Nigeria’s Dangote refinery struggles to source crude from IOCs, faces high premiums

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The highly anticipated entry of Dangote Oil Refinery into the petrol supply market this July may be delayed due to a shortage of crude oil, according to industry sources.

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Dangote Refinery Faces Crude Supply Challenges from International Oil Companies

Nigeria’s 650,000 bpd Dangote refinery is facing increasing difficulties in sourcing crude feedstock from international oil companies (IOCs), according to statements made by its leadership on June 24. This situation signals emerging frictions with suppliers.

The new refinery, which aims to transform West Africa’s refining sector, has sourced crude from Nigeria’s state-owned NNPC and IOCs since starting production in January. However, it claims to have encountered growing resistance from these suppliers.

Speaking to S&P Global Commodity Insights, Devakumar Edwin, Vice President of Oil and Gas at Dangote Industries, said IOCs operating in Nigeria have been offering crude oil to the refinery at a premium of over $6/b to the market price. “The IOCs are deliberately and willfully frustrating our efforts to buy local crude. They are either asking for ridiculous premiums or stating that crude is not available,” Edwin said on June 23, attributing the refinery’s inability to reach higher run rates to this crude shortage.

Additionally, traders have raised concerns about delayed deliveries to the refinery, allegedly due to payment disputes. For instance, two tankers carrying WTI Midland crude experienced over month-long delays in May before discharging at the refinery, with supplier Petrochina reportedly refusing payment in the form of refined products. Edwin declined to comment on this alleged dispute.

Analysts point to currency weakness and limited access to US dollars as significant challenges for Dangote. The refinery’s Lagos office was raided by Nigeria’s Economic and Financial Crimes Commission in January following allegations of foreign exchange mismanagement. Although the Dangote Group described the incident as “unwarranted embarrassment,” sources indicate that relations with the Tinibu administration have since improved.

Regulatory Measures and Industry Responses

In response to the apparent reluctance of IOCs to supply the refinery, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) has been working to enforce a ‘Domestic Crude Oil Supply Obligation.’ This regulation, announced on March 26, requires Nigerian crude suppliers to prioritize deliveries to local refiners before exporting. Edwin noted that while this provision is part of the 2021 Petroleum Industries Act, it lacks a price component, allowing producers to export if they can obtain higher prices internationally.

A trader confirmed that the mandate does not include an “absolute requirement” to deliver crude domestically if it is not commercially viable. This regulatory push coincides with a planned withdrawal from Nigeria by several major IOCs, including TotalEnergies, ExxonMobil, and Eni, which are selling onshore and shallow water assets to Nigerian firms. Despite delays and legal challenges, Chevron continues to support local supply efforts. A Chevron spokesperson expressed the company’s support for the NUPRC’s policy on June 10.

Challenges and Prospects

Initially, NNPC, which holds a 20% equity stake in Dangote, was expected to be the refinery’s primary supplier. However, the refinery’s leadership has expressed doubts about the consistency of this supply. “If we have 100% Nigerian crude, that’s fine, but we can’t wait, because sometimes production is up and down,” said Aliko Dangote at the Africa CEO Forum in May.

In December 2023, the refinery received 6 million barrels of crude from NNPC and has since sought an additional 2 million barrels per month from the US to supplement supplies. An NNPC spokesperson, when asked about Dangote’s comments, referred inquiries to the NUPRC.

According to S&P Global Commodities at Sea data, Nigerian crude deliveries to Dangote peaked at 6.9 million barrels in May and are expected to rise to 9 million barrels in June. Of the 53 crude oil cargoes delivered to Dangote, 38 originated in Nigeria, with 17 shipped by NNPC, seven by Shell, and four by Chevron. TotalEnergies, which announced a supply deal with Dangote in May, delivered one cargo of Amenam crude in April but has not made subsequent deliveries.

The Dangote refinery’s struggle to secure adequate crude supply underscores broader challenges within Nigeria’s oil sector, impacting both the refinery’s operations and the nation’s energy security.

Gbenga Samson
Gbenga Samsonhttp://ThisDayLive.com
Samson Gbenga Salau [Editorial Board Adviser] Gbenga Samuel Salau is a professional journalist with over 17 years experience in journalism, he is a graduate of Communication and Language Arts, University of Ibadan. On completion of his youth service, he joined The Guardian as a freelance journalist and was later absorbed as a staff. While in the University, he was a campus journalist reporting for the Independence Hall and Faculty of Arts Press Clubs. As a campus journalist, he won the following awards; Independence Hall Press Best News writer; University of Ibadan Union of Campus Journalists’ Best News Reporter/Writer; First Runner-up, Reuben Abati Award for Investigative Journalism; Association of Faculty of Arts Students’ Press Best Reporter; University of Ibadan Union of Campus Journalists’ Best Political Writer; Winner, Reuben Abati Award for Investigative Journalism, and University of Ibadan Union of Campus Journalists’ Best Interviewer. He served the Association of Communication and Language Arts Students, as the Public Relation Officer, the same year he was appointed the News Editor of the Association of Faculty of Arts Students Press. The following session, he was made the General Editor, and a member of the 13-man University of Ibadan Students’ Union Transition Committee. As a reporter in The Guardian, in 2014, he won the Promasidor Quill Award Best Report on Nutrition and DAME Business Reporting category. In the 2015 edition of the Promasidor Quill Award, he won the best Report on Nutrition and Brand Advocate Categories, while in 2016, he won the NMMA Print Journalist of the Year, first runner-up Golden Pen Reporter of the Year and SERAs CSR Awards. Gbenga Salau loves traveling, reading, and listening to songs with good lyrics no matter the genre.

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