Dangote Refinery's Inadequate Quality Controls Led To A Decrease In The Price Of Fuel

Dangote refinery

REDUCED domestic pricing are the outcome of loosened quality standards for diesel at the Dangote refinery, according to S&P Global.

The Dangote refinery decided to reduce domestic pricing by 37% due to high-sulfur diesel, according to a report published on Thursday by S&P Global.

Diesel with a sulfur content of less than 500 parts per million is regarded as environmentally friendly, but high sulfur diesel is meant for off-road use since it gradually deteriorates equipment engines.

The Dangote refinery said on April 16 that it has lowered the cost of diesel, or automobile gas oil (AGO), to N1,000 per liter.

According to the journal, imports have been undercut thanks to laxer quality regulations for the diesel supply.

According to the report, three market sources verified that the refinery's initial supply of diesel was sold with a sulphur content of approximately 650 parts per million (ppm), which is higher than the 200 ppm limit that has been imposed on imported products by the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) since March.

“By permitting Dangote to sell diesel above the 200 ppm sulfur cap, the regulator has provided a route to market for early supplies from the refinery ahead of secondary unit start-ups for gasoline and low-sulfur diesel, deflating local fuel prices and clawing back revenue for the project,” the report said.

According to the journal, imports have been undercut thanks to laxer quality regulations for the diesel supply.

The Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) has been enforcing a 200 ppm cap on sulfur content for imported product since March. Three market sources confirmed the refinery's first diesel supplies were marketed with a sulphur content of approximately 650 ppm.

According to analysts cited in the study, the “refiner announced intentions to supply products conforming to Euro 5 specifications (10ppm diesel), but its low sulfur diesel production remains contingent on the start-up of its key distillate hydrocracker unit.”

According to S&P Global, the refiner is under pressure to lower rising fuel import costs because to the naira's sharp depreciation, “which has seen diesel prices nearly double year on year.”

“While the price of gasoline has remained comparatively stable thanks to suspected government subsidies, concerns of a rising debt burden have added pressure to accelerate supplies from the refinery,” the report said.

Regarding the allowable sulfur cap and the quality of supply from the refinery, the magazine stated that Dangote and the NMDPRA were not available for comments.

According to S&P Global, as traders have reacted to quick specification changes, pressure from cheap Dangote diesel supply has increased the level of uncertainty around fuel flows into West Africa.

“Last month, high sulfur gasoil flows were dramatically reshaped by new Nigerian import requirements reducing sulfur limits from 0.3% (3,000 ppm) to 200ppm, while officials have hinted at further reductions,” S&P Global said.

“Meanwhile, it remains unclear whether Dangote will reduce the sulfur content of its domestic diesel supplies, or if imports will consistently be held to higher quality standards.”

Diesel port traffic from northwest Europe to West Africa has decreased about half to 15,900 b/d so far in April, reaching its lowest point since February 22.

A fuel trader witnessed the growing discrepancy and stated that Dangote's volumes are currently distorting the market, according to the article.

“As markets have quickly adapted to new import specifications banning 0.3%S, gasoil flows have shriveled,” stated S&P Global.

“Without Nigeria, who is left to take 0.3%S gasoil.” a second trader was quoted in the report.

“All the remaining shorts are small, you need to find 200 ppm gasoil now.”

The paper states that the generation of high sulfur gasoil is typical during a refinery's ramp-up stages, when units are still unstable or offline.

According to S&P Global, the refiner's aggressive timelines and significant outage risks are highlighted by Dangote's first diesel specs, which one trader called “inconsistent.”