Inertia is the flipside of innovation. In the main, businesses entangled in the web of inertia ultimately perish because they lack innovative capacity, are often characterised by inefficiency, the inability to spot and exploit market opportunities; sub-optimal performance, weak leadership, limp corporate governance, and un-competitiveness. To a greater or lesser degree, the converse is true of thriving businesses and market disruptors ceteris paribus.
Management thinkers including Joseph Schumpeter, Jean-Marie Dru, amongst others, have written extensively about market disruption. The brigading nexus of their exposition on the subject, essentially, establishes the pragmatic principle of radical change in business models to create value for customers and shareholders.
On the latter point, Harvard Business School’s Professor Clayton Christensen in The Innovator’s Dilemma (1997), opined: an organisation’s capabilities reside in two places. First, in its processes; the methods by which people have learned to transform inputs of labour, energy, materials, information, cash, and technology, into outputs of higher value. Second, is within the organisation’s values. These are the criteria that managers and employees in the organisation use when making prioritisation decisions.
Situating those “prioritisation decisions” relative to Dangote Refinery’s (DR) strategic impacts on market disruption therefore engages this treatise on four seminal grounds. First, when fully operational, DR constructed at a cost of circa $20 billion, will have a production capacity of 650,000 barrels per day (bpd); more than sufficient to meet Nigeria’s domestic requirements. Second, the petrochemical refinery, the 7th largest in the world, will domicile a urea fertiliser factory producing approximately three million tonnes per annum.
Third, DR will create over 250,000 direct and indirect jobs across the petroleum industry value chain and related multiplier effects across the housing and retail markets. Finally, anticipation is high that DR will berth a pivotal shift in Nigeria’s economic diversification strategy away from crude oil importation – which has cost approximately $10 billion annually over the last decade – thereby helping to conserve essential foreign exchange for socio-economic development.
Even so, what is DR’s strategic economic logic when developed and highly industrialised nations are supplanting fossil fuels with cleaner energy? The technology undergirding petrochemical refineries has existed for over a century and essentially involves distillation, cracking or conversion and treatment; what’s the eureka moment? How might international geopolitics impact DR’s operations; given President Trump’s publicly stated second term domestic and foreign policy agenda effective January 20, 2025, anchored on MAGA doctrines and the real prospect of trade tariffs?
Indeed, the rivalling paradox of the UN Sustainable Development Agenda 2030, aimed at protecting the planet from degradation, including through viable consumption and production, sustainably managing its natural resources and taking urgent action on climate change, so that it can support the needs of the present and future generations; and the establishment of DR’s 650,000 bpd petrochemical facility are only too obvious.
The paradox is resolved in a single word: economics! And so, there’s no eureka moment because the fundamental mechanics of petroleum refining has existed for over a century. Therefore, for as long as there are willing buyers (the demand side!) globally for refined petroleum products and distillates emanating from the Dangote Refinery (the supply side!), et al, a thriving market will exist as conditioned by the price, market forces, and regulation.
This point was magnificently evinced in Daniel Yergin’s Pullitzer winning oeuvre, The Epic Quest for Oil, Money and Power (1991): “the battlefields of World War I established the importance of petroleum as an element of national power when the international combustion engine overtook the horse and coal-powered locomotive.”
And whilst the striking combination of artificial intelligence, digitisation, technology, and sovereigns’ industrial policy choices, and shifts, has formidably impacted energy markets and the downstream petroleum industry, evidenced in part by the growing demand for electric vehicles (EVs), and indeed virtually all aspects of human existence; petroleum products continue to shape global economics in interesting ways. For instance, the Global North is witnessing spikes in the shift to EV adoption. Standard and Poor estimates that by 2030 approximately 25 per cent of new passenger cars sold will be an electric vehicle.
Concurrently, leading global automobile manufacturers, which account for over 70 per cent of international EV manufacturing, suggest the latter days of the internal combustion engine as the shift to zero emission vehicles increases.
Notwithstanding, within Organisation for Economic Cooperation and Development (OECD) member countries in 2023, 49.02 per cent of oil consumption was in road transportation logistics, whilst the petrochemical and aviation sectors accounted for 16.19 per cent and 8.1 per cent oil demand respectively, within the same period.
More widely, the daily global demand for crude oil, plus biofuels, was 102.21 million barrels per day in 2023, a 2.65 per cent increase from 99.57 million barrels per day in the preceding 2022. The International Energy Agency forecast an expansion of crude oil demand to 102.8 million barrels per day barrels per day in 2024, to 103.8 mbpd in 2025; in view of underperforming global economic conditions and the ramping up of cleaner energy technology-based deployment.
Plus, the Organisation of Petroleum Exporting Countries (OPEC) estimates crude oil demand peaking at 110 million barrels per day in 2045, with transportation fuels like petrol and diesel remaining the most demanded commodities. Therefore, the economic logic for the $20 billion investment in the DR was, and remains, incontestable.
However, the plot thickens with geopolitics. The rival superpowers, China and the United States, constitute the largest global consumers of petroleum products, at 19 million barrels per day and 16.6 million barrels per day, respectively. Nigeria and China are pivotal trading partners with bilateral trade exceeding $15 billion through January and September 2024; and $22.56 billion in 2023.
Whilst these are significant metrics, they mask weighty trade imbalances between both countries. In 2023 for instance, Chinese exports to Nigeria amounted to $15.67 billion whilst Nigeria’s amounted to a fractional $1.58 billion; an awkward, but trending phenomenon, reflective of the Nigeria’s monocultural oil dependent economy; and the extremely diversified Chinese technology-based economic model.
Plus, Nigerian crude oil exports to China was $494.05 million in 2023. In the same period, Nigeria exported crude oil worth $4.73 billion to the United States (UN COMTRADE). The previous year, 2022, US/Nigeria bilateral trade exceeded $8.1 billion. Yet, the geopolitics are complicated by President Donald Trump’s second term inauguration on January 20, 2025 and his invocation of the MAGA “America First” doctrine.
Only in December 2024, Trump demanded: “a commitment from (BRIC) countries that they will neither create a new BRICS currency, nor back any other currency to replace the mighty U.S. dollar or, they will face 100 per cent tariffs, and should expect to say goodbye to selling into the wonderful U.S. Economy.”
Fact is, effective January 17, 2025, Nigeria became a BRICS partner country. This development potentially puts Nigeria, a BRICS partner nation, within Trump’s tariffs sanctions crosshairs, given conflicting policy objectives as between sovereign BRICS members and partner countries; versus the United States.
This is a classic example of the law of unintended consequences in that geopolitical tensions between sovereigns and multilateral organisations risks unhinging corporations’ strategic planning. Ergo, a strategic risk for Dangote Refinery for which sound mitigation plans must be readily developed and executed.
Furthermore, OPEC’s assessment that the current scaling up of production at the Dangote Refinery, and its petroleum exports to international markets risks disrupting the European gasoline markets is material on three key grounds. One, it is a recognition of the strategic importance of the Dangote Refinery given its 650,000 optimal production capacity on global markets.
Two, its capacity to sufficiently meet domestic and export demands. Three, the adverse impacts on European refineries hitherto supplying fuel to Nigeria which, in 2020 alone cost the Nigerian exchequer, $7.75 billion; paradoxically, at the time when Nigeria had four moribund publicly owned refineries: Port Harcourt I and II, Kaduna and Warri; with a total production capacity of 445, 000 barrels per day. And for over a decade until the industry regulator, NNPC, halted the importation of oil on November 11, 2024, the country spent over $1.36 billion per month importing fuel.
Summing up, Yergin’s early predictions stands; a factor which justifies explains the strategic economic logic for organisations like the DR, especially given the compelling investment drivers of enterprise, financial viability assessments of high probability of sustainable returns on investments and profitability.
Because, oil remains a strategic asset with multifarious applications in agricultural, aviation, rail, road and maritime logistics, and beyond, the market will remain attractive and contested for some time to come.
The challenge is for market entrants and industry players to refine and sharpen their business models, unique selling points, and therefore market attractiveness to stand a fighting chance of capturing value in a crowded and volatile market, complicated by testy geopolitics.
Strategic vision, leadership, adaptability, risk management, sensitivity, political nous, and a human touch, are non-negotiable; as innovative market disruption evolves across industry spectrums.
Ojumu is the Principal Partner at Balliol Myers LP, a firm of legal practitioners and strategy consultants in Lagos, Nigeria, and the author of The Dynamic Intersections of Economics, Foreign Relations, Jurisprudence and National Development.
