Nigeria, being the world’s tenth-largest crude oil reserve and currently the world’s thirteenth-largest producer of crude oil according to the Organization of Petroleum Export Countries (OPEC), has, since its inception when crude oil was discovered in 1956, relied on expensive imports of most of the fuel it consumes.
The emergence of the Dangote refinery, a facility owned by Africa’s richest man, Aliko Dangote, which has been graded as Africa’s largest refinery and simultaneously the world’s biggest single-train facility, is a new dawn and a historic turnaround in Nigeria as it gives Nigerians the opportunity to consume fuel refined in their own country without the hurdles that come with importation.
The 20 billion naira refinery located on the outskirts of Lagos in the Lekki Free Zone is a 650,000 barrels per day (BPD) integrated refinery. According to the management, “the refinery is expected to meet 100% of the Nigerian requirement for all refined products and also have a surplus of each of these products for export.”
On January 12, 2024, Dangote Refinery issued a statement that it had commenced the production of automotive gas oil, popularly called diesel, and aviation fuel, or JetA1. This has to some extent stirred the hope of many Nigerians, who are eagerly waiting to experience the drastic shift in the cost of fuel towards a favorable price for Nigerians. However, the big question mark that hangs on the ‘earnest hope of Nigerians’ is whether the establishment of Dangote refinery can be a solution to the high cost of fuel in Nigeria. Can it be?
Perhaps to an average Nigerian, the answer may be “yes.” But scrutinizing and weighing the establishment and the purpose that surrounds its existence given that it is a privately owned business venture by an individual, the thrust of every business located in the private sector, unlike the public sector, is often to maximize profit, and this can be said to be just another golden opportunity that the businessman’s establishment has emerged to utilize in Nigeria.
Viewing it from this angle, perhaps the only action tenable for Dangote refinery would not be selling the product below prevalent market prices in the oil sector but maintaining a general price in the market for the industry to function properly at this initial stage of its existence. Therefore, Nigerians should not be overly expectant of the Dangote refinery selling way below market prices to avoid disappointment at this stage.
Recall that the Regional Energy Partner and Director at Energy Compact, Kayode Oluwadare, had in a newsletter also noted that “there is no obligation for the Dangote refinery to sell refined petroleum products below prevailing market prices,” pointing out that the same principles extend to NNPC Limited’s subsidiary refineries in Port Harcourt, Kaduna, and Warri, currently undergoing repairs.
Besides not being a public enterprise, Dangote Group spent a whopping amount on executing the project, which covers 2,635 hectares of land. And so, on the other hand, the Dangote refinery can be a solution to the high cost of fuel in Nigeria, even though it is not at the initial stage of the industry’s operations. Currently, the focus of the Dangote group at this stage of the refinery would probably be on how to realize the huge capital invested in executing the project before having a way to figure out how this refinery can be a solution to the high cost of fuel in Nigeria.
Also, the fuel subsidy scrapped at the initial stage of the operation of the Dangote refinery by the Nigerian president is one factor to be considered by any Nigerian hoping that the Dangote refinery could redefine the pricing system of fuel in Nigeria. But even if the company does not currently have any effect on the price of oil pumps in Nigeria, several other advantages accompany the establishment of the Dangote refinery, one of which is a reduction in the overreliance on oil imports.
According to the Central Bank of Nigeria, the cost, including freight of petroleum product imports into Nigeria, doubled over five years from about US$8.4 billion in 2017 to US$16.2 billion, which indicates an annual average of US$11.1 billion before rising further to US$23.3 billion by the end of 2022. The central bank noted that the average annual cost of petroleum product imports into the country might climb to US$30 billion by 2027 if the country continues to depend on petroleum imports. Currently, Nigeria imports about 80% of its refined petroleum products, and according to research, the country is the largest importer of refined petroleum products in Africa; thus, the Dangote refinery will tremendously cause a shift in the graph and cut the country’s import expenses incurred annually.
Also, the Central Bank of Nigeria had said Dangote refinery could foster foreign exchange savings of between US$25 billion and US$30 billion annually for Nigeria. Crude oil refineries locally will also enable the country to make payment for the refined product in naira, which will generate revenue from exported refined petroleum products and save the ever-increasing foreign exchange. Towards this end, the Dangote refinery is a big asset to Nigerians, though the price of the oil pump may not directly fall drastically as expected by Nigerians. There are ways this development will positively impact the economic situation of the country shortly, of which the majority of the country’s citizens will be beneficiaries.
