Dangote oil plant opens seven years late

The long-awaited opening — seven years late of a giant, new oil refinery in Nigeria is looking a lot like a ribboncutting exercise.

Nigerian President Muhammadu Buhari, who leaves office later in May after serving two four-year terms, will perform a commissioning ceremony at the Dangote refinery, which is being built by Aliko Dangote, Africa’s richest person. The plant is 20% owned by Nigeria National Petroleum Corporation (NNPC), the state oil company.

Despite being Africa’s top oil producer, Nigeria’s state-owned refineries are in disrepair. That has put the country at the mercy of local and international traders who deliver products such as petrol and diesel to the country in return for crude. When it fires up fully, Dangote should help to ease or even eliminate that dependence.

But traders of West African oil said they have seen no activity to suggest a big ramp-up is at hand — either in terms of crude procurement or the hiring of traders to handle sales of finished fuels. Researchers said they do not expect any significant boost to fuel supply in the next few months.

“We view the upcoming commissioning as a symbolic gesture marking the end of Buhari’s term in office,” said Ronan Hodgson, an analyst at Facts Global Energy. “We continue to expect the Dangote refinery will not be producing anything meaningful for at least six months post-inauguration and, more likely, in the first quarter of 2024.”

Commissioning is the first phase of getting a refinery up and running, involving the careful processing of relatively small batches of crude. From there, full ramp-up often takes months.

Dangote officials did not respond to requests for comment before the ceremony. NNPC said it will fulfil its supply obligations to the refinery without elaborating.

The $20.5bn mega-project is designed to have a processing capacity of 650,000 barrels a day when it is fully up and running, far exceeding any other plant in the continent. Construction at the site near the commercial hub of Lagos was supposed to have been completed in 2016.

At full capacity, it could yield as much as 250,000 barrels a day of petrol as well as about 100,000 barrels a day of gas oil and diesel, FGE estimates.

Even so, with domestic petrol output rising, fiscal savings from lower fuel imports may be limited because crude export revenues will be reduced at the same time, according to a report by the IMF earlier in 2023. The IMF’s report assumed a slow ramp-up from 100,000 barrels a day in 2024 and 200,000 in 2025, noting an upside risk in the medium term if this was achieved more rapidly.

Traders said the country’s crude exports may fall once the refinery is working because it will take a substantial proportion of Nigerian supply. The nation’s oil production has averaged almost 1.4-million barrels a day so far in 2023, according to data compiled by Bloomberg.

The refinery has a deal with the NNPC, which will supply about 300,000 barrels a day of crude when the refinery is up and running. That is expected to include mostly medium-sweet, distillate-rich crude as well as lighter varieties, according to Energy Aspects, a consultant.

The plant is expected to conduct a staggered start-up of secondary units through the second half of 2024 and into 2025, said Randy Hurburun, a senior refining analyst at the company.

Commissioning will continue for the rest of 2023, followed by an operational startup in early 2024 at between 50%-70% of capacity, he said.

“We are not seeing any indication that the refinery is securing any oil to get operations under way,” he said.