In a significant development for Nigeria’s energy sector, the state-owned oil company, NNPC Ltd, has inked an agreement to provide the newly constructed Dangote oil refinery with up to six cargoes of crude oil in December. These cargoes will be used for testing purposes as the massive 650,000 barrel-per-day refinery nears completion. Three industry sources familiar with the matter confirmed this deal.
Financed by Africa’s wealthiest individual, Aliko Dangote, the Dangote oil refinery is poised to revolutionize oil trading in the Atlantic Basin. This refinery’s operation will also have profound implications for the global fuel industry, as it is expected to significantly reduce the demand for fuels produced in Europe and the United States, which have historically powered vehicles, trucks, and generators across the African continent.
Located in the Lekki free trade zone near Lagos, the Dangote oil refinery, once fully operational, holds the potential to transform Nigeria into a net exporter of fuels. This achievement aligns with a long-standing goal for Nigeria, an OPEC member that has traditionally relied heavily on fuel imports to meet its energy demands.
One of the sources, an NNPC official who chose to remain anonymous, revealed that the agreement entails the supply of six cargoes, equivalent to 200,000 barrels per day (bpd), in December. This arrangement forms part of a one-year deal, and future volumes will be determined based on mutual agreement and availability.
Other insiders indicated that plans were in place to supply approximately 4 to 5 cargoes, totaling at least 130,000 bpd. When questioned about the NNPC’s supply agreement, a Dangote Group official, who preferred not to be identified, mentioned the existence of confidentiality clauses without providing further details.
Gasoline and diesel purchases from the Dangote refinery will be the subject of separate negotiations at a later stage. It’s worth noting that the NNPC holds a 20% stake in the Dangote oil refinery.
The Dangote refinery initiated its commissioning process in May of the current year, after several years of delays and at a cost exceeding the initial estimates of $12-14 billion, with the final price tag reaching $19 billion. The commissioning phase includes rigorous testing of the various units responsible for producing a range of products, from gasoline to diesel, and ensuring their responsiveness to control panels. Experts in the industry suggest that it can take several months for refineries to transition from test runs to full-capacity production of high-quality fuels.
Jeremy Parker, the Head of Business Development at CITAC, an Africa-focused oil consultancy, emphasized that the value of the fuels produced by the refinery is expected to improve gradually as it approaches full capacity. He noted that to maintain efficient operation, the refinery would need to be consistently supplied with crude oil at a rate of approximately 325,000 bpd, which equates to about 10 cargoes per month. As the refinery progresses through subsequent phases and ramps up to its full capacity of 650,000 bpd, this figure is expected to increase.
In summary, Nigeria’s NNPC supplying the Dangote oil refinery with crude oil for testing represents a significant step in the development of the refinery, which is set to transform Nigeria’s energy landscape and impact global oil trading dynamics.