Dangote: Our $20bn refinery built without single incentive from government

President of Dangote Industries Limited, Aliko Dangote, has declared that his company built its 650,000 barrels per day (bpd) refinery, valued at $20 billion, without receiving any incentive from the Nigerian government.

Dangote also stated that Nigeria required up to 1.5 million bpd local refining capacity to be an energy sufficient country.

That was as National Chairman of Crude Oil Refinery Owners Association of Nigeria (CORAN) and Chairman of OPAC Refineries, Mr. Momoh Oyarekhua, lamented the persistent feedstock supply challenge facing domestic refineries, despite a presidential directive for crude to be made available to them, and in naira.

Dangote and Oyarekhua made the assertions on Tuesday in Lagos, at the inaugural edition of the CORAN Summit, with the theme, “Making Nigeria A Net Exporter of Petroleum Products.”

Moreover, it was gathered on Tuesday that the federal government had approved the 650,000 bpd Dangote Refinery as the exclusive supplier of jet fuel (Jet A1), for aircraft companies operating in the country. Minister of Aviation and Aerospace Development, Festus Keyamo, disclosed this in an interview on a national television.

Keyamo said airline operators consented to the arrangement.

Speaking at the CORAN summit, Dangote stated that achieving the vision of making Nigeria a net petroleum products exporter and an energy sufficient country would require building up to 1.5 million bpd local refining capacity, with active support from the government and collaboration by industry stakeholders

Dangote’s keynote message at the occasion was delivered on his behalf by the company’s Group Executive Director, Mr. Mansur Ahmed.

The $20 billion Dangote refinery sited at the Lekki Free Trade Zone, Lagos, is reputed as the seventh largest refinery in the world as well as the world’s largest single train refinery.

The refinery envisioned to transform Nigeria from a petroleum products import-dependent country to a net exporter of refined products has since January 2024 been producing white products, including diesel, aviation fuel, Naphtha and, recently, Premium Motor Spirit (PMS), popularly known as petrol, in Nigeria.

But addressing industry stakeholders at the CORAN summit, Dangote restated that the refinery produced sufficient diesel and Jet fuel to meet Nigeria’s demand. 

He said the company recently started the production of PMS, adding that they will soon ramp up their production to meet Nigeria’s demand. 

He maintained that the refinery’s products were being exported to diverse markets, including Europe, Brazil, the United Kingdom, United States, Singapore, and South Korea, among others.

Dangote said to achieve the vision of the conveners of the summit, which was to make Nigeria a net petroleum products exporter and an energy sufficient country, the country will need to build up to 1.5 million bpd refining capacity. 

He stated, “To grab this opportunity, we will need to build 1.5 million barrels per day of refining capacity. This will not be an easy feat and strong government support will be required to achieve this. 

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

To ensure sufficient feedstock availability for local refineries, he said Nigeria willneed to stop mortgaging its crude oil.

According to him, “It is unfortunate that while countries like Norway are putting oil proceeds into a future fund, in Africa we are spending oil proceeds from the future. We will also need to prioritise implementation of the domestic crude supply obligations. 

“We will need to expand our crude oil production capacity to support demand from new refining capacity.”

Dangote expressed optimism that Nigeria and Africa could become completely self-sufficient and can keep all the value on their shores. 

Having achieved self-sufficiency in cement, he said the country could replicate that in petroleum products.

To realise the vision of improving Nigeria’s refining capacity and increase value from the nation’s oil resources, Dangote called for full implementation of the Domestic Crude Supply Obligation (DCSO), as enshrined in the Petroleum Industry Act (PIA) 2021. 

He stated, “We will also need to prioritise implementation of the Domestic Crude Supply Obligation rightly. We will need to expand crude production capacity to support demand from the new refining capacity. 

“The government of President Bola Ahmed Tinubu is taking steps to achieve this through fast-tacking the IOC divestment and other initiatives.”                                                              

Dangote warned that global developments in the petroleum sector, particularly in Europe, could disrupt historical trade flows for refined petroleum products in Africa. 

However, he said Nigeria was uniquely positioned to take advantage of that opportunity and be a formidable player in the global oil industry.

He added, ” As a vibrant exporter of refined products, Nigeria will witness an improvement in its balance of trade and generate much needed foreign currency. Nigeria’s potential as a refining hub is clearly not in doubt, let’s work together to make it happen.”

In his welcome address at the summit, the CORAN chairman lamented the persistent feedstock supply challenge.

Oyarekhua said despite Nigeria’s vast crude resources, it had continued to import 100 per cent of the petroleum products used in the country. He pointed out that the country required about 750,000 barrels per day in terms of refined products to attain self-sufficiency. 

He maintained that even with the current initiatives by private refiners, represented under CORAN, the daily feedstock requirement of the existing domestic refineries was a far cry from what was required for self-sufficiency. 

Oyarekhua stated that without reliable supply of crude to the refineries, achieving full capacity utilisation will remain a challenge.

He said currently, Nigeria had a combined installed refining capacity of about 1,222 barrels per day, including the four Nigerian National Petroleum Company Limited’s 445,000bpd in Port Harcourt, Warri and Kaduna; the 650,000bpd Dangote Refinery, Aradel’s 11,000bpd, 10,000bpd by OPAC,  Waltersmith 5000bpd, and the 1000bpd by Edo Refinery.

Oyarekhua said, “From every good sense of reasoning, with this capacity, we should be self-sufficient in petroleum products.

“Unfortunately, that is not the case. And I’m sure someone in the room will be asking why are we not self-sufficient with petroleum products with an installed capacity of about 1,122bpd capacity of refining? 

“But in any case, one of the major challenges is feedstock. Inconsistent and unreliable supply of crude oil to local refineries remain a critical challenge.

“Frequent pipeline vandalisation, theft, and destruction in the oil and gas ecosystem have severely impacted the ability of refineries to maintain steady operation.”

He pointed out that regulatory risk was part of the challenge bedevilling domestic refining in Nigeria.

He explained that while regulatory reforms, such as deregulation, were intended to open up the refinery sector, the lack of consistent and enabling incentive also created uncertainty, which discouraged investment, hindered innovation, and complicated operations for stakeholders. 

According to Oyarekhua, lack of coordination across the value chain, and disjointed approach across upstream, midstream and downstream players limits the ability of the refining sector to function efficiently. 

Without better collaboration between producers, refiners, infrastructure operators, downstream marketers, the OPAC chairman argued that the potential value from refining would be left unrealised. 

He said, “Despite these challenges, we have seen some positive development. One of those positive developments is the operationalisation of several local refineries. Second is the rendered commitment to local refineries.

Oyarekhua stated, “There have been a renewed support for the local refineries by the current mandate of the federal government, which is one of the things we have been fighting for, to sell crude to local refineries in naira. 

“But yet, making that crude available is still a challenge. And there have also been a form of parley between the producers and the refinery owners, and we hope that some of these things will yield good results to enable the refinery sector.”

He further said, “As we move forward, we must implement bold solutions to unlock the full potentials of the Nigeria refining industry.

“The availability of crude feedstock is essential to the viability of our refineries. We must invest in securing, maintaining production of crude oil and collaborating with the upstream producers to ensure an uninterrupted supply of feedstock. 

“Clear supportive regulations that are essential for the refinery sector will attract more investment. We must realign the regulatory environment to reduce bureaucracy, delays and provide incentives that encourage investments both in large refineries and modular refineries. 

“To fully unlock the value of Nigeria refinery industry, the integration of the entire value chain is very crucial.”

Meanwhile, Keyamo said, “It’s a decision by the airline operators in Nigeria that they should only buy from Dangote refinery Jet A1, and it has my blessing.”

He stated, “You can see that yesterday we started a naira-for-crude purchase with Dangote. It’s all Naira, with no Dollar component.

“The price will no longer be subjected to the varying factors of the international market, nor the headwinds of oil price in the international market. 

“It will be in local currency so we can be clear as to the cost of it. We will buy in naira. I’m sure we are going to have access to cheaper Jet A1 fuel.”