Despite being Africa's leading producer of crude, at 2 million bpd, and boasting of the world's 10th-largest reserves (some 37 billion barrels), Nigeria has had to import refined oil to meet its own domestic needs for years. Having failed to update its dilapidated refining infrastructure four times between 2007 and 2019, the country of 200 million now imports roughly 90% of its refined petroleum needs, such as gasoline and diesel, to meet domestic demand.
Though the Nigerian National Petroleum Corp (NNPC) is now trying to revamp the country's four aging refineries—which, even if restored to full capacity, would only meet half of Nigeria's domestic needs—as Cheta Nwanze, head of research at SBM Intelligence, a Lagos-based risk advisory, told Bloomberg, “Our refineries have not been properly maintained for years, [so] it might be easier to build a new one."
Enter Aliko Dangote, Nigeria's leading industrialist and Africa's richest man, valued at just over USD10 billion in January 2020. After building a cement empire in the mid-1970s that later expanded into sugar and flour, the Dangote Group now controls some of the country's biggest soft drinks companies, breweries, and confectioners, imports rice, fish, pasta, and fertilizer, and has major investments in real estate, banking, transport, textiles, oil, and gas. The real kicker, however, are his imminent plans to open what will soon be Nigeria's largest crude refinery in Lekki, some 50km east of central Lagos.
With the capacity to process 650,000bpd, or roughly one-third of the country's entire crude production, the Dangote Refinery will not only allow Nigeria to meet its domestic consumption needs (which averaged 524,000bpd in late 2019), but make it a net exporter of refined petroleum products for the first time in history.
This will not only save the country a huge refined import bill, which reached USD8.7 billion in 2017, but also vastly improve its balance of trade—with refined accounting for 18% of all imports that same year—and, most importantly, provide succor to strapped domestic consumers that must battle constant shortages, price gouging, and other bottlenecks that routinely plague the domestic market.
Dangote first announced he would build a refinery in 2013 that would be finished in 2016. Over time, however, as the need for something more substantial grew, he upgraded its size, moved the facility to greater Lagos, and said production would begin in 2020. Though the company has fallen behind schedule due to bottlenecks in importing steel and other materials, it is now set to launch in early 2021 and reach full processing capacity by that summer.
Designed to process a variety of crudes, from sweet to light, and sourced both locally and abroad, Dangote plans to export its diesel to Europe and gasoline to Latin America, Western, and Central African markets. According to Devakumar Edwin, Group Executive Director at Dangote Industries, the group is also considering investing in its own vessels to export the stuff, “to make sure we are not held for ransom by any transport operators," he told Bloomberg.
But what of the opportunity costs? As certain analysts have pointed out, the savings on imported refined product would still have a major impact on Nigeria's exported crude—dicing nearly a quarter of the roughly 2 billion barrels it exported per day in 2019. According to one estimate, that would amount to losses of USD11 billion, hardly enough to cover the government's import savings on refined products of USD8.7 billion in 2019.
Yet, this is before taking into account government subsidies for domestic fuel consumption, which amounted to nearly USD4 billion in 2019—which means the refinery would generate savings of roughly USD1.5 billion per year. Should the country boost its production to maintain foreign exports at roughly 2 million bpd, while meeting domestic needs of around 500,000bdp (which does not fall foul of OPEC regulations), the Dangote Refinery would revolutionize the country's position all the more.