Dangote’s ambitious drive at solving Africa’s petroleum, fertiliser import problems
The conversation around local refining in Nigeria is as old as the existing refineries offering little or no succor to the country. Nigeria’s four refineries, with a name-plate capacity of refining 445,000bpd of crude, were set up almost 30 years ago. Today, the refineries are a drain on taxpayers.
Notwithstanding efforts to rehabilitate them, Nigerians appeared to have given up on the plants.
A report by the Nigerian National Petroleum Corporation (NNPC), in June 2020, stated that Nigeria’s three refineries cost the country N10.23 billion in expenses, despite processing no crude oil.
“There was no associated crude plus freight cost for the three refineries since there was no production, but operational expenses amounted to ₦10.27 billion. This resulted in an operating deficit of ₦10.23 billion by the refineries,” the NNPC 2020 report said.
The Warri Refining Petrochemical Company Limited recorded an operating deficit of N2.68 billion, while Port Harcourt Refining Petrochemical Company Limited had an operating deficit of N2.76 billion and Kaduna Refining Petrochemical Company Limited had N4.79 billion deficits.
Also, in the first-ever audited accounts and financial statements of the companies published by the NNPC in 2021, three of Nigeria’s four refineries gulped N1.64 trillion in cumulative losses recorded in their operations since 2014.
Two of these refineries are the 210,000 barrels capacity Port Harcourt Refining and Petrochemical Company Limited and 110,000 barrels per day Kaduna Refining and Petrochemical Company Limited.
The audit reports showed that combined losses from the two refineries were N208.6 billion in 2014; N252.8 billion in 2015; N290.6 billion in 2016; N412 billion in 2017, and N475 billion in 2018.
The poor performance of the refineries remains a cause for concern for a country with a population of 196 million people and a daily petrol supply need of 51.6 million litres. Recently, the country’s petrol needs rose to about 90 million litres.
With the country’s population expected to hit 410 million people by 2050, the government should expect a significant surge in local demand for petroleum products, including jet fuels, petrol, diesel, and kerosene.
This has made it imperative for the government, policy advisors and international development organisations to collaboratively think critically about what frameworks will be necessary to ensure the country’s local refineries can meet current and future demands.
To however meet the growing demand of her 17.3 million metric tonnes of petroleum products, Nigeria needs to invest about $3.09 billion in refinery projects.
The Group Managing Director, Nigerian National Petroleum Corporation (NNPC), Mele Kyari, at a forum, said Nigeria’s petroleum product demand would grow to 17.3 million metric tonnes by 2025, up from the 15.1 million MT in 2020.
He said investment opportunities worth nearly $3.097 billion currently exist in the country’s condensate refineries’ space.
Dangote Refinery operations and business strategy
According to a report by the Dangote Group, its refinery company can meet 100 per cent of the Nigerian requirement of all liquid products (gasoline, diesel, kerosene and aviation jet), and also, will have surplus of each of these products for export. It could also create a market for $11 billion yearly of Nigerian crude.
The report also noted that foreign exchange savings/earnings totaled $9.9 billion.
“The refinery can process Nigerian crudes as well as most of the African crudes, American crudes and some of the Middle Eastern crudes,” the report said.
The refinery is being built on 149,800 piles – probably the largest number of piles in the world for any single project. “We are one of the very few companies in the world executing a petroleum refinery and a petrochemical complex directly as an EPC Contractor. Globally, with the exception of about three companies, no individual owner has done the complete EPC Contract for a Petroleum Refinery,” Group Executive Director, Strategy, Portfolio Development & Capital Projects, Dangote Industries Limited, Devakumar Edwin, said.
The business strategy for the refinery include, producing Euro V products; providing crude flexibility; designed to process a large variety of crudes including many of the African crudes, some of the Middle Eastern Crudes and the US Light Tight Oil.
Others are to maximise gasoline, which is in high demand – 53 per cent of the production capacity compared to 22 per cent of the existing refineries in Nigeria; maximise value addition – extract maximum value from every barrel of crude; minimise low value fuel oil and state of the art technology.
According to Dangote, the oil refinery will start processing crude in the third quarter of this year, as mechanical work on the project is completed, while hydro testing (at 70 per cent) is almost finished.
Dangote said the last equipment for tidying up the project has arrived and the plant will start with a processing capacity of 540, 000 barrels a day, while full production would start by the end of the year or beginning of 2023.
African Development Bank’s assessment of Dangote Refinery, Fertiliser.
Last weekend, President of Dangote Group, Aliko Dangote, led President of African Development Bank (AfDB), Akinwunmi Adesina, and board members of the bank, on a tour of the refinery and fertiliser projects at Ibeju-Lekki.
Adesina, who was impressed by the massive work going on, described the project as Africa’s Growth Accelerator Company (AGAC).
He said the project is an acceleration of how to reduce imports and increase exports.
Continuing, he said, “I see an acceleration on value chain development on how to make them competitive regionally, and also, globally. And I also see a sense of pride in an African investing in Africa.
“You believe in Africa and you invest your money in the continent. Nobody could invest the kind of billions of dollars that is here unless they actually not only have the vision, but also the commitment and the passion for their country. And so, Alhaji Dangote, we are extremely proud of you, and of course, of your commitment to the continent.”
According to him, Africa has about 38 trillion dollars worth of natural resources, from oil to gas, metal, agriculture, blue economy and many more, but the continent keeps exporting raw materials.
“The wealth of a nation, according to me, is very clear that those countries that export raw materials will become poor and the countries that export value-added products eventually become rich, because they dominate the top of the value chain.”
He described Dangote as a man with a vision and passionate commitment that believes it is time for Africa to move up the value chains and dominate them so as to be competitive regionally and globally.
“He is somebody who has the vision, drive and commitment to Africa’s development via industrialisation.”
Adesina added that at the AfDB, one of their focuses is to industrialise Africa to create jobs, engage in import substitution and capture the market shares around the world.
“As we came here today, the first thing that I saw was the petrochemical refinery. I am blown away completely, Femi Otedola, your friend has actually tried so much to get me to come, and finally we got a time to come. I can’t believe what I saw.
“You have got a company here that is doing 659,000 barrels per day of crude oil refined into different kinds of products. They are doing it into 33 million metric tons of products that go from aviation fuel that goes into gasoline that goes into diesel and pollen production for plastics.
“What has been the challenge for the country is that Nigeria imports a lot of petroleum products. We sell crude oil and we import refined products, it makes the prices high, it means it’s unstable, it is highly volatile and it also means that you lose a lot of foreign exchange. What this alone will do is to reverse that, Nigeria becomes self-sufficient in the production of all these things and then becomes a globally competitive player in this, in Africa and also in the world.”
Speaking on Dangote’s fertiliser project, Adesina said with the target of three million metric tonnes of urea, Nigeria would be self-sufficient and become the next big supplier of fertilisers.
He added that this would drive productivity growth in the country as the prices would come down and quality improves.
“He (Dangote) is not just producing urea, they have a great system of soil testing. So they go across the country helping the farmers to test their soils to see what the limiting nutrients that they have in their soil, which is a great business that is also connected to the farmers themselves. This is impressive because I understand it is the second largest urea manufacturing plant in the world.
“It is amazing that we are in Africa and in Nigeria and everything about this place is world class- world class business men, world class investments, world class infrastructure.
“This is like an industrial free gate for Africa for industrialization and this is very important in the context of the African continental free trade area. So I can see Nigeria being a dominant player through this investment that you have seen here with the Dangote group.”