The Dangote Refinery in Lagos plans to import at least 24 million barrels of US crude oil over the next year as it enhances its processing capabilities. Founded by Africa’s richest man, Aliko Dangote, the $20 billion refinery has issued a term tender to acquire two million barrels per month of West Texas Intermediate (WTI) Midland crude starting in July, according to Bloomberg. This purchase will total 24 million barrels over one year.
Located in Africa’s top oil-producing country, the Dangote Refinery’s decision to import foreign oil highlights its significant role in the global crude and fuel markets. Upon reaching full operational capacity, it will become the largest refinery on the continent. The tender for this procurement will close on May 21 at 3 p.m.
Industry experts note that this move underscores the competitive challenges faced by Nigerian crude in the international market. An earlier report by Nairametrics indicated that the mega refinery sources one-third of its feedstock from the United States, opting for more affordable oil to boost production. Recent data confirms that one out of every three barrels of feedstock at the Dangote Refinery comes from US WTI Midland.
Despite Nigeria’s status as a leading crude oil producer, the country struggles to meet its OPEC quota and domestic supply demands. Consequently, the Dangote Refinery has turned to US imports, with up to a third of its oil sourced from the WTI Midland grade, according to Bloomberg’s shipping data. Ronan Hodgson, an energy analyst at FGE, predicts this trend will persist as foreign oil continues to be more cost-effective than local supplies. Hodgson also mentioned that units designed to enhance diesel quality at the refinery are expected to begin operations in the coming months.
“The refinery is already significantly impacting product markets, even while operating at minimal rates,” Hodgson said.
In a related development, the Nigeria Upstream Petroleum Regulatory Commission (NUPRC) has mandated all oil companies in Nigeria to supply crude to domestic refineries that cannot procure it locally. Oil producers are permitted to export crude only after fulfilling domestic supply obligations. The NUPRC will act as an intermediary between local refiners and producers to facilitate sales purchase agreements under a willing-buyer, willing-seller model. This new policy could benefit the Dangote Refinery by enabling it to procure crude oil from local suppliers rather than relying heavily on imports. However, the specific quantities each refinery must purchase remain uncertain.
Additionally, analysts at Standard & Poor’s (S&P) Global Commodities Insights project that the Dangote Refinery will start supplying petrol in the fourth quarter of this year, a delay from the previously stated May timeline. Kelly Norways, an African energy expert at S&P, disclosed this in a podcast discussing West Africa’s evolving refining landscape. Although earlier reports indicated the refinery would begin petrol supply by May 2024, it now appears this may be postponed until June. Notably, the Dangote Refinery commenced selling diesel and aviation jet fuel to local marketers in April at prices as low as N1000 per liter.
Credit: Nairametrics (Text Excluding Headline)
