Nigeria’s long-awaited oil refinery is officially commissioned

Billionaire Aliko Dangote, the wealthiest black entrepreneur in the world, made headlines this month as he officially commissioned Nigeria’s first privately-owned mega oil refinery. The US$19bn Dangote refinery has the capacity to process over 650,000 barrels of crude oil per day (bpd) and could not only end Nigeria’s reliance on imported refined fuel but turn it into an exporter of petroleum products.

The new refinery – part of a broader petrochemical complex that includes a 435MW power station, deep seaport, and fertiliser unit – is projected to satisfy Nigeria's total demand for refined petroleum products when operating at full capacity. Despite its vast oil reserves, Nigeria spent US$23.3bn on imported petroleum products last year, making up over 80% of its refined petroleum supply. The country consumes approximately 33m litres of petrol daily. Operational inefficiencies have plagued the country’s existing government-controlled refineries, necessitating these imports. The Dangote refinery is projected to produce 53m litres of petrol, along with 34m litres of diesel and 2m litres of aviation jet fuel per day at peak capacity. Surplus output is expected to be exported.

“Aliko Dangote appears to be emulating Indian billionaire Mukesh Ambani in trying to turn Nigeria’s oil curse into a blessing,” says Amit Jain, Director of the NTU-SBF Centre for African Studies. “It is, without doubt, an impressive project – the likes of which Africa has not seen.” Ambani’s 3035-hectare petrochemical industrial complex in Jamnagar is the world’s largest refining hub. It covers an area half the size of Manhattan and has the capacity of processing of 1.4 million barrels of crude oil a day. This facility has helped turn crude scarce India into one of the world’s largest exporters of refined fuel.  

Scaling up production at the refinery may be a gradual process. Dangote aims to satisfy Nigeria's petroleum needs fully by year's end, a timeline that some analysts perceive as ambitious given the usual slow start such projects. Some observers view the commissioning of the refinery as a symbolic act to cap Buhari's term (new president Bola Tinubu was sworn in on 29 May), with substantial production not expected for at least another six months. Echoing this cautious outlook, the International Monetary Fund (IMF) predicts a stepwise increase in production: 100,000 bpd in 2024, 200,000 bpd in 2025, and an escalation to 300,000 bpd over the 2026-27 period.

Doubts have also been raised about the ability to secure a steady crude oil supply for the refinery. The facility requires uninterrupted crude inflow, a challenge given Nigeria's dwindling oil production resulting from oil theft, pipeline vandalism, and underinvestment. In April, production slipped below 1m bpd, trailing behind Angola's output. This decreased production could impair the Nigerian National Petroleum Corporation (NNPC) – which holds a 20% stake in the Dangote project – to honour its commitment to supply the refinery with 300,000 bpd of crude per day.

Although local petroleum production is projected to reduce Nigeria's import expenditure, the IMF suggests that fiscal savings from lower fuel imports might be limited. This is due to an anticipated dip in crude export revenues, given the refinery's intention to source oil domestically.

References

“Is Aliko Dangote emulating Ambani in trying to turn Nigeria’s oil curse into a blessing?”, CNBC Africa, 14 Mar 2022

‘IMF country report No. 23/93’, International Monetary Fund, February 2023

‘Dangote refinery and petrochemical complex: A behemoth roars into life’, Guardian Nigeria, 21 May 2023

‘Nigeria commissions Dangote refinery, seeks to end fuel imports’, Reuters, 22 May 2023

‘Seven years late, Nigeria’s mega oil refinery opens with a whimper’, Bloomberg, 22 May 2023

‘Dangote launches Africa’s biggest oil refinery - 4 ways it will affect Nigeria’, The Conversation Africa, 22 May 2023

‘Africa’s richest man launches $20 billion refinery to revive Nigeria’s oil industry’, CNN, 22 May 2023