A project that could produce up to 650 000 barrels of crude oil a day has just been given a boost after Nigeria’s Minister of State for Petroleum Resources Timipre Sylva pledged government’s support.
“In terms of support it will be in the area of feedstock. We have to discuss with him whether it is gas or crude oil feedstock,” Sylva said.
Sylva was part of a delegation that toured the Dangote Group petrochemical complex at the Lekki Free Trade Zone in Lagos on November 5 2019.
He said the government will also support the refinery with off-take which is an industry term describing an arrangement that will see it buy some of the refinery’s upcoming output.
He urged all Nigerians to support the project to succeed. “Investors all over the world will look at the success of this project and will come to Nigeria to at least also enjoy the benefit of investing here,” Sylva said.
Construction work on the project started in 2013 and is expected to be finished towards the end of 2020. The project will also include a fertilizer factory that has capacity to produce three million tons annually.
Nigeria's Minister of State for Petroleum Resources Timipre Sylva pledged government's support for the completion of the Dangote Petroleum Refinery. Image: Supplied
To power the refinery the group built a 550-km underwater pipeline that will draw gas from the Niger Delta. The project is expected to have cost $15 billion when operations start in 2021.
“Anywhere in the world, if a citizen of a country has committed so much money into investing in this kind of massive project, government must show interest,” said Sylva.
Sylvia said the government and the state-run National Petroleum Corporation will support the project as much as they can.
Plans to compete in the global petroleum market
Dangote Group Executive Director Devakumar Edwin said his company plansto compete in the diesel market in Europe and the gasoline markets in Latin America, West and Central Africa.
“We are thinking of investing in vessels. We want to make sure we are not held for ransom by any transport operators,” Edwin said.
The refinery will be able to produce diesel that meets European winter standards and will be high quality enough to go to any market according to a Reuters report. The refinery will also provide jet fuel to international markets according to Edwin.
While Nigeria is currently Africa’s biggest crude oil exporter, the biggest refinery on the continent is the Sonatrach-run Skikda refinery in Algeria.
Skikda has a capacity of 356 500 bbl/d. At the potential capacity of 650 000 bbl/d the Dangote refinery will almost double Skikida’s output.
*Potential capacity expected when the refinery is in operation by 2021. Source: World List Mania
Besides Sonatrach, the main players it will compete with is the combined capacity of state-owned refineries in Libya and Egypt. The second biggest is the Ra's Lanuf Refinery run by Egypt’s National Oil Corporation with a capacity of 220 000 bl/d.
The OPEC World Oil Outlook 2019 says the projected additional 650 000 barrels per day will boost the continent’s total refining output from 0.12 mb/day to 0.7mb/day by 2024.
Domestic needs are more pressing
While Nigeria is Africa’s biggest crude oil exporter the country almost relies entirely on imports for refined petroleum products. This reliance on imports comes at a high cost for the state oil company.
In February 2018 it spent $5.8 billion in importing petrol to meet rising local demand. In addition, more than 90% of the petroleum products consumed locally come from imports.
Daily petrol consumption in the country rose from 46 million litres per day in 2017 to 56 million in 2019.
The state owned oil company is forced swap its crude oil in return for refined petroleum products through the Direct Sale and Direct Purchase programme. Changes in the international crude oil market have also had their impact.
Recently the Nigerian government has tried to use the Deep Offshore and Inland Basin Production Sharing Contract Act enacted as a decree in 1993 to recover oil revenues lost since August 2003.
The act required the government to review its profit-sharing formula with oil companies whenever the oil price exceeds $20 per barrel. The Nigerian government has not adjusted the formula despite the annual average price exceeding the $20 mark since 2002.
In October 2018 the Nigerian Supreme Court ordered the federal government to take steps to recover all revenues lost to oil-exploring and exploiting companies. Since then the government has tried to recover $62 billion from international oil companies.
On November 4 Nigerian President Muhammadu Buhari assented to a bill amending the 1993 act. The changes include a 10% royalty on offshore projects over 200 meters deep and a 7.5% royalty on frontier and inland basins.
The country’s oil sector grew 5.2% in the second quarter of 2019 after four consecutive quarters of negative growth. According to the Nigerian Economic Summit Group, despite this strong comeback the sector’s share of GDP declined from 9.2% in the first quarter to 8.8%.
The growth has also been a blessing and a curse. In August the country had the largest oversupply in 2019 when cargo for export stood waiting for buyers.
At the tour of the refinery NNPC Group Managing Director Mallam Mele Kyari said they are not competing with Dangote but compliment each other to boost production capacity.
“Our objective is the same, to make Nigeria a net exporter of crude. We can't do this until we have complementary activities between the private sector and government,” he said.
Dangote said they are going to buy Nigerian crude at the export price and sell products at the import price.
“The crude swap is operating only for the importers of the product. The new refinery has been designed to process varieties of crude from sweet-to-light crude sourced both locally, and abroad,” Dangote explained.