The Nigerian National Petroleum Company Limited (NNPC) is set to provide the new 650,000 barrel-per-day Dangote oil refinery with up to six million barrels of crude oil in December for test runs, according to three reliable industry sources who spoke with Reuters.
This development comes as a significant relief to concerns about the refinery’s capacity to receive the necessary feedstock.
The Dangote oil refinery, funded by Africa’s richest man, Aliko Dangote, is poised to revolutionize the oil trading landscape in the Atlantic Basin. Once fully operational, it is expected to make Nigeria a net exporter of fuels, a long-cherished goal for the oil powerhouse. Currently, Nigeria heavily relies on fuel imports.
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An NNPC official, who wished to remain anonymous, confirmed that six cargoes, equivalent to 200,000 barrels per day, would be supplied in December as part of a one-year deal. He added that future volumes would be supplied “based on mutual agreement and availability.”
The other sources indicated plans to supply about 4-5 cargoes, totaling at least 130,000 barrels per day. A Dangote Group official, also preferring anonymity, mentioned that “some of the agreements have confidentiality clauses” when asked about the NNPC supply deal. The NNPC holds a 20 percent stake in the refinery.
The Dangote refinery commenced the commissioning process in May this year after significant delays and cost overruns, with an estimated project cost of $19 billion, surpassing initial estimates of $12-14 billion. The commissioning phase includes testing various units responsible for producing a range of petroleum products, from gasoline to diesel.
The integrated refinery and petrochemical project is expected to create thousands of direct and indirect jobs while meeting Nigeria’s fuel demands, transforming Africa’s largest crude producer into an exporter of refined crude.
A Sales and Purchase Agreement (SPA) is currently in the final stages of preparation between the national oil company and the Dangote refinery, with formalization expected in the coming weeks. The deal is set to be on a purely commercial basis, without any discounts or rock-bottom prices.
The Petroleum Industry Act (PIA) of 2021, specifically Section 109, outlines domestic crude oil supply obligations to refineries, including the Dangote Refinery, as well as NNPC refineries in Port Harcourt, Warri, Kaduna, and the various modular refineries across the country. It stipulates that the supply of crude oil to the domestic market will be conducted on a willing buyer and willing seller basis.
Notably, shortly before the refinery’s inauguration, the NNPC had pledged to supply 300,000 barrels of crude oil to the facility. However, in September, Devakumar Edwin, the Executive Director of Dangote Group, disclosed that the national oil company would not be able to supply the refinery until November, causing concerns and raising eyebrows throughout the country.
The Dangote refinery, with a processing capacity of 650,000 barrels per day, is situated in the Free Zone in Ibeju-Lekki, Lagos, covering an expansive 2,635 hectares of land. The complex is reputed to boast one of the largest pipeline infrastructures globally, with a 1,100-kilometer gas pipeline capable of handling 3 billion standard cubic feet of gas per day and a 400MW power plant meeting the power requirements of Ibadan Distribution Company (Disco). It is also said to be more than six times the size of Victoria Island.
The Nigerian Upstream Petroleum Regulatory Commission (NUPRC), led by Gbenga Komolafe, recently emphasized the urgency of meeting domestic crude obligations to enhance refining capacity. Komolafe said “It is going to be a matter of national shame if we cannot meet our domestic crude obligations to step up our refining capacity,” and stressed the readiness of the Dangote refinery to receive crude oil.
The successful collaboration between the NNPC and the Dangote refinery not only represents a significant step forward for Nigeria’s energy sector but also aligns with the country’s ambitions of becoming a major exporter of refined crude products.