Business
Forces against Dangote Refinery threaten local supply, low price
Nigerians’ hope of seeing an end to the seemingly intractable fuel crisis that have ravaged the country for many years may not materialize soon, as powerful forces that have held down the nation’s petroleum industry for years are hell bent on frustrating Dangote Refinery out of the domestic market in an effort to continue their fuel importation binge, Business Hallmark can report.
The largest single-train petroleum refinery in the world built by Africa’s richest man, Alhaji Aliko Dangote, in the Ibeju-Lekki area of Lagos, it would be recalled, commenced operations on Friday, January 12, 2024, after it took delivery of six million barrels of crude oil from the Nigerian National Petroleum Corporation Limited (NNPCL) and Shell Nigeria Exploration and Production Company Limited (SNEPCO).
After ramping up production for about four months, the refinery began supplying the Nigerian domestic market with petroleum products, including diesel and aviation jet fuel in April.
The pumping of diesel into the Nigerian market at a price of N1,050 to marketers immediately crashed the pump price of the commodity from a high of about N1,800 to N1,250. It
subsequently lowered the pump price of diesel to between N980 to N1,150 soon followed after Dangote Refinery further crashed the factory price of the product to N940 for customers buying five million litres and above, and N970 to customers buying one million litres and above.
On September 15, another milestone was reached when over 500 fuel tankers belonging to NNPC Retail, the trading arm of NNPCL, lifted refined petrol from the refinery.
With the commencement of operations and ramping up of production at the $20 billion refinery complex, Nigerians had hoped that the country’s persistent fuel crisis caused by refining deficits would be addressed.
However, recent happenings seem to suggest that all is not yet well in the nation’s troubled midstream and downstream petroleum sectors.
On the 3rd of September, twelve days to the commencement of the exclusive lifting of Dangote’s petrol by the NNPCL, the Vice President of Oil and Gas, Dangote Industries Limited, Devakumar Edwin, shocked the nation, when he disclosed that marketers were tacitly working against the interest and success of the refinery.
Devakumar vowed that the plant’s petrol will be exported if the national oil company, and other petroleum dealers in the country, refused to purchase it. He said that only 3% of its output was going to the local market.
The revelation shocked many industry watchers, who wondered what could have prompted Devakumar to utter such strong words.
A few days later, Devakumar doubled down on his earlier statement of a gang up by local players against his company, when he alleged that local oil traders had resorted to importing diesel and aviation fuel, forcing the refinery to explore international markets for its products.
“Go and see our product gantry, we can load 86 tankers at any given time. We can load 2,900 tankers of petroleum products every day, but we are not even loading five per cent, because those, who are interested in the trading business feel that probably this local production is going to affect their established interest, so they are not allowing our products to be sold locally.
“I’m selling 2 to 3% (diesel and aviation fuel) to small traders, who are willing to buy, while the rest 95 to 97% I’m forced to export. We have been exporting aviation fuel, we have been producing kerosene, we have been producing diesel.
“But yesterday, we started the production of PMS, and we are ready to pump in as much as possible to the country.
“But if the traders or NNPC are not buying the product, obviously, we will end up exporting the PMS as we are doing with the aviation jet and diesel”, the DIL boss declared, while expressing surprise that the company started facing different challenges it never expected, when the refinery was set to commence operations.
Another controversy broke at the close of loading of petrol from the refinery, when the NNPC unilaterally announced that it purchased the product from Dangote refinery at N898 per litre, N57 below the N955 price it currently sells across its retail outlets in Lagos.
The same day, Dangote Refinery publicly countered NNPC’s claim, describing it as misleading and mischievous. The company’s spokesperson, Anthony Chiejina, who issued the disclaimer, however, failed to disclose how much the refinery sold the product to NNPCL.
The national oil company fired back by releasing details of how it arrived at the new pump price of N955 using prices set by Dangote refinery.
According to NNPCL, Dangote Refinery’s price format quoted $736 per metric tonne (MT) and $0.55 per litre.
It further added that Dangote arrived at the price using the Platts 10ppm benchmark of September 13 ($0.52) and a premium of $0.03.
Platts is a price benchmark service for the oil industry. Platts pricing plus a premium or minus a discount is the preferred pricing mechanism. In a data released last week by the Major Energies Marketers Association of Nigeria (MEMAN), the landing cost of petrol dropped by N140 to N981 per litre.
According to MEMAN, petrol landing cost came down from N1,130 in previous weeks to N981 as of September 25, 2024, as a result of the recent drop in global crude oil prices.
The umbrella body of major oil marketers further explained that the landing cost of petrol started its downward slope in mid-July, falling to below N950 in early September before rising to N981.
However, while speaking in an interview on Bloomberg Television in New York, United States, on September 24, the President and Chief Executive of Dangote Group, Aliko Dangote, disclosed that the price of petrol produced by his refinery is about 15 percent cheaper than the one imported into the country by the NNPCL.
“NNPC bought from us on the 15th of September at the international price, they also imported about 800,000 metric tons of gasoline. So the one that they bought from us actually is cheaper than the one they are importing.
“And so, when they announced our price, the guy (NNPCL’s spokesperson, Olufemi Soneye), I don’t know whether he was authorized. The price he quoted wasn’t really the real price. What they have announced is most likely what it cost them, including profit and other expenses.
“And then, the other one is the one that they imported. But the people (Nigerians) don’t know how much they spend in terms of imports, but their importation is almost, maybe about 15 per cent more expensive than ours, you know.
“So what they are supposed to do is to sell at a basket price, or if they want to remove subsidy, they can announce that they will remove subsidy, which is okay, everybody, you know, will adjust it”, Dangote explained.
Based on Dangote’s revelation and MEMAN’s new data on the current landing cost of petrol, which it put at N981, BH estimate puts Dangote’s petrol at N735.73, N245.25 (15%) cheaper than imported fuel.
On the day the lifting of petrol commenced at the Dangote Refinery, NNPC announced that the refinery can only produce and supply 25 million to the nation for now before it increased production to 30 million by the end of October.
The national oil firm further said that fuel importation will continue in order to bridge the daily consumption shortfall of 15 to 25 million litres. On the third day, however, the NNPCL informed the nation that the refinery was only able to supply it 16 million litres per day, totalling 48 millions litres in 3 days.
However, Dangote Refinery contradicted NNPC’s figure, claiming it loaded 111 million litres of petrol from Sunday, September 15th to 17th.
When Dangote’s figure was broken down, it translates to 37 million litres of petrol supplied per day, just three million litres short of Nigeria’s lower band daily consumption figure.
Nigerians, who reacted to the back and forth between NNPCL and Dangote, accused the national oil firm of insincerity, maintaining that NNPCL deliberately under declared Dangote Refinery’s current production capacity in an attempt to justify future fuel importation.
The latest dispute is coming on the heels of a recent public fight between Dangote Refinery on one hand, and the nation’s petroleum industry’s regulatory bodies, and oil producers on the other hand, over the laters’ refusal to sell crude oil to the refinery.
Dangote had alleged that when crude oil is made available to his plant, it is sold at a premium of about $5 above what is obtained in the international market.
BH reliably gathered at the weekend that a powerful fuel cabal, whose interests and investments are currently threatened by the successful takeoff of Dangote Refinery despite all obstacles put on its path, is bent on frustrating the plant.
“You don’t expect them (oil cabal) to go down without a fight. They had invested heavily in the business of setting up refineries and blending plants abroad in the hope of bringing them back into the country at huge profits, either from making margins from the shipments or reaping off the country from subsidy claims. Either way, they win.
“Huge personal fortune and bank loans were used to either set up or acquire these refineries and blending plants in countries like Cyprus, Malta, Angola, Mexico, Ivory Coast, United States and even Libya.
“So, I think they are blindsided by Dangote, who refused to go down despite all onslaught against him. They betted heavily against his refinery not surviving the attacks and lost.
“So, the fightback should be expected. The forces against Dangote are massive. They cut across all spheres of influence, including the nation’s security services, financial institutions, the three arms of government, the business community, and fuel importers, tank owners and marketers, as well as foreign refiners threatened by Dangote refinery’s emergence.
“Dangote himself said sometimes ago that another investor without his clout and perseverance would have capitulated and wind up shop, and that he wouldn’t have ventured into the refinery business if he had known the challenges ahead of him”, a reliable source in the oil industry informed BH.
In August, Nigerian investigative journalist based in the U.S, David Hundeyin, accused an international Non-Governmental Organisation, ‘Dialogue Earth’, of offering him N800,000 bribe to smear the petrochemical plant.
According to Hundeyin, the NGO reached out to him with a brief that required him to write a negative review about the Dangote Refinery using climate change and environmental concerns as justifications.
Hundeyin claimed the NGO, formerly known as China Dialogue Trust, is based in the United Kingdom, and is headed by an Oxford professor, Sam Geall.
He further alleged that several American intelligence fronts, such as Ford Foundation and ClimateWorks – which is blacklisted in India for funding organisations working against country’s national interest, are financiers of the NGO.
Speaking on the development, a professor of African Studies at the Hunter College, The City University of New York, Ehiedu Iweriebor, said that the Dangote Refinery is likely to be seen as a threat to some European refineries and other economic sectors for various reasons
“First, the foreign refineries that have held Nigeria captive by supplying refined products of uncertain quality to the country for over 20 years would lose this large market. Second, they may have to close down if Nigeria is their primary market.
“Third, jobs are likely to be lost in these refineries. In general, it is likely to affect the economic wellbeing of the parts of Europe that create jobs for themselves through exportation of poor quality oil and poverty to Nigeria.
“Regarding the recent write-ups (against the refinery), even before they appeared I had advised and counselled that a project of this nature has to be protected against technical and economic sabotage, as well as psychological warfare.
“For me, the write-up about the refinery becoming a threat to European refiners is like a whistle blown that the sabotage will take-off now or is in progress already.
“Nigerians have to realize that any liberatory economic projects undertaken to advance autonomous national development and African freedom are threats to the Western assumption of the normalcy of their domination, exploitation, and control of the world.
“Therefore such projects may be vigorously resisted and overtly or covertly sabotaged, and prevented from coming to fruition.
“So, the Dangote Group has to be extra vigilant against things like that. The onus is on us, as a people and country, to actively own, protect this refinery, and prevent any plots and efforts to ruin this, and similar freedom projects”, the university don advised.