Nigeria's Dangote refinery begins ULSD production

Nigeria's new Dangote refinery has commenced production of ultra low sulfur diesel, a company official said July 23, bringing the refiner closer to ambitions to export Euro-5 fuel amid a public dispute with the country's downstream regulator over its fuel quality.

Speaking July 23, a refinery official told S&P Global Commodity Insights that Dangote had "just started" production of ultra low sulfur diesel -- with a sulfur content of 10 ppm -- advancing the 650,000 b/d refinery toward its aim of being able to export its diesel to Europe and elsewhere.

Previously, the refiner had said that the first ULSD could take several months to reach the market after first production in Q3, saying that first supplies of the higher-quality diesel stock would need to be blended with existing fuel held in tank at the site before it was sold in its pure 10ppm form.

Dangote first began marketing gasoil with a sulfur specification of around 650 ppm in April as it awaited the startup of more sophisticated refining units such as its hydrocracker and hydrotreater, causing diesel prices at the pump to drop sharply as volumes began flowing to the domestic market.

To date, Nigeria has exported 23 gasoil cargoes from Dangote, according to S&P Global Commodities at Sea data, with volumes mostly delivered to Togo and Angola, though the most recent cargoes have been dispatched to South Africa, Puerto Rico and Malaysia.

At steady-state capacity, forecast by S&P Global Commodity Insights analysts around 2027, the 650,000 b/d refinery is expected to yield 38% diesel, helping West Africa's gasoil deficit set to shrink by around 180,000 b/d by 2026 relative to 2023 levels.

Fuel quality in focus

The leap in fuel quality follows a recent deterioration in relations with Nigeria's downstream regulator, the Nigerian Midstream and Downstream Petroleum Regulatory Authority, which has seen both parties exchange allegations over domestic fuel specifications.

Since gasoil production began at Dangote, the NMDPRA has granted it a waiver from tightening quality controls applied to imports, allowing its early supplies to flow into the domestic market.

Since June, the NMDPRA has imposed a 50 ppm cap on imported gasoil, marking a drastic reduction from previous levels of 1,500 ppm in 2023, though supplies from Dangote and other local refiners have been granted a higher cap of 650 ppm until January 2025. From 2025, when ECOWAS-recommended limits of 50 ppm will be applied uniformly across the market.

Yet relations appeared to deteriorate in recent weeks, as both parties have exchanged accusations around the other's role in improving Nigeria's fuel quality.

Last month, Dangote accused the NMDPRA of allowing high sulfur diesel to be dumped in the Nigerian market from Russia, while on July 18, the head of the NMDPRA accused Dangote of producing material inferior to imported product, according to local media reports.

In turn, Dangote has alleged that its fuel quality is superior to product found at the average Nigerian fuel station, with refinery owner Aliko Dangote telling lawmakers visiting the site July 20 that its latest gasoil supply was certified at a sulfur content of 87.6 ppm and flash point of 96.

Stakeholder relations

A meeting held at the refinery July 23 triggered some optimism that increasingly fraught relationships between Dangote and key stakeholders might be normalized.

Nigeria's Minister of State for Petroleum Heineken Lokpobiri held talks with the Dangote Group, the NMDPRA, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), and the Nigerian National Petroleum Company Ltd (NNPC) "to address the ongoing issues surrounding the Dangote refinery," the ministry said in a statement July 23.

Oluseyi Awojulugbe, senior analyst at SBM Intelligence, noted a deterioration in relations between the parties in recent weeks, which have also seen NNPC, the state oil company, reduce its stake in the refinery from 20% to 7.2%, but remained upbeat that talks would be constructive.

"The relationship [with the regulator] feels a bit more strained at the moment, but because of the strategic importance of Dangote and its businesses in Nigeria, it is almost certain that both parties will come to an agreement, especially when you consider the other businesses that Dangote owns, it directly affects the citizenry," she said.

Neither NNPC nor the NMDPRA was available for comment on the discussions.