Financial Energy Review
Dangote refinery has placed new order for crude oil totalling about 24 million barrels over the next twelve months
The refinery is seeking to buy millions of barrels of US crude over the next year as it ramps up processing rates, an indication Nigeria’s current output may not sustain its operations.
Nigeria has been unable to meet its quota from the Organization of Petroleum Exporting Countries, OPEC, for at least a year.
The nation pumped about 1.45 million barrels a day of crude and liquids in April, still far below its estimated production capacity of 2.6 million barrels a day.
Crude theft, aging oil pipelines, low investment, and divestments from oil majors operating in Nigeria have all contributed to declining production.
Dangote refinery had issued a term tender for the purchase of 2 million barrels a month of West Texas Intermediate Midland crude for 12 months starting in July, according to a document seen by Bloomberg. The tender closes on May 21.
The call for US oil highlights how influential the plant will be in global crude and fuel trading.
It also reflects Nigeria’s struggle to lift its own crude production, which remains well below theoretical capacity, as well as Dangote’s willingness to tap cheaper supplies than it can find at home.
“Supply of Nigerian crude is insufficient or unavailable and sometimes unreliable,” said Elitsa Georgieva, executive director at Citac, an energy consultancy specializing in the African downstream sector. “WTI on the other hand, is available, with reliable supply and competitively priced.”
Buying different feedstocks also provides flexibility and optionality for the refinery, so the tender makes economic sense for Dangote, Georgieva said.
To ensure enough local supply to the giant 650,000 barrel-a-day Dangote refinery, the Nigeria Upstream Petroleum Regulatory Commission, (NUPRC) released new draft rules last month that will compel its oil producers to sell crude to domestic refineries.
The plant, currently running at about half capacity, is taking advantage of cheaper US oil imports for as much as a third of its feedstock.
Since the start of this year, it has received at least one supertanker carrying about 2 million barrels of WTI Midland each month. An official at Dangote declined to comment.
