The refinery resorted to crude importation as local supply challenges hindered the new $20bn refinery’s push to reach full refining capacity.

Recall that the refinery plans to reach its 650,000 barrels per day capacity in June this year.

However, low local crude supply from the Nigerian National Petroleum Company Limited is currently a challenge to this plan to ramp up daily production.

The 12 million barrels of crude has already left the United States and will land in Nigeria next month, according to the news from African Report.

“About 12 million barrels of crude have departed the US and should arrive in Nigeria by February,” an insider source told The Africa Report.

Dangote Petroleum Refinery is said to be importing more crude oil as supply from the NNPC becomes insufficient for fuel production at the $20bn Lekki-based facility.

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Officials at the plant said the facility has ramped up production to about 500,000 barrels per day, with the target of hitting the 650,000bpd mark by June this year.

The NNPC is reportedly struggling to supply 350,000bpd to the Dangote refinery from the 450,000bpd crude meant for Nigeria’s local consumption.

With its current production capacity of 500,000bpd, officials said there is a need to look beyond the shores of Nigeria for the feedstock.

It was said that the feedstock needed by the refinery daily cannot be solely supplied by the state-owned oil company, NNPC.

Recall that in July, President Tinubu ordered the NNPC to sell crude oil to local refineries in naira.

According to the crude oil production forecast of producing oil companies and the refining requirement of functional refineries in Nigeria signed by the Chief Executive of the Nigerian Upstream Petroleum Regulatory Commission, Gbenga Komolafe, the Dangote refinery would require 550,000 barrels of a blend of Nigerian crude oil daily, 17.05 million barrels monthly, and 99.55 million barrels between January and June 2025.

The Dangote refinery is already building eight more tanks to store imported crude.

The facility is planning to stockpile imported crude oil as local supplies become unreliable.

Officials of the refinery were quoted as saying that low crude supply from the NNPC “is driving import dependence.”

The building of eight additional tanks will see crude storage capacity at the refinery jump by 41.67 per cent to 3.4 billion litres.

“Importing crude from other countries instead of buying locally means that our crude stockpiles will have to be higher,” the Vice President in charge of the oil and gas business at Dangote Industries, Devakumar Edwin, was quoted as having said recently.

In May 2024, the refinery reportedly issued a term tender for the purchase of two million barrels of West Texas Intermediate Midland crude monthly for 12 months starting in July last year, amounting to 24 million barrels of crude in one year.

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The Minister of Finance and Coordinating Minister of the Economy, Wale Edun, made the announcement saying that it was in line with the Federal Executive Council, FEC, directive that the sale of crude oil and refined petroleum products in Naira should officially commence on October 1, 2024.

Mohammed Manga, Director, Information and Public Relations, Ministry of Finance, in a press statement said Edun, following a meeting of the implementation committee, chaired by the Minister of Finance and Coordinating Minister of the Economy to conduct a post-commencement review of the Crude Oil and Refined Products Sales in Naira initiative, the commencement of the strategic initiative was affirmed by key stakeholders.

He said the meeting brought together prominent figures,  including the Minister of State, Petroleum (Oil), the Special Adviser to the President on Revenue, the Special Adviser to the President on Energy, the Chief Executive of the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), the representative of the Chairman of Dangote Group, the Vice President of Dangote Group, and the management of the Nigerian National Petroleum Company (NNPC), led by the Group Chief Executive Officer (GCEO), Chief Financial Officer (CFO), and Executive Vice President (Downstream).

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He stated that the strategic initiative and bold step taken by the President Bola Ahmed Tinubu-led administration  was expected to have a lasting impact on Nigeria’s economy, fostering growth, stability, and self-sufficiency, especially as the country continued to navigate the complexities of global markets.

He said the strategic move positioned Nigeria for success in the years to come.

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The research and analysis division of the Economist Group said the Dangote refinery which began production in January had encountered setbacks in petrol production due to a shortage of crude oil feedstock.

It said the $20 billion facility had successfully exported various products, including fuel oil, naphtha, nitrogen fertilisers, gasoil, jet fuel, and diesel but had been able to ramp up petrol production due to challenges in sourcing adequate crude oil.

These delays are expected to have significant economic repercussions for Nigeria, potentially worsening the already strained relationship between public finances and the management of the naira, the country’s currency.

The report said though the government had previously scrapped the official petrol subsidy in June 2023, the practice of unofficially subsidizing petrol continued, with substantial implications for the national budget.

It pointed out that that had led to increased currency losses, contributing to a widening budget deficit that had become increasingly difficult to manage and could force the Central Bank of Nigeria to revert to stronger management of the currency.

“As the federal government unofficially subsidises petrol (the official subsidy was scrapped in June 2023), currency losses feed into a widening budget deficit that is becoming more challenging to finance. This provides extra incentive for the central bank to revert to stronger management of the currency, as we already expect, but the degree of market intervention could become heavier. Meanwhile, ongoing fuel imports would reduce the current-account surplus from the 1.9% of GDP that we currently project for 2025, potentially leading to lower foreign reserves and the return to a more rigid and unstable foreign-exchange system,” it said.

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The delay in securing a reliable pipeline of affordable crude oil feedstock was attributed to low crude production due to oil theft and underinvestment, as well as using crude oil to repay outstanding loans.

“The refinery has encountered a range of problems, both practical and political in nature. The most publicly discussed issue is how the refinery can secure a reliable pipeline of crude oil feedstock at affordable prices. NNPC, the state oil firm, has not been able to provide enough volume. The government has promised to deliver 450,000 b/d of oil to the refinery through NNPC in a pilot scheme, sold in naira, but the state oil company is not in a position to make this a reliable arrangement. Crude production in Nigeria is stubbornly low, as a result of oil theft and underinvestment. Output was 1.31m b/d in July, against an OPEC+ target of 1.38m b/d. NNPC receives a varying minority share of this and, moreover, a sizable quantity (about 90,000 b/d) is being committed as loan collateral,” it added.

The situation, it said, had been worsened by International Oil Companies (IOCs) operating in Nigeria, which demanded a premium of $3-$4 per barrel over the prices they receive elsewhere.

It noted that regulators are hesitant to enforce the Domestic Crude Supply Obligation (DCSO)—which requires IOCs to sell crude to local refineries—out of concern that such enforcement might lead to divestment.

The report emphasised that producing fuel locally would significantly benefit Nigeria’s fiscal position and currency, given that petroleum products account for 15% to 20% of the country’s goods import bill. The Dangote refinery, hailed as a transformative development, is expected to resolve the paradox of Nigeria being a major crude oil producer yet still dependent on fuel imports. With a capacity of 650,000 barrels per day (b/d), the refinery could potentially eliminate the need for fuel imports and shield local fuel prices from exchange-rate fluctuations.

“The Dangote fuel refinery is potentially transformational for Nigeria, which has always been an oil exporter and fuel importer. This fact is often regarded as a failure and an embarrassment by politicians, businesses and the media alike, but the new refinery has the ability to change this,” it said.

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NEITI disclosed this in its policy brief titled, “Stemming the Increasing Cost of Oil Theft to Nigeria” released in Abuja on Wednesday.

A breakdown shows that the nation lost 38.5 billion dollars on crude theft alone, 1.56 billion dollars on domestic crude and another 1.8 billion dollars on refined petroleum products between 2009 and 2018.

The agency in the document further expressed concern that in the face of current dwindling revenues, paying priority attention to curb oil theft in the country’s oil and gas industry was imperative.

This, it said, had become both necessary and urgent to expand the nations revenue generation capacity.

The report also disclosed that Nigeria lost an average of 11 million dollars daily, which translates to 349 million dollars in a month and about 4.2 billion dollars annually to crude and product losses arising from stealing, process lapses and pipeline vandalism.

“While figures from government put the loss at between 150,000 to 250,000 barrels per day (BPD), data from private studies estimate the figure to be between 200,000 to 400,000 BPD.

“This implies that Nigeria may be losing up to a fifth of its daily crude oil production to oil thieves and pipeline vandals,” it said.

On comparative analysis of the size and implication of the losses to the country’s current revenue profile, NEITI in the policy document renewed its appeal to the government to curb oil theft to reduce budget deficits and external borrowing.

It added that the value of crude oil and allied products so far lost were equal to the size of Nigeria’s entire foreign reserves.

“Stemming this hemorrhage and leakages should be an urgent priority for Nigeria at a time of dwindling revenues and increasing needs,” the report stressed.

It further disclosed that what the country lost in 20 months in fiscal terms was enough to finance the proposed budget deficit for 2020; in 15 months to cover total proposed borrowing or increase capital budget by 100 per cent

It added also that it could in five months cover pensions, gratuities and retirees’ benefits for 2020.

“In terms of volume, 138,000 barrels of crude oil were lost every day for the past 10 years, representing seven per cent of average production of two million BPD.

“Nigeria lost more than 505 million barrels of crude oil and 4.2 billion litres of petroleum products between 2009 to 2018.

“What is stolen, spilled or shut-in represents lost revenue, which ultimately translates to services that government cannot provide for citizens already in dire need of critical public goods,”it added.

The report further identified other effects of oil theft to the nation to include pipeline vandalism, criminal sabotage, illegal refineries in oil producing communities, which threaten the safety and livelihoods of the environment where these illegal refineries operate.

On the environment, the NEITI policy brief said that the impact and implication of oil spills was monumental, degrades the environment and negatively affects the livelihoods of host communities.

The report examined the reasons for increase in incidences of crude and product theft and reviewed current containment strategies.

These include, inadequate legal sanctions to serve as deterrent, stringent laws, deployment of technology designed to swiftly detect, localise and cut off flows to specific pipelines as soon as leakages occur.

It recommended operational, security, legal and global governance instruments to combat crude theft.

Among them is efficient response and containment time in checking oil theft and pipeline vandalism, urgent review of the status of various security organisations currently involved in crude pipeline and product surveillance.

The report also called for forensic investigations into the activities of syndicates operating in the oil and gas industry, given the increasing rate of stealing and sophistication of the illicit trade.

“Curiously, the volume of losses does not particularly reflect the rate of pipeline breaks for the corresponding years, suggesting either that the criminals are becoming more efficient, or crude theft is occurring increasingly elsewhere. This may require further probing,” the report observed.

It also suggested that government should reconstitute a special security task team for Nigeria’s oil and gas assets, with a specific mandate to minimise crude theft and vandalism.

“This task team should include the oil companies and technical expertise in relevant fields. Command and control responsibility should be manned by professional intelligence personnel.

“The key mode of operation should be based on seamless communication to improve response time.

“The command and control should have direct real time access to information produced by the leak detection and localisation systems installed and operated by the oil companies,” it added.

Source:  NAN

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