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Uncertainty trails Dangote Refinery products’ delivery date

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Dangote Refinery to begin operation in October

By AYOOLA OLAOLUWA

The management of Dangote Refinery in Ibeju-Lekki, Lagos is working round the clock to avoid contractual breach ahead of the announced deadline of July ending or early August for the refinery to start supplying refined petroleum products to buyers, Business Hallmark can report.

According to findings, the Chairman of Dangote Group, Alhaji Aliko Dangote, as well as the top echelon of the 650,000 barrels per day refinery have had little time to rest since the commissioning of the refinery on May 22 by former President Muhammadu Buhari.

Apart from being always on ground to ensure that everything goes ahead as planned, the eggheads, BH learnt, have also been rallying workers in their bid to avoid an embarrassing shift in the promised date of takeoff.

It would be recalled that the ambitious Dangote Refinery built on 2,635 hectares of reclaimed swamp land in the Lagos Free Trade Zone (LFTZ) by the richest black man in the world, Alhaji Aliko Dangote, was officially commissioned by ex-President Buhari on May 22, 2023, after several targets for its completion were missed.

For instance, the refinery project was first announced in 2013 as a smaller plant (450,000 barrels a day) to be built at Olokola Free Trade Zone (OKFTZ) located between Ogun and Ondo States with a due date of 2016.

It was later moved to Lekki in Lagos State after a disagreement with one of the host states, Ogun and another completion date of 2019 and actual production date of early 2020 were set.

However, owing to several factors, including the scarcity of foreign exchange as well as Covid 19, initial delay caused by the unanticipated extra reclamation efforts and thousands of pilings done to secure the swampy land, as well as the negative effects of the Covid19 pandemic, which led to the grounding of the parts, machineries and manpower ordered from India, China and other countries, the takeoff date was again moved to 2022.

The huge expectations of government officials and Nigerians were again dashed when a new date of 2023 was announced for the takeoff of the refinery in late 2022.

Though, no concrete date was announced for the takeoff of the refinery in 2023, Nigerians were told that it would be commissioned before the expiration of former President Buhari’s tenure on May 29.

Keeping to promise, the gigantic refinery was flagged off on May 22 to the admiration of many Nigerians with the hope that the coming on board of the industrial behemoth will finally resolved the nation’s lingering fuel crisis.

However, while Nigerians have continued to applaud the commissioning of the project for start of production, they are confused by the contradictory dates being reeled out by the media for its first refined products to hit the market.

According to checks by our correspondent, three different dates of June ending, July and August 2023 have been mentioned as the expected delivery date of refined petroleum products from Dangote Refinery.

The most baffling thing however, is that all the channels quoted Dangote himself as the source of the date.

Meanwhile, several sources argued that the June, July and August dates for the first products from the refinery are not even realistic, while questioning the haste in its commissioning.

One of the sources, who spoke with our correspondent on the condition of anonymity, advised Nigerians not to expect wet products from the refinery until the end of the year.

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“As things currently stand, the refinery is not ready for work. Several works still needed to be done before actual production can start.

“For instant, the different components of the plant must be fired up and primed before they can start receiving crude for processing. This process takes days, if not weeks to complete. The moment they start the machines, they can’t stop again until they are due for maintaining.

“The ideal situation is that there should be enough crude to last for at least 60 days to ensure a seamless and steady production.

“You have to factor in unexpected developments like shutdown of flow stations, pipeline rupture or accident at sea of crude laden vessels, which could make crude producers or traders to declare a force majeure.

“That’s why you give enough room to allow you source for crude elsewhere to keep your machines running since they can’t be started and switched off like cars and generators at will.

“But do they (Dangote Refinery) have that much crude in stock? I don’t think so. I say this because the GMD of the Nigeria National Petroleum Company Limited (NNPCL), Mele Kyari, while delivering his address at the Nigeria Oil and Gas Opportunity Fair held at the Nigerian Content Development and Monitoring Board Conference Centre, Bayelsa State on May 18, announced to the whole world that the corporation would start supplying 300,000 barrels of crude oil to the Dangote Refinery the following week.

“Let us assume that the corporation began pumping crude as promised on Monday, May 22, it would have pumped only 6 million barrels in 20 days as of Saturday, June 10, 2023.

“If the trend continues, we can conveniently project that it will take the NNPCL another 40 days to supply the refinery the crude that will last for 60 days.

“We are also assuming that the refinery will be kicking off at below capacity as the crude from NNPCL accounts for only 45%. Except they are getting crude from other traders abroad”, the source noted.

Corroborating the unnamed source, London-based research consultancy firm, Energy Aspects, said that firing up a refinery is an intricate process.

“We expect operations to start later this year, reaching 50-70 percent in 2024, with a staggered process of other units into 2025”, the London-based group stated.

However, a source in Dangote Group, owners of the firm, maintained that the refinery’s first crude will hit the Nigerian market by July ending or early August as promised by Alhaji Dangote.

“We cannot afford to fail as the whole nation is waiting. Be rest assured that the date given for refined products to hit the market will be met.

“On the confusion created by the different dates being bandied for refined products to hit the market, the source argued that what happened is normal.

“Those throwing out different dates are all correct, and I will tell you why. As you know, allowances are always given by engineers to accommodate any unforeseen developments and still be able to meet up with the targeted completion and kick-starting of operations.

“For example, if a contractor is going to complete a project in May, you don’t expect him to give the owner the May date. He will surely add between two to three months to be on the safe side.

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“If things go as planned, the refinery will start pumping petroleum products by June ending. But at the worst, it won’t go beyond August”, the source assured.

Checks by our correspondent on two of the world’s major oil price assessment agencies and industry news services for crude oil and refined products, Platts and Argus, showed that the agencies do not have any record of contracts between Dangote Refinery and traders.

According to an oil and gas expert, Tunji Badmus, the absence of data indicate that the refinery has not started trading or receiving orders for products, as price and news services agencies for crude oil and refined products like Argus would have captured it.

“Refined petroleum products, like crude oil and gas are not dictated locally but by several factors in the internationally market. It has three markets, the spot, future and forward.

“However, owing to the volatility of the refined petroleum products market and the need to cut down on losses, traders and oil companies prefer to go for the spot market.

“It is called spot because if a refiner has to replace lost production, or overproduces and needs to sell, it needs to do it on the spot.

“In the same vein, when markets are falling – especially if it looks like a trend – a trader, let us use your paper, Business Hallmark as an example, is more likely to do a spot-plus deal.

“Also, unlike crude oil, if you are a consistent buyer and buy in huge volumes, you are in a position to negotiate prices and save money on your purchases.

“For example, if your company’s purchase volumes have grown in recent years and are on track to expand, you are a very attractive customer to a major supplier or large jobber distributor.

“They will be willing to sell to you on a spot basis, as opposed to what’s posted at the rack. That has the potential to save you a lot of money.

“These kinds of gasoline and diesel fuel supply deals – which use a spot price as a cost basis – are referred to as index based deals, which means you buy at the rack at rack volumes, but use a spot price as the cost basis.

“Its downside is that unlike rack volumes, you need huge resources to trade in the spot market. For instance, rack typically stops at 8,500 gallons, but spot transactions are larger and are done via pipelines, barges and cargoes.

“Because of the processes involved, like maritime laws that mandate ocean going vessels to declare their cargoes, ports of departure and arrival, it is very easy to have access to information on shipped goods.

“That’s how news and intelligence agencies track goods or weapons meant for countries transported through the air and sea.

“So, if Dangote Refinery has started operations or hope to do that in, let’s say, three months time, buyers will need transport like barges, ships or pipelines, which must pass through international waters. As such, they will be documented and can be tracked online. And the process should have started by now”, he explained.

The world’s largest single-train refinery project is said to have gulped $19billion to build after being delayed for almost a decade.

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The refinery complex is completely off the national grid and will be energised by a 435 megawatt (MW) Independent Power Plant (IPP), enough to power the five states of Ogun, Osun, Oyo, Kwara and Ekiti under franchise of Ibadan Electricity Distribution Company (IBEDC).

Representing about 15 per cent of the average power generated on the national grid, the Dangote Refinery IPP is expected to boost Nigeria’s economic growth and turn the nation from an importer of refined products into an exporter.

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