisory

    Three years ago, Nigeria sought external financing for its refineries following a plunge in crude prices, oil theft and attacks on its pipelines by militants and other saboteurs. That effort crumbled after it failed to convince investors of the viability of the venture.

    NNPC is talking to the African Export-Import Bank and other financial institutions to fund the revamp.

    “The money to comprehensively fix the refineries is simply not there,” said Ayodele Oni, chair of the energy and natural resources practice at Bloomfield Law in Lagos. “It is a difficult task to attract any significant funding required for their repairs in their present state.”

    Dangote Boost
    Meanwhile Dangote 65,000 bpd which is being built privately by Africa’s richest man, is scheduled to be at full capacity in the middle of 2021.

    The refinery in Lagos will be ready for commissioning at the beginning of 2021, with full capacity reached by the end of the first half of the year, Devakumar Edwin, a group executive director at Dangote Industries Ltd., said in an interview at a conference in Lagos.

    Some of Nigeria’s challenges to become more self-sufficient in fuel may soon be alleviated for another reason. In the next few years, a new, privately owned 650,000 barrel-a-day refinery is due to come online. In theory, it could meet all of the country’s fuel needs and have enough left over for exports.

    The plant, being built by Africa’s richest man Aliko Dangote, is not owned by the Nigerian state though. That means that the country would have to pay market prices — similar to those charged by traders — for the fuel the refinery churns out. There would be little reason for Dangote to subsidize Nigeria’s domestic fuel prices if it were more profitable for the refinery to sell elsewhere.

    Nigeria is Africa’s largest crude producer, but lacks refining capacity to meet its own fuel needs. The Dangote refinery, which is designed to maximize gasoline output, will produce enough to allow for a small surplus of that fuel for export. It will also be able to send a large volume of diesel and jet fuel to international markets, Edwin said.

    “We are confident that we can meet 100% of the requirement of the country, so the balance will go for export,” Edwin said.

    Dangote plans to take advantage of local crude supply and it won’t participate in the crude-for-fuel swap deal that is managed by the state oil company. Nigerian National Petroleum Corp., or NNPC, recently extended its crude for fuel deal for another three years.

    “We are going to buy the crude just at the export price and will sell our products at the import price, the crude swap is operating only for the importers of the product,” Edwin said.

    The new refinery has been designed to process varieties of crude from sweet to light crude sourced both locally, and abroad. Dangote plans to export its diesel to Europe and gasoline to Latin America, Western and Central African markets, Edwin said.

    Evacuation of refined products will be done by sea and through roads, he said.

    “We are thinking of investing in vessels. We want to make sure we are not held for ransom by any transport operator

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