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Experts Reveal A Lot
Almost everybody in the country expects crash of petroleum, especially when the Dangote Refinery finally starts refining crude oil.
On January 12, 2024, Dangote refinery announced that it had commenced the production of Automotive Gas Oil, popularly called diesel, and aviation fuel or Jet A1. But much hasn’t been heard of PMS which is the major consumption in Nigeria.
This Dangote Petroleum Refinery, is a multi-billion dollar project that will create a market for $21 Billion per annum of Nigerian Crude. It is designed to process Nigerian crude with the ability to also process other crudes.
A lot of people, especially Nigerians are hoping that the Dangote refinery will crash the price of petroleum when it starts production. This assertion has been faulted by lot of experts who believed other wise.
Firstly, Nigeria will sell crude oil to the Dangote Refinery at international prices through the Nigeria National Petroleum Corporation (NNPC). Should it sell it for less, it would be a form of subsidy, experts argue.
Associate Professor of Energy and Natural Resources at the University of Abuja, Olanrewaju Aladeitan, suggested a while ago, that there could be a marginal reduction in petrol prices due to the elimination of certain ancillary costs.
However, he clarified that the price of petroleum products might not significantly decrease to the extent of being termed a crash.
“The price may not decrease significantly considering the fact that crude oil and condensates supplied for the domestic market under the Petroleum Industry Act will be based on willing seller-willing buyer negotiations.
“And the fact that the supply of crude oil will be commercially negotiated having regard to prevailing international market price for similar grades of crude,” he said.
He said that there is no specified percentage of crude dedicated to local refineries, indicating that international market prices, typically in dollars, would still determine the cost of the crude oil refined.
“Hence international market price which of course is denominated in dollars will still be the determinant of the cost of the crude oil that would be refined. So I do not see how the price of petroleum products will crash,” Aladeitan said.
The former CBN governor, also clarified this before the end of his tenure. Answering a question on whether the coming of the refinery would translate into the price of petrol coming down, Emefiele was emphatic that it would not.
“It (fuel price) cannot come down, because it will still be supplied at the prevailing international market rate. However, the price at which the product will be dispensed when it comes out from the refinery will be lower than the price it would have been if dollars were spent to import the fuel from abroad. This is because the supply of the fuel is local, with no transportation, storage, freight costs, and all those logistical expenses involved when fuel is being imported,” he explained.
Mr Bismarck Rewane, who is the Managing Director/Chief Executive Officer of Financial Derivatives Company Limited in Lagos, also commented on the subject and advised Nigerians not to entertain the illusion that the Dangote Refinery would guarantee them cheaper supply of refined petroleum products.
Rewane said the most the Dangote refinery would guarantee was improved supply of petrol in Nigeria’s domestic market, but would not affect the foreign exchange position of Nigeria significantly.
He said this, during the virtual economic outlook organised by the Stanbic IBTC Group, where he projected that the refinery would become operational in the Q1 2023.
Rewane said: “Nobody should expect that the Dangote Refinery is going to make petrol cheaper (in Nigeria). It is going to make it more available at any point in time. I doubt it whether he is going to collect his money in naira because Dangote has costs.
“Dangote Refinery technically and theoretically, is outside Nigeria as it is situated at the export processing zone. We have a deep sea port where the ships will take the refined products. But rather than buying from Amsterdam we will buy from Dangote and ship to Atlas Cove, Bonny and Port Harcourt.
“The saving (to Nigeria economy) is that rather than shipping a tanker from Amsterdam to Nigeria, we will be shipping it from Lekki. Another savings is because Dangote refinery is 45 percent more efficient than other refineries because of its cutting edge technology. This will further reduce the cost.”
He said what would happen was that Nigeria would take 450,000 barrels and make it available to Dangote under a swap arrangement instead of giving it to refineries in Europe.
The CEO of the FDC said taking the crude to Dangote Refinery would be quicker than shipping it to, and bringing the refined products from Europe.
“I think that it is quite clear that it will not solve all our foreign exchange problems because it does not change things much. So, it is a wrong notion to say that we spend all our money (FX) importing fuel.
“No, it is our own fuel that is being refined for us abroad, which will now reside with Dangote. Apart from that I do not think that there is any much difference. The reason is that the price differential will probably be on transportation cost. It is not going to change dramatically our foreign exchange situation,” he said.
Dangote Oil Refinery is a 650,000 barrels per day (BPD) integrated refinery project under construction in the Lekki Free Zone near Lagos, Nigeria. It is expected to be Africa’s biggest oil refinery and the world’s biggest single-train facility.
The Pipeline Infrastructure at the Dangote Petroleum Refinery is the largest anywhere in the world, with 1,100 kilometers to handle 3 Billion Standard Cubic Foot of gas per day. The Refinery alone has a 435MW Power Plant that is able to meet the total power requirement of Ibadan DisCo.
The Refinery will meet 100% of the Nigerian requirement of all refined products and also have a surplus of each of these products for export. Dangote Petroleum Refinery is a multi-billion dollar project that will create a market for $21 Billion per annum of Nigerian Crude. It is designed to process Nigerian crude with the ability to also process other crudes.
