Dangote Calls for End to Mortgaging Nigeria’s Crude Oil for Refinery Feedstock Security

Aliko Dangote, President of the Dangote Group, has called for an end to Nigeria’s reliance on mortgaging crude oil in order to secure sufficient feedstock for local refineries.

This urgent appeal was made during a summit organized by the Crude Oil Refinery Owners Association of Nigeria in Lagos.

Dangote expressed concern over Nigeria’s approach to oil resource management, contrasting it with countries like Norway, which are investing oil proceeds in national wealth funds to secure the future, while Nigeria and other African nations are effectively spending oil proceeds from the future.

“To ensure sufficient feedstock availability we will need to stop mortgaging crude. It is unfortunate that while countries like Norway are putting oil proceeds into a future fund through their national wealth funds, in Africa, we are spending oil proceeds from the future today,” he stated.
This commentary comes amid reports of Nigeria’s crude-for-loan deals, which have raised alarms about the country’s long-term oil supply.

On October 4, 2024, Journalists reported exclusively that the Nigerian National Petroleum Company Limited (NNPC) had committed to supplying 272,500 barrels per day of crude oil through a series of crude-for-loan agreements totaling $8.86 billion.

According to the report, this means that approximately 8.17 million barrels of crude are being used monthly for these loan arrangements.

This information was based on an analysis of a report by the Nigeria Extractive Industries Transparency Initiative, alongside NNPC’s financial statements.

During the summit, Dangote was represented by Mansur Ahmed, Group Executive Director of Dangote Group, who further emphasized the need for Nigeria to prioritize the implementation of a domestic crude supply obligation.

According to him, this is essential for the country to ensure adequate crude production to meet the demand from local refineries.

“We will also need to prioritize the implementation of the domestic crude supply obligation. We will need to expand crude production capacity to support demand from the refinery,” he submitted.

In his remarks, Dangote also revealed a significant fact about the construction of the Dangote Refinery, located in Lagos.

Despite its immense size and strategic importance, the refinery, which boasts a processing capacity of 650,000 barrels per day, was built without any government incentives.

This achievement underscores the company’s commitment to boosting Nigeria’s refining capacity, but Dangote cautioned that for Nigeria to become a refining hub in the region, investors would require more support from the government.

“We built the Dangote refinery without a single incentive from the government. However, to achieve the vision of turning Nigeria into a refining hub for the region, investors need to be incentivized,” he stated.

Dangote went on to highlight the global shifts in refining capacity, noting that 1.8 million barrels of new refining capacity are expected to come online within the next three years in countries such as Kuwait, China, and Bahrain.

However, Europe is moving in the opposite direction, tightening environmental standards, which has led to bans on the export of low-quality petroleum products by countries such as Holland and Belgium.

These products, which were previously shipped to African markets, are no longer welcome in Europe due to their lower standards.

He also cited a report that projects the shutdown of several refineries across Europe and China over the coming years, with a total capacity of around 3.6 million barrels per day set to be decommissioned.

This includes the impending closure of Scotland’s only refinery, which is expected to cease operations next year. Additionally, Shell is planning to convert its 7.5 million tonnes per annum refinery in Germany into a lubricating plant, signaling a broader industry shift.

“It was recently in the news that Scotland’s only refinery will be shut down next year. Shell is converting the 7.5 million tonnes per annum refinery in Germany to a lubricating plant,” he said.

These global developments, according to Dangote, present a unique opportunity for Africa. He pointed out that Africa imports about 3 million barrels per day of petroleum products, with around half of this volume imported by countries along the coastline from Senegal to South Africa.

Ironically, these same countries collectively produce more than 3.4 million barrels of crude oil daily, exposing a significant mismatch between crude production and refining capacity on the continent.

“These same countries produce over 3.4 million barrels of crude per day, which indeed highlights the problem of the dimension of excess crude production capacity without refining capacity. The imports come from Europe, Russia, and other parts of the world,” Dangote explained.

In response to this challenge, Dangote stressed the need for Africa to build an additional 1.5 million barrels per day of refining capacity to fully capture this opportunity.

However, he cautioned that achieving this ambitious target would not be easy and would require strong government support and close cooperation between stakeholders in the industry.

“So to grab this opportunity, we will need to build 1.5 million barrels per day of additional refining capacity. This would not be an easy feat, and strong support from the government and cooperation between stakeholders would be essential,” he noted.

This comes as the Federal Government recently announced that the Dangote Refinery has been officially designated as the exclusive supplier of jet fuel, also known as Jet A1, for Nigerian airline operators.

The news was revealed by the Minister of Aviation, Festus Keyamo, during an interview with Channels TV on Tuesday. This move signals a significant shift in the sourcing of aviation fuel within Nigeria.

“The airline operators just met recently. With my blessing, it’s a decision from the airline operators in Nigeria that they should only buy from Dangote refinery Jet A1,” Keyamo said.

“You can see that yesterday we started the naira-for-crude purchase with Dangote. It’s all naira, no dollar component,” he added.

Keyamo further elaborated that purchasing jet fuel from the Dangote Refinery will protect airline operators from the volatility of international oil markets, leading to a reduction in operational costs for airlines.

This shift to local sourcing is expected to bring about more stability in fuel prices, which have been subject to fluctuations in the global oil market.