Nigeria's Dangote refinery decries domestic crude shortage

The new 650,000-b/d Dangote refinery in Nigeria continues to struggle in securing domestically sourced crude oil for its operations, its owners said Aug. 7.

In a statement, a spokesperson for the Dangote Group said the refinery requires 15 cargoes of crude oil to operate in September but has failed to source the necessary volume from either state oil firm Nigerian National Petroleum Co. or international oil companies (IOCs) active in Nigeria.

"For September, our requirement is 15 cargoes, of which NNPC allocated six. Despite appealing to NUPRC, we've been unable to secure the remaining cargoes," the company said in its statement.

It added that IOCs have demanded a premium of $3-$4/b from the refinery for sales of Nigerian crude oil or claimed that cargoes were already committed to other buyers and unavailable for sale.

Dangote blamed feedstock shortages on lax enforcement by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) of the country's new domestic crude supply obligation, a measure that commits producers to meeting demand from Nigeria's refineries before exporting supplies.

"Our concern has always been NUPRC's reluctance to enforce the domestic crude supply obligation and ensure that we receive our full crude requirement from NNPC and the IOCs," the Dangote spokesperson said in the statement.

The NUPRC was not available for comment.

Regulatory efforts

The latest comments from Dangote represent a change in tone from recent optimism regarding the availability of Nigerian supply, which it said triggered its decision to resell WTI Midland crude oil procured from the US in late June.

The NUPRC appeared to signal a detente in relations between Dangote and IOCs active in Nigeria on July 11, when it announced that major oil producers had agreed to develop a framework to ensure sustainable supply of crude oil to local refineries, stressing that material should be supplied at market price.

Tensions had previously come to a head in June, when representatives for Dangote alleged that the refinery was being charged a premium of over $6/b by IOCs for crude oil and reluctance from suppliers had harmed its ability to source feedstock.

Additionally, NNPC, once expected to be one of the plant's largest suppliers, has underdelivered relative to its expected crude deliveries, leaving uncertainty around supply channels for the newly commissioned plant.

NNPC was originally expected to supply Dangote with 300,000 b/d of discounted crude but has delivered closer to 82,000 b/d since the refinery's inauguration, according to S&P Global Commodities at Sea data.

The state oil company has subsequently limited its stake in the refinery to 7.2%, down an initially expected 20% from NNPC's reduced stake in the refinery.

Domestic preference

As NNPC has struggled to deliver on its commitments to Dangote, it could remain an attractive supplier to avoid Nigeria's currency woes.

Due to its location in the Lekki Free Zone, Dangote had purchased most of its crude oil in US dollars, leaving its operations exposed to foreign exchange movements.

Devaluation in Nigeria's currency has therefore put significant strain on Dangote, amounting to foreign exchange losses of Naira 2.7 trillion (around $1.7 billion) across the Dangote Group in 2023, according to Fitch Ratings.

In response, the Nigerian government made provisions in July for 450,000 barrels of NNPC crude to be purchased by Dangote in naira, hoping to alleviate the burden of further naira depreciation.

Broader energy security goals have put pressure on Dagnote to prioritize domestic crude oil sourcing; however, it has flagged Brazil, Angola, Senegal and Libya as other potential supply options to supplement local feedstock.

To date, Dangote has only sourced WTI Midland crude oil from outside of Nigeria, with the US grade making up approximately 30% of its feedstock imports and totaling 15 million barrels, according to CAS data.

According to Fitch Ratings, Dangote operated at around 50% capacity in the first half of 2024, while the refinery has aimed to reach 85% of its installed capacity by the end of the year, a Dangote spokesperson said Aug. 8. S&P Global Commodity Insights analysts forecast the refinery to reach steady-state capacity by 2027.