Dangote Refinery, the world’s largest single-train refinery, has submitted a tender to buy 2 million barrels of WTI Midland crude oil for 12 months from the US, according to Bloomberg, which has been reporting on the mega-refinery owned by Africa’s richest man, Aliko Dangote.
The supply, expected to start in July, will see Dangote import 24 million barrels for his refinery on the outskirts of Lagos, Nigeria’s economic hub.
It’s not the first time Dangote is importing crude for his oil facility. In February, Trafigura Group sold 2 million barrels of WTI Midland to Dangote. Since the start of 2024, Dangote has received 2 million barrels of WTI Midland crude monthly.
Although Dangote had previously bought crude from Nigerian National Petroleum Development Company Ltd, the oil refinery depends on imports, with US-grade WTI Midland making up 33 percent of all oil shipments the facility has received so far.
Why Dangote Imports Crude
Just like Nigeria’s Bonny Light, West Texas Intermediate (WTI) Midland is a type of crude oil produced in the Permian Basin of West Texas, US.
While Nigeria’s Bonny Light crude has a lower sulphur content, which makes it preferable for refining because it produces fewer pollutants, according to Engineer David Okechukwu, a drilling engineer in Port Harcourt, US WTI is cheaper.
“Dangote is buying from the US because they can supply enough. Nigeria’s production is low and cannot meet his demands, and also has enough to export,” Okechukwu said in an audio message to Neusroom. “But the truth is that our crude is one of the best in the world because it doesn’t have hydrogen sulphide.”
Neusroom research shows that while the price of one barrel of WTI at the global market sells for $79.03 per barrel, Bonny Light, according to data from Nigeria’s Central Bank (CBN), sold for $83.31 on Thursday, May 16.
Quoting Elitsa Georgieva, executive director at Citac, an energy consultancy specialising in the African downstream sector, Bloomberg also reported that availability, reliable supply, and competitive pricing are the reasons why the tender for 24 million barrels of WTI crude makes “economic sense for Dangote.”
Assuming that the current oil prices for both WTI and Bonny Light remain the same for the next 12 months, Dangote will spend $1,896,720,000 to purchase the 24 million barrels from the US, whereas buying that quantity from Nigeria, using the CBN-quoted price, will cost him $1,999,440,000 – a difference of approximately $102.7 million.
However, experts believe that low production in Nigeria remains a major issue that forces Dangote to seek imports as an alternative.
Oil theft, insecurity in the Niger Delta, as well as corruption, have been cited as the major reasons Nigeria, once Africa’s largest oil producer, cannot meet its OPEC+ daily quota. According to data from the CBN, domestic production of crude dropped from 1.43 million barrels per day in January to 1.23 million barrels per day in March.
Emmanuel Adetayo, a financial analyst who believes that Dangote importing crude strains the naira, said that production needs to increase to cater for oil refineries in the country.
“The reason we are still in this region where we need to still rely on the strength of the naira against the dollar is that Dangote imports crude oil,” he told Neusroom. “That is another shortcoming of the Nigerian crude oil sector. We need to increase production basically. If we can produce over 2 million barrels a day, we can conveniently provide for Dangote.”
While a new directive by the Nigerian government has mandated oil companies in the country to sell to local refineries and are only allowed to export crude after meeting their domestic supply obligations, production output needs to be increased to meet growing domestic demands.
Aside from Dangote’s 650,000-barrels-a-day refinery, there are at least five operational modular refineries in Nigeria, including OPAC refinery, Waltersmith refinery, NDPR refinery, and Edo refinery. Additionally, the state-owned Port Harcourt refinery is expected to start producing this year.
Although these refineries will change Nigeria’s over-dependency on imported refined petroleum products and relieve pressure on foreign exchange for other needs, production, which hovers around 1.23 million barrels per day, remains a major challenge.
“We need to increase our crude oil production in a way that our local refineries can have crude without the need for foreign exchange (FX), while we still have enough to export to other countries and have FX in our reserves,” Adetayo said.
Dangote Refinery is considered a game-changer in Nigeria’s oil and gas sector, with the potential to add immense economic impact to Africa’s most populous nation. In April, Dangote Refinery announced a further reduction of the price of diesel from N1,200 to N1,000 per litre, three weeks after the facility’s diesel rollout crashed the price of the commodity from N1,600 to N1,200.
Speaking at the Africa CEO Forum Annual Summit in Kigali on Friday, May 17, 2024, Dangote said that his facility will start producing petrol by June which will be enough for the entire West Africa region.
“Right now, Nigeria has no cause to import anything apart from gasoline and by sometime in June, within the next four or five weeks, Nigeria shouldn’t import anything like gasoline; not one drop of a litre,” he said.
He added; “We have enough gasoline to give to at least the entire West Africa, diesel to give to West Africa and Central Africa. We have enough aviation fuel to give to the entire continent and also export some to Brazil and Mexico.