Dons Eze
BOOST FOR DANGOTE REFINERY OVER CRUDE OIL WAR WITH IOCs
Africa’s richest man, Alhaji Aliko Dangote, has brushed off local and international oil-producing firms’ resolve to starve his mega refinery of the much-needed crude feedstock, Business Hallmark can report.
According to findings, the mega oil refinery, the largest single-train refinery in the world, is gradually overcoming the initial obstacles mounted by oil producers and regulators. While the plant is now getting more crude oil locally for processing, inflows from abroad, especially the U.S and Brazil, is declining.
Prior to January 18, 2024, when it commenced operations after years of delay, Dangote Refinery had received 6 million barrels of crude oil from local producers for refining.
For instance, the refinery received its first cargo of 1 million barrels of crude oil from the trading arm of Shell Nigeria Exploration Company (SNEPCO), Shell International Trading and Shipping Co (STASCO) on December 8, 2023, followed by four more cargoes within the spate of 14 days, three from the Nigerian National Petroleum Company Limited (NNPCL) and one from ExxonMobil.
On January 9, 2024, the plant received its sixth cargo shipment of 1 million barrels of crude oil to help facilitate its initial run as well as kick-start the refining of petroleum products, such as diesel, aviation fuel, polypropylene, naphtha and Refined Chemical Oil (RCO).
However, the ambitious Dangote Refinery has been unable to receive a fair share of crude oil allocations from local operators, a situation that forced its management to source crude from far away countries like the United States and Brazil.
While the plant has finally commenced the production of gasoline, popularly known in Nigeria as petrol, the non-availability of adequate crude stocks has slowed down the ramping up of production and its release into the market as planned.
At the last count, the planned supply of petrol from the refinery into the market has been postponed three times, with a new date set for September 2024.
Troubled by the perceived gang-up, the usually impassive Dangote soon lost his calm when he publicly accused international oil companies (IOCs) of denying his refinery purchase of crude oil.
Dangote and some of his top officials on several occasions doubled down on the allegation that IOCs have refused to supply crude to the mega refinery.
Aside this damning allegation, Dangote and some of his officials also informed a shocked nation that when oil producers agree to sell, they sell at a premium of between $2 to $5 above the global market rate.
The Kano-born billionaire also accused the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) of not enforcing the Domestic Crude Supply Obligation (DCSO) as enshrined in the Petroleum Industry Act 2021.
Not yet done, Dangote also accused the Nigeria Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) of issuing licenses to petrol marketers to import inferior but cheaper diesel – a move he claimed would hinder the operations of his refinery.
However, both NUPRC and NMDPRA rejected Dangote’s claims. In its defence, NUPRC maintained that in the first six months of 2024, it facilitated the supply of 29 million barrels of crude oil to the Dangote Petroleum Refinery and Petrochemicals despite claims by Dangote and his officials that it (NUPRC) was complacent in enforcing crude supply to the firm.
“The NUPRC has facilitated the domestic supply of crude oil to Dangote Refinery and other refiners using the monthly production curtailment platform.
“These strategic commitments to Nigeria’s energy security have led to the facilitation of the supply of 32 million barrels of crude to Dangote Refinery and other local producers in the first half of 2024”, the regulating agency declared.
However, Dangote Petroleum Refinery denied receiving 29 million barrels of crude oil from the agency, urging it to enforce the domestic crude supply obligation as specified in the PIA.
“We are in receipt of NUPRC’s statement that they have facilitated the allocation of 29 million barrels of crude oil to the Dangote Petroleum Refinery and Petrochemicals.
“We would like to thank them for this allocation but at the same time, we wish to let them know that we are yet to receive these cargoes.
“Aside from the term supply we bilaterally negotiated with NNPCL, so far NUPRC has only facilitated the purchase of one crude cargo from a domestic producer. The rest of the cargoes we have processed were purchased from international traders”, the spokesperson of the Dangote Group, Anthony Chiejina, had clarified in the first week of August.
Like NUPRC, NMDPRA also attacked Dangote Refinery, saying its diesel already in the market is inferior to imported types of diesel.
According to the Chief Executive Officer of NMDPRA, apart from being monopolistic, the Dangote Refinery was only awarded a provisional license to test-run the plant and does not have a full licence.
While Dangote is busy battling the onslaught from NUPRC, NMDPRA, and the IOCs, local oil producers under the aegis of the Independent Petroleum Producers Group (IPPG), joined the fight, warning the Federal Government against forcing them to sell crude oil to the massive refinery and other modular refineries operating in the country.
According to the group, while some of its members received letters from Dangote Refinery for crude supply nominations for October, it faulted the government’s move to bring them under a ‘sell obligation’, explaining that it conflicted with the spirit of the willing buyer, willing-seller framework prescribed by the Petroleum Industry Act 2021.
The group, in a letter dated August 16, 2024, signed by its Chairman, Abdulrazak Isa, and addressed to the Chief Executive Officer of NUPRC, Gbenga Komolafe, argued that instead of forcing them to sell crude to Dangote Refinery and local refiners, NNPC should utilise its allocated 445,000 barrels per day intervention crude oil volume to salvage the current situation as it did in the past.
“Historically, NNPC has always had an intervention crude oil volume (445kbpd) meant to satisfy the nation’s domestic consumption. This volume has always been used, under various swap mechanisms, to import refined products for domestic consumption.
“Since there is now domestic refining capacity to meet consumption, this dedicated volume should be reserved for all domestic refineries under a price hedge mechanism that can be provided by a suitable financial institution, such as Afrexim Bank.
“Any national production above this allocated volume should be treated strictly as export volumes, adhering to the willing buyer, willing seller framework of the international market, especially since the refiners will need to export excess products that surpass domestic demand, thus boosting FX earnings
.“While we fully support and commend the efforts of Nigerian entrepreneurs to enhance domestic refining capacity, it is important that no private sector business is unduly pressured into arrangements that may effectively subsidize another within the oil and gas value chain under any guise whatsoever”, the IPPG boss admonished.
And as the controversy has evolved, so has Dangote shrewdness. Far from buckling to oil producers’ refusal to supply him crude, Dangote has found ways around the obstacles standing on the way of his ambitious project.
According to tanker-tracking data and information by energy platforms and commodity traders, local crude supplies to Dangote Refinery have improved tremendously, a situation that has forced the refinery’s management to drastically cut down on orders for crude oil from the U.S.
The traders and energy platforms disclosed that the 650,000 barrels per day has shifted its focus away from importing crude oil from the United States, as it expects to receive a greater supply from Nigeria.
Unlike in the second quarter of 2024 when the Dangote Refinery sourced less than three-quarter, about 67% of its crude requirement locally, local supply soared above four-fifths, representing over 81% of its feedstock in the third quarter, tanker-tracking data and information from traders revealed.
According to impeccable sources, Dangote resold some of the crude oil it ordered from the U.S. as it shifts its focus to domestic sources.
The mega refinery also cancelled two tenders for another 6 million barrels of WTI crude for delivery in September 2024.
Sources in the oil and gas industry informed our correspondent that the tide against the refinery turned after the Presidency intervened in the crude supply dispute that shook the nation to its foundation.
According to the sources, the president has given approval to NNPCL to sell the 445,000 barrels per day set aside for local refining at the non-functional Port Harcourt, Warri, and Kaduna refineries.
“Before now, NNPCL used to give foreign traders and refiners the whole allocation (445,000 bpd) in exchange for finished products.“But with the intervention of the president, the massive crude stocks have been reallocated to Dangote Refinery and some other smaller ones.
“As expected, Dangote Refinery will get the lion’s share as all the new modular refineries are presently refining below 100,000bpd since they are still in testing mode.“In essence, Dangote refinery, which has scaled up production to 500,000bpd will be getting between 350,000 to 400,000bpd of the 445,000bpd crude oil reserved for local production.
“Part of the supply includes the controversial 29 million barrels of crude oil NUPRC claimed it supplied to the Dangote Petroleum Refinery and Petrochemicals despite the denials by Dangote and his officials. The allocation has started arriving at the facility.
“The (Dangote) refinery for now, will source the remaining 20 to 25% of feed stocks from abroad until Nigeria’s crude oil production improves.
“The man (Aliko Dangote) is a dogged fighter. He probably embarked on his recent media fight against the NUPRC and IOCs to get the attention of powerful individuals in and outside the government to intervene in the dispute
.“With the look of things, he seemed to have achieved success with his combative approach”, a top official in NNPCL who did not want his identity stated.
Apart from successfully getting the Presidency to intervene in his matter, Aliko Dangote, it was learnt, also secured lucrative deals with some ‘friendly’ IOCs, especially TotalEnergies, for the supply of outstanding crude oil not covered by the 445,000bpd reserved by the government for local production.
It would be recalled that the French oil and gas giant signed a supply agreement with Dangote Refinery in July.According to TotalEnergies CEO, Patrick Pouyanne, the deal came about after personal discussions with Aliko Dangote.
Though Pouyanne did not disclosed the details of the supply deal, BH reliably gathered that the deal includes Dangote Refinery supplying refined petroleum to TotalEnergies about 3,000 retail channels in 24 African countries, including Nigeria, where it presently has 570 outlets.
In Exchange, TotalEnergies, it was learned, pledged a chunk of its crude produced in Nigeria to Dangote, which has been seeking crude supplies for its 650,000bpd refinery.
As things stand, Aliko Dangote looks to have found a way around the seemingly intractable crude supply logjam that threatened the successful takeoff of his mega refinery.
