$19bn Dangote Refinery: Experts Outline Commissioning Expectations And Potential Difficulties

Analysts have predicted that the $19 billion Dangote Refinery won't be the nation's Uhuru until May 22, 2023, when it is scheduled to be commissioned.

Analysts have predicted that the $19 billion Dangote Refinery won't be the nation's Uhuru until May 22, 2023, when it is scheduled to be commissioned.

The state-owned refineries in Kaduna, Warri, and Port-Harcourt, the most recent of which is more than 31 years old, are in danger of closing down as the Dangote refinery ramps up.

The four government-owned refineries in Nigeria have a history that is characterized by abandonment, neglect, inefficiency, and money loss, according to industrial data.

The old Port-Harcourt Refinery, which had a capacity of 60,000 barrels per day and had been operational since 1965, the Warri Refining and Petrochemical Company, which had a 125,000 bpd capacity, the Kaduna Refining and Petrochemical Company, which had a 110,000 bpd capacity and had been operational since 1980, and the New Port Harcourt, which had a 150,000 bpd capacity and had been operational since 1989, are examples.

A total of 450,000 bpd may be produced at the four state-owned refineries.

President Muhammadu Buhari's administration reportedly spent $396 million on maintaining the nation's refineries between 2015 and 2020 alone, according to a report released by the Socio-Economic Rights and Accountability Project, SERAP, on March 6 2022.

Millions of Nigerians still require access to an unlimited supply of fuel despite this significant expenditure.

According to the study, N82.82 billion was reportedly spent in 2015, N78.95 billion in 2016, N604.127 billion in 2017, N426.66 billion in 2019, N218.18 billion in 2019, and N64.534 billion was reportedly spent from January to June of 2020.

 Reports claim that since the start of his presidency, Buhari, who doubles as the petroleum minister, has spent $26.5 billion on turnaround maintenance of the four refineries without consequence.

Nigerians continue to struggle with a lack of fuel despite the significant spending.

Fuel subsidies brought on by the importation of PMS are another effect.

During the official launch of NNPCL in 2021, Group Chief Executive Officer (GCEO) of Nigerian National Petroleum Corporation Limited Mele Kyari stated that Nigeria had continued to spend an average of N400 billion monthly on subsidizing imported fuel products.

According to NNPC's January report, Nigeria will spend N4.39 trillion on fuel subsidies in 2022. The Minister of Finance, Budget, and National Planning estimated that from January to June 2023, Nigeria would spend N3 trillion on petrol subsidies. In the second part of the year, fuel subsidies would probably cost the same amount.

Fuel subsidy payments were supposed to be eliminated by the end of June, according to Mrs. Zainab Ahmed, Minister of Finance, Budget, and National Planning, but she later changed her mind. In the industry, the development caused misunderstanding.

Public figures show that Nigeria's annual budget is typically consumed by payments for fuel subsidies.

However, according to economists, once the Dangote refinery begins operations, Nigeria's spending on fuel importation subsidies will come to an end.

$19 Dangote Refinery benefits anticipated

Nigeria spent N1.79 trillion on the importation of gasoline and diesel in 2022, in addition to N4.39 trillion on fuel subsidies, according to the National Bureau of Statistics' Fourth Quarter report.

Nigeria would spend N3 trillion on gasoline subsidies in just the first quarter of 2023; if the payment continues, N4 trillion will be spent in the second half of the year.

Industry experts predicted that the Dangote refinery's entry would result in savings of the billions of naira currently spent on fuel importation and subsidy payments.

The corporation could save Nigeria $10 billion in foreign exchange (FX) and produce an additional $10 billion in exports when the facility starts operating, according to information provided by Aliko Dangote in an interview with the Economist Magazine a week ago.

The Dangote refinery, according to oil and gas specialists, including the Chairman of International Energy Services, Dr. Diran Fawibe, Bala Zakka, and Nick Agule, would revolutionize Nigeria's downstream petroleum sector.

Fawibe expressed optimism that Nigerian imports of fuel and diesel would come to a stop with the construction of the Dangote Refinery.

"The refinery coming on stream will have a tremendous impact on the petroleum industry and the Nigerian economy. You have a situation right now where Nigeria is spending up to 30-33 per cent of foreign exchange earnings on importing petroleum products into the country.

"If Dangote refinery's product goes on full steam, this will end this importation; in other words, we shall no longer be importing petroleum products," he said.

Agule likewise asserted that the Dangote refinery's entry will free up a significant amount of money that might have been used to cover the cost of transportation for petroleum imports into the nation.

"We will save costs from the importation of petroleum products. Currently, Nigerian consumers or the government (through subsidies) are paying the cost of shipping crude to foreign refineries, the cost of refining at high costs with a minimum wage of over $1000 in foreign refineries, taxes paid by foreign refineries, the cost of shipping the products back to Nigeria, including insurance, clearing and demurrage. Dangote Refinery will not incur all these costs and the Government's huge expenditure on subsidies will be saved," he noted.

He stated that the refinery would increase Nigeria's, "job creation with thousands of Nigerians taken off the unemployment market directly and indirectly, savings in forex as the pressure to source the dollar to import petroleum products will be eliminated, tax revenue for government along the whole fuel value chain and Nigeria will be insulated from petroleum products shocks; for instance, the war in Ukraine impacted negatively on our ability to source products on the international market.

"With local refining, we'll be saved from such shocks," he said.

On the financial advantages of the Dangote refinery, Zakka also agreed with Agule and Fawibe.

The Dangote refinery, he said, could put an end to Nigeria's ongoing gasoline shortage if used effectively.

Nigeria's daily PMS consumption of 60 million liters would be met by a 650,000 barrels per day capacity.

Fawibe stated this as follows: "So, the expectation is that by 2024 Nigeria should not, all things being equal, be importing any litre of petroleum into this country."

Pitfalls

The four refineries in Nigeria may be vandalized as a result of the Dangote Refinery's entry, according to certain concerns.

Wasteful use of state funds would result from the fund used occasionally for turnaround maintenance. This is obviously a possibility.

The annual budgeted allotments and funding for turnaround maintenance have been allocated for eight years by the Buhari administration, but the nation's refineries' production capacity has remained constant.

It's important to note that Dangote Refinery is a privately owned company whose main objective is to maximize profits.

The Dangote Refinery, in contrast to state-owned refineries, would be motivated by the desire to earn profits.

However, the majority of the Organization of Petroleum-Producing Countries' members run refineries that are primarily owned by the government.

Nevertheless, the majority of OPC members run refineries that are primarily controlled by the government.

A state-owned refinery is an example of the Saudi Arabian Oil Company, or "Aramco," with a net income of $16.6 billion in 2022 financial reports.

In a similar vein, state-owned businesses are also present in Kuwait, Angola, Iran, Iraq, and other OPEC members.

Zakka asserts that the form of ownership will not have an impact on the sale price of crude oil internationally.

The cost of gasoline, though, would probably be a disaster. To purchase fuel and diesel, Nigerians will have to pay more.

, "We only hope we will be able to manage the fallout of this in terms of pricing that will enable the Dangote refinery to recover its investment in appropriate pricing."

The cost of gasoline, though, would probably be a disaster. The cost of diesel and fuel would increase for Nigerians.

A minority share in Africa's largest refinery would cost $2.76 billion, according to Timipre Sylva, a former minister of state for petroleum resources, but Nigerians would be affected differently by this.

Says Fawibe, "We only hope we will be able to manage the fallout of this in terms of pricing that will enable the Dangote refinery to recover its investment in appropriate pricing."

In a Monday, exclusive interview, the president of the Independent Petroleum Marketers Association of Nigeria (IPMAN), Mr. Chinedu Okoronkwo, discussed the role of oil marketers and stated that his organization's members were prepared to collaborate with the management of the Dangote Refinery to guarantee that Nigerians receive a steady supply of fuel.

"It is a welcome development; let's see it come onboard," he said.

"When we get there, we will cross it," he disclosed.

He claimed there is no reason to be alarmed regarding the topic of price and any challenges.

"We are happy that the company is coming on stream; it would mean that more petrol products would be available for supply by our members across the country," he added.

Especially in light of the current inflation rate of 22.22 percent in April and the country's inflation rate continuing to rise, the downstream monopoly issue would have a substantial impact on the cost of the item.

Fawibe requested that the federal government, especially in the Niger Delta region, take into consideration granting licenses for modular refineries in this regard.

He claimed that would lead to price suppression by fostering competition.

The continent's biggest oil-producing nations, like South Africa, Egypt, and Libya, are home to many of the largest private refineries in the world.

The largest crude oil refinery in southern Africa, with a 180,000 bpd capacity, is the SAPREF refinery, which is run as a joint venture between BP and Shell.

Similarly, Nasr Oil, the second-largest oil company in Egypt, which has a 132,000 bpd capacity, owns and runs the El Nasr refinery. Private oil firms that have achieved success include