FG Urged to Stop Crude Oil Mortgage by Dangote

Dangote Seeks End to Crude Oil Mortgage Policy

“To ensure sufficient feedstock availability we will need to stop mortgaging crude...”

Stable Fuel Supply for Nigerian Airlines: Dangote Refinery to Provide Jet Fuel, Mitigating Global Price Volatility

Aliko Dangote, President of Dangote Group, has sounded the alarm on Nigeria's crude oil management, emphasizing the need to stop mortgaging its oil resources to ensure domestic refineries have sufficient feedstock. Speaking at a Crude Oil Refinery Owners Association of Nigeria summit in Lagos, Dangote expressed concerns over Nigeria's oil management, contrasting it with countries like Norway, which invests oil revenues in national wealth funds for future generations.

Dangote's concerns highlight the urgency for Nigeria to reassess its approach to oil resource management. With Nigeria's crude oil and condensate reserves reaching 37.50 billion barrels as of January 2024, effective management is crucial. The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) has also warned that rising gas demand in Nigeria could outpace supply by 2030, despite major projects.

Pivotal Insights from Dangote's Warnings

1. Cease mortgaging crude oil to secure feedstock for domestic refineries
2. Emulate Norway's model by investing oil revenues in national wealth funds
3. Reassess Nigeria's oil management approach to safeguard resources for future generations

Dangote's warnings offer a wake-up call for Nigeria to revamp its oil management; embracing sustainability will yield a more resilient economy and a brighter future.

“To ensure sufficient feedstock availability we will need to stop mortgaging crude. It is unfortunate that while countries like Norway are putting oil proceeds into a future fund through their national wealth funds, in Africa, we are spending oil proceeds from the future today,” he stated.

The Nigerian National Petroleum Company Limited (NNPCL) has entered into crude-for-loan agreements, committing a substantial 272,500 barrels of crude oil per day, valued at $8.86 billion. This significant allocation equates to approximately 8.17 million barrels of crude oil monthly, pledged to secure various loans.

Breakdown:

• Daily crude commitment: 272,500 barrels
• Total value: $8.86 billion
• Monthly crude allocation: 8.17 million barrels

These crude-for-loan agreements underscore NNPCL's strategic financing initiatives, leveraging the country's oil resources to access capital. However, experts argue that such arrangements may limit Nigeria's control over its oil assets and potentially hinder long-term economic growth.

Context:

NNPCL's crude oil production: 1.2 million barrels per day (2022 average)

Nigeria's crude oil reserves: 37.50 billion barrels (as of January 2024)

Crude oil exports account for approximately 90% of Nigeria's export earnings.

Aliko Dangote, the founder and president of Dangote Group, emphasized the need to prioritize domestic crude oil usage for local refineries and economic stability. At an event on October 8, Mansur Ahmed, Group Executive Director, represented Dangote and highlighted this crucial point. This stance is derived from an analysis of reports by the Nigeria Extractive Industries Transparency Initiative (NEITI) and the Nigerian National Petroleum Company Limited's (NNPCL) financial statements.

Dangote's concern is timely, considering NNPCL's significant crude oil commitments. The company has pledged 272,500 barrels per day, valued at $8.86 billion, through crude-for-loan agreements. This allocation amounts to approximately 8.17 million barrels monthly.

As the largest conglomerate in West Africa, Dangote Group's interests align with Nigeria's economic growth. With operations in 17 African countries, the company is a market leader in cement and has diversified into sectors like agriculture, petroleum refining, and fertilizer production. Dangote's refinery, petrochemical plant, and fertilizer complex are set to be the largest in Africa, underscoring the importance of domestic crude oil utilization.

Takeaways:

1. Prioritize domestic crude oil usage for local refinery stability and economic growth
2. Dangote Group's interests align with Nigeria's economic development
3. NNPCL's crude oil commitments total 272,500 barrels per day, valued at $8.86 billion

By emphasizing the need for domestic crude oil prioritization, Dangote aims to promote Nigeria's economic self-reliance and growth.

Aliko Dangote proudly announced that Dangote Group successfully constructed the massive 650,000 barrels-per-day refinery in Lagos without receiving any government incentives or support. This impressive feat showcases the company's commitment to investing in Nigeria's economic growth and energy independence.

Dangote Refinery: Key Facts

Capacity: 650,000 barrels per day

Location: Lagos, Nigeria

No Government Incentives: Built without any government support or subsidies

By building this refinery without government aid, Dangote Group demonstrates its confidence in Nigeria's potential for self-sufficiency in petroleum production. This refinery is poised to transform the country's energy landscape and boost economic development.

“We built the Dangote refinery without a single incentive from the government. However, to achieve the vision of turning Nigeria into a refining hub for the region, investors need to be incentivised,” he stated.

Moreover, Aliko Dangote recently shared insights on the global refining landscape, highlighting significant changes on the horizon. In the next three years, countries like Kuwait, China, and Bahrain are expected to bring online 1.8 million barrels of new refining capacity. This development is largely driven by the Middle East and Asia's growing demand for petroleum products.

Meanwhile, Europe is tightening its environmental regulations, with countries like Holland and Belgium banning the export of low-quality petroleum products that were previously shipped to Africa. This shift is likely to impact the global refining industry, as refineries in Europe and China with a combined capacity of 3.6 million barrels per day are slated for closure in the coming years.

Implications:

Stricter Regulations: Europe's environmental crackdown will reshape the refining landscape.

Refinery Closures: 3.6 million barrels per day of refining capacity in Europe and China will be phased out.

New Capacity: 1.8 million barrels per day of new refining capacity will emerge in Kuwait, China, and Bahrain.

These changes present opportunities for African refineries to fill the gap in the global market. As the continent's demand for petroleum products continues to grow, investing in local refining capacity will be crucial to meeting this demand. Dangote's own refinery project in Nigeria, valued at $9 billion, is poised to contribute significantly to this effort.

He said, “It was recently in the news that Scotland's only refinery will be shut down next year. Shell is converting the 7.5 million tonnes per annum refinery in Germany to a lubricating plant.

“So, the opportunities are there. Africa imports about 3 million barrels per day of petroleum products. About half of this volume is imported by countries along the coast from Senegal to South Africa.

“These same countries produce over 3.4 million barrels of crude per day, which indeed highlights the problem of the dimension of excess crude production capacity without refining capacity. The imports come from Europe, Russia, and other parts of the world.

“So to grab this opportunity, we will need to build 1.5 million barrels per day of additional refining capacity. This would not be an easy feat, and strong support from the government and cooperation between stakeholders would be essential.”

Nigeria's Federal Government has just appointed Dangote Refinery as the exclusive supplier of jet fuel, also known as Jet A1, for all local airline operators. This major announcement was made by Minister of Aviation Festus Keyamo on Tuesday, October 8, during an interview with Channels TV.

This move is a significant development in Nigeria's aviation industry, and it's likely to have a substantial impact on the country's fuel supply chain. With Dangote Refinery at the helm, Nigerian airlines will now rely on a single, domestic source for their jet fuel needs.

Additional Implications:

Sole Supplier: Dangote Refinery will be the only provider of Jet A1 fuel to Nigerian airlines.

Domestic Supply Chain: This move will likely reduce reliance on foreign fuel imports.

Industry Impact: The development may affect the operations and costs of local airlines.

Following its remarkable expansion, Dangote Refinery adds another achievement to its portfolio: exclusive supplier of jet fuel to Nigerian airlines.

“The airline operators just met recently. With my blessing, it's a decision from the airline operators in Nigeria that they should only buy from Dangote refinery Jet A1,” Keyamo said.

“You can see that yesterday we started the naira-for-crude purchase with Dangote. It's all naira, no dollar component,” he added.

Securing jet fuel from the Dangote refinery will provide a financial safety net for Nigerian airline operators by shielding them from volatile global oil prices, thereby reducing their operational costs. This strategic move ensures a stable and predictable fuel supply, which is crucial for the aviation industry.

With Dangote refinery's capacity to produce 45,000 barrels per day of jet fuel, Nigeria is poised to become a net exporter of jet fuel by the end of 2024. This will not only meet local demand but also contribute to the country's economic growth.

Benefits for Airline Operators:

Reduced Operational Costs: Stable fuel prices will help airlines better manage their expenses.

Increased Predictability: A reliable fuel supply will enable airlines to plan more effectively.

Improved Competitiveness: Lower operational costs will allow Nigerian airlines to compete more effectively in the global market.

Dangote Refinery partnership stabilizes fuel costs, paving the way for Nigerian airlines to focus on strategic growth and development initiatives.