Business
Panic in NNPCL over Dangote refinery threat to public refineries
The coming on board of the ultra-modern 650,000 barrels per day Dangote Refinery in Ibeju-Lekki, Lagos, is creating a seismic shock in the nation’s downstream petroleum sector, with hitherto power players that dominated the sector now running for cover.
About a year after it commenced operations, the mammoth refinery owned by Africa’s richest man, Alhaji Aliko Dangote, has shattered the status quo in the petroleum industry, bringing disruptions to the businesses of operators that had before now dominated the opaque industry unchallenged.
For the state-owned NNPCL, which rode the nation’s petroleum sector like a colossus, to oil traders, fuel importers and depot owners, who operated for decades without opposition, Dangote Refinery is coming at a bad time.
Not only has the new refinery ended the dominance of the old players, it is also threatening their continued existence.
Particularly affected is the state-owned NNPC whose businesses are currently struggling to survive as a result of the impacts of Dangote Refinery’s entry into the system.
According to Business Hallmark findings, NNPCL’s petroleum products trading arm, NNPC Retail, and her trading partners have continued to incur huge losses as the pump prices of their refined petroleum products, especially Premium Motor Spirit (PMS), popularly known as petrol in Nigeria, become uncompetitive in the market on the back of the frequent crashing of Dangote Refinery’s ex-depot price.
Findings revealed that volumes of petrol sold at NNPC stations and its affiliated outlets have crashed by over 50 percent on the heels of Dangote Refinery’s recent price review.
Pricing war
Meanwhile, competitors like MRS, Ardova, Heyden and other marketers that get their supply from Dangote Refinery are benefiting from the loss of market share by NNPC-partnered stations and marketers that import fuel from abroad.
It would be recalled that the management of the 650,000 barrels per day refinery had reviewed the ex-depot price of its petrol three times since it started production.
Before the latest reduction from N950 to N825, which became effective on February 27, 2025, the management of Dangote Refinery had on February 1 reduced the ex-depot price of a litre of petrol to N890 from N950.
The unexpected move, sources in the petroleum industry informed our correspondent, caught many operators by surprise, with the more expensive PMS purchased from NNPC Retail and tank farms owners unable to compete with Dangote fuel dispensed by MRS, Ardova, Heyden and others.
The situation has been further compounded by the latest crash in Dangote’s petrol to N860 in fuel outlets in Lagos owned by partner stations.
Meanwhile, NNPC Retail stations have continued to sell the product at the rate of N945 in Lagos and much more outside the state, a situation that is driving customers away from the stations.
NNPC’s current predicament, checks revealed, was brought about by several factors, especially its reliance on imported petrol and the largely idle Port Harcourt Refinery 1 and 2, Warri and Kaduna Refineries for its refined petroleum needs.
Despite Dangote’s insistence on having in stock enough petrol to wet the nation, NNPCL and fuel marketers have continued to import petrol from abroad, albeit at a very high cost.
According to a products price watch compiled by the Major Energy Marketers Association of Nigeria (MEMAN), the landing cost of petrol as at Thursday, February 20, was N928 per litre.
The figure is N103 more than Dangote’s ex-depot price of N825 and N58 above the national average pump price of N870 per litre at Dangote-partnered filling stations, which makes imported fuel uncompetitive.
Refining and import – no easy way
To worsen the matter for the national oil company, its four refineries located in Port Harcourt, Warri and Kaduna have been largely inactive in spite of the over $4billion pumped into their rehabilitation.
Even when two of the refineries, Port Harcourt 1 and Warri, have begun partial production, the negligible yields from these plants and the inefficiencies inherent in their operations have made their products to be more expensive than Dangote’s petroleum products.
Experts in the gas and oil sector, who spoke to BH on the matter at the weekend, maintained that the four refineries undergoing refurbishment, especially the old Port Harcourt Refinery in Alesa Eleme, Rivers State, may never perform optimally again, despite the huge investments sunk into their revival.
According to the experts, the Port Harcourt refinery, which comprises two plants, the recently refurbished old plant constructed in 1965 with refining capacity of 60,000 barrels per day, as well the modern PHRC II commissioned in 1989, will only be able to utilise a fraction of their installed capacity owing to several identified factors, including old and outdated machinery, redundant workforce and bureaucratic inefficiencies.
BH findings revealed that all is not yet well as the refineries, even at their peak, will struggle from operational inefficiencies, notably their limited designs, inability to attain optimal production level as a result of still running on largely old equipment, high cost of production, bloated, aged and redundant workforce and many other challenges.
A petrochemical engineer, Dr. Jude Emiazor, said the the biggest challenge against the old 60,000 Port Harcourt Refinery is the way it was originally designed and built. Unlike the new Port Harcourt refinery that came with 2nd generation technology, comprising a Crude Distillation Unit (CDU), a Vacuum Distillation Unit (VDU), a Naphtha Hydrotreating Unit (NHTU), a Catalytic Reforming Unit (CRU), a Continuous Catalyst Regeneration (CCR) Unit, a Kerosene Hydrotreating Unit, a Fluid Catalytic Cracking (FCC) unit and a Dimersol Unit to convert propylene into a gasoline blend stock, the old refinery, comprising one crude distillation unit (CDU), a catalytic reforming unit (CRU) and a Liquefied Petroleum Gas (LPG) plant, was primarily designed to produce straight-run gasoline (Naphtha), kerosene, Automotive Gas Oil (Diesel), Low Pour Fuel Oil (LPFO) and Liquefied Petroleum Gas (LPG).
According to Heurtey Petrochem Solutions, a world leader in process furnaces for refining, petrochemicals, syngas and hydrogen markets, crude oil distillation unit is the first processing unit in virtually all petroleum refineries.
The CDU, also known as the atmospheric distillation unit, distills the incoming crude oil into various fractions of different boiling ranges, each of which are then processed further in the other refinery processing units.
In other words, the CDU sets the stage for subsequent processing steps in units, such as hydrocrackers, reformers and desulfurization units.
On the other hand, a CRU converts naphthas already refined from crude oil into liquid products called reformates, which are premium blending stocks for high-octane gasoline (petrol).
Available data suggest that the newly refurbished and commissioned plant can only produce PMS by blending semi-processed petroleum products like naphtha and resins already cracked by Dangote Refinery, Indorarama and highly advanced catalytic cracking units in the new Port Harcourt refinery.
Since the old refinery can only blend petrol for now, it will need to buy its naphtha and other blending feedstocks from producing refineries both locally and abroad at a competitive price, significantly jerking up the production cost of finished products from the plant.
Another problem that might draw back the newly refurbished plant from reaching optimal production level is the advanced state of the facility.
Commissioned in 1965, the old Port Harcourt was designed to operate 100% manually/mechanically and will require massive manpower to run, unlike its biggest competitor, Dangote Refinery, which is semi automated (85% automated).
Though, much more advanced than the old Port Harcourt Refinery, the remaining three public refineries suffer from almost the same fate.
Unequal competition
Energy experts told our correspondent that unlike the new Port Harcourt, Warri and Kaduna Refineries that came with 3rd generation technology, the Dangote Refinery is a very complex and advanced project with 5th generation technology.
The facility, which is almost fully automated, will save the company billions of dollars in labour costs which would have passed to the final consumers.
Apart from the original design dilemma, the four refineries still retain a large components of the old parts installed several years ago.
“It is like marrying a 60 year old woman with about 20 to 30 years to live and getting her a new heart. But what the new groom didn’t factor in is the fact that like her heart which was replaced, other ageing parts like the lungs, kidneys, liver, brain, just mention it, which are also old, will need replacements.
“It will be fever today, headache tomorrow, arthritis the day after and dementia the next week. From one problem to another. These are age related ailments that will take time and money to fix.
“Unfortunately, there is nothing that can be done about it as the new brides due to advanced age will keep breaking down and the grooms (NNPC) will continue to keep spending to keep them alive.
“On the other hand, Dangote Refinery is brand new and will, apart from the periodic turn around maintenances, operate for at least 35 to 40 years before needing a major overhaul.
“This is one of the reasons petrol from the partly rehabilitated Port Harcourt and Warri Refinery is presently selling above Dangote’s fuel.
“That’s the unfortunate situation we’ve found ourself in with government’s insistence on reviving the four moribund refineries, instead of privatizing them a long time ago, or scraping and selling the parts still serviceable as scraps as advised,” an energy expert, who begged for anonymity stated.
Speaking during a recent media tour of the facility arranged to address public misgivings on the old Port Harcourt Refinery, the Director of Operations of the Nigeria Pipeline Storage Company (NPSC) Ltd, Mr. Moyi Maidunama, inadvertently confirmed experts observations by acknowledging a temporary reduction in production, which he said was aimed at improving the delivery capacity of the facility.
“Our operations were not totally halted but reduced due to some of the improvements that we needed to make in terms of getting more loading arms operational”, Maidunama stated.
The four government owned refineries, BH gathered, will also not be able to compete with Dangote Refinery and other newly built refineries springing up across the country for lack of competent hands.
Most of the engineers still with the refineries are either too old or too young to manage a refinery, especially old plants needing constant care and attention.
According to a 58-year-old systems specialist, who resigned from the NNPC 17 years ago and relocated abroad for greener pastures, Engr. Tayo Shokunbi, many of his older colleagues still in the employment of the national oil company are out of tune on how to run modern refineries, after practically being idle for up to two decades.
“The four refineries were permanently shut down in 2022. That’s about four years ago. Before that, they were barely producing, with the nation importing over 90% of its petroleum needs from abroad.
“What this means is that without going for further retraining, workers of these refineries are largely redundant and can no longer give their best. Unfortunately, technical staff that were recruited in the last ten years also lack hands-on experience with no operational plants to work in.
“While NNPC have not embarked on meaningful construction works that I know of in 25 years, many of its businesses, especially the refineries and pipelines have been idle or out of commission. This means that a lot of organisational knowledge was lost within this period.
“Left to compete with new and modern refineries like Dangote, they cannot cope as their products will be more expensive and not market friendly. They cannot survive without getting bailouts from government, which I see as another way of throwing good money at a bad one,
“Without being propped up by government, I don’t see the refineries surviving another 10 years. Something must give. Even refineries in much better conditions in Europe, China and South America are folding up as they can’t compete with newer ones springing up daily in Asia and Africa”, Shokunbi added.
A source in the national oil company, who spoke on the condition of anonymity, said the corporation’s management is currently at a fix on how to handle the matter.
“While Dangote is ramping up production and producing cheaper fuels, NNPC’s refinery’s are mostly inactive. Apart from that, they are not cost efficient and can’t compete favourable with Dangote’s state of the art refinery.
“The corporation has two options, either continue to sell at a loss by fighting a lost price war with Dangote, or swallow its pride by running to Dangote for help.
“If you notice, most NNPC-partnered stations across the country have cancelled their franchise deals with the firm. Some have even changed their names from NNPC Retail to MRS or their original names.
“The situation will likely worsen when Dangote effect further price cuts. NNPC’s products will continue to find it difficult to compete in the market as they come under increasing pressure in the face of fierce competition from Dangote’s cheaper and premium products.
“The corporation is living on a borrowed life. There are now even suggestions that the firm should give its daily crude oil allocation meant for local production to Dangote Refinery to help refine at lower cost. It is either it (NNPC) adapt or die”, the source stated.
Meanwhile, BH reliably gathered that the Federal Government is considering several options to ensure that the refineries which have defied several attempts to revive them do not become waste.
One of the options available to the government is to retrofit the refineries into a blending plant in the event the overhaul exercises did not turn out as planned.
According to Wikipedia, while oil blending plants cannot refine crude oil, they can be used to blend semi processed to create finished products.
In a leaked memo written by a top staff member of PHRC to the NNPC Trading Limited, a subsidiary of NNPCL, dated August 27, 2024 seen by our correspondent, the worker asked the trading firm to supply to it two cargoes of petrol with RON 94 specification.
“PHRC is desirously of procuring high RON gasoline from your company to blend with Naphtha produced from our 60,000bpd refinery (Area 5 plants)”, the document reads.
The cargoes were subsequently delivered in the second week of September and the first week of October 2024 to the Okrika Jetty in Port Harcourt, which the refinery used to produce the PMS it sold to Nigerians in the South South and South East regions in December and January 2024.
Subsequent cargoes of petrol with RON 94 specification, it was gathered, have been supplied to the plant after the initial consignments.
