The Dangote Oil Refinery is set to receive up to 400,000 barrels of Nigerian crude daily over the next two months, marking a significant shift in the country’s oil market.
This move is expected to transform Nigeria’s import and export markets as the refinery ramps up its local feedstock processing.
According to reports, the refinery, located outside Lagos, will take delivery of about 24 million barrels of Nigerian crude in October and November 2024.
The refinery, which has faced years of delays, is the largest in Africa with a capacity of 650,000 barrels per day, outstripping other refineries on the continent and even in Europe.
It is anticipated that Dangote’s increasing reliance on Nigerian crude will reduce the country’s crude oil exports significantly. Industry analysts suggest this could see Nigeria’s crude exports drop below 1 million barrels per day.
Ronan Hodgson, an analyst at Facts Global Energy, an international energy consultancy, told Bloomberg that the West African crude market will become “substantially tighter” in the fourth quarter due to the volumes allocated to Dangote.
The refinery’s planned intake includes 13 to 14 shipments from Nigeria’s typical monthly programme of around 50 cargoes. However, some deliveries may face delays, with two cargoes initially scheduled for September now rescheduled for October.
The Dangote refinery has already begun ramping up operations, processing an average of 255,000 barrels per day in the first half of 2024. Currently, the refinery is running at 60-70 per cent capacity and is expected to reach full operational capacity within months.
The refinery’s shift towards local crude also reflects a reduction in its purchase of US crude. Earlier this year, Dangote had imported millions of barrels of US WTI Midland crude, but some of this was resold, and future purchases were cancelled.
In a related development, the federal government and Dangote Refinery reached an agreement to pay for the crude oil supplied to the refinery in local currency, a move that could have long-term implications for Nigeria’s foreign exchange reserves.
The Nigerian National Petroleum Company, NNPC, will supply approximately 385,000 barrels of crude oil daily to Dangote Refinery from 1st October 2024, under a payment arrangement in naira.
According to a statement from the Federal Government, “From October 1, NNPC will commence the supply of about 385kbpd of crude oil to the Dangote Refinery, to be paid for in Naira. In return, the Dangote Refinery will supply PMS (premium motor spirit) and diesel of equivalent value to the domestic market, also payable in Naira.”
While diesel will be sold in naira to any interested buyers, PMS will be sold exclusively to NNPC, which will then distribute it to marketers.
All regulatory fees and costs associated with the refinery’s operations will also be settled in naira.
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