Dangote Refinery, a major player in the Nigerian oil industry, is seeking to procure a substantial quantity of crude oil from the United States, amidst the ongoing challenges faced by the Nigerian oil sector.
The Dangote Refinery has made public its intention to
procure an additional 11 million barrels of crude oil from the United States.
This move highlights the ongoing challenges faced by Nigeria in terms of oil
production.
The refinery, a crucial component in the nation’s aspiration
to become a net exporter of petroleum products, has encountered the need to
supplement domestic supply with imports to satisfy its operational
requirements.
In a tender observed by Bloomberg, Dangote procured five
million barrels of West Texas Intermediate (WTI) Midland crude for delivery in
the upcoming month and September. Additionally, the company initiated a tender
process to acquire an additional six million barrels of American crude for
September.
The Lagos refinery primarily relies on local crude supplies,
which can be swiftly transported from offshore terminals within a few days.
According to tanker-tracking data, the refinery processed
over 41 million barrels of feedstock during the first half of the year as it
conducted test runs and progressively increased its processing capacity.
Approximately one-fourth of this feedstock originated from the United States.
The chairman of Dangote Group, Aliko Dangote, stated that
the refinery will continue to import crude oil as it ramps up production and
explores alternative supply agreements.
“It also makes economic sense for us to tender for crude. If
we could source 100 percent Nigerian crude, then fine, but we can’t wait,”
Dangote said at the Africa CEO Forum 2024.
“There is a bit of a problem for us to source the entire
volume of crude that we’re looking for domestically because we need different
types and mixes. Unless crude production improves – which we pray and hope for
– we need to go elsewhere,” Dangote added.
As per the information provided by CAS, the refinery
received 11 shipments of WTI crude, equivalent to approximately 9 million
barrels, during the period from February to May. This stands in contrast to the
roughly 18 million barrels of Nigerian crude that were delivered during the
same timeframe.
The recent move to secure a longer-term offtake agreement
indicates the refinery’s commitment to diversifying its crude sources on a more
permanent basis. This decision aligns with the current market conditions
characterized by exceptionally weak demand for Nigerian crude supply.
“It’s a little surprising that they are seeking term WTI at
this stage,” said one West African crude trader, noting demand weakness that
pushed Nigeria’s flagship Bonny Light crude to a discount to Dated Brent for
the first time since November on May. 17.
The Nigerian”National Petroleum Company (NNPC), a state-run
entity in Nigeria, holds a 20% equity stake in the Dangote Refinery project. It
was widely anticipated that NNPC would supply the majority of Dangote’s crude
oil requirements, with transactions conducted in USD due to the refinery’s
location in the Lekki free zone.
However, recent assessments indicate that NNPC has
encountered challenges in fulfilling its obligation to provide 300,000 barrels
of crude oil per day (bpd) to secure its 20% stake in the Dangote Refinery.
The nation’s crude oil production averaged approximately
1.28 million barrels per day in June, which remains significantly below its
estimated production capacity of 2.6 million barrels per day. Several factors
have contributed to this decline, including crude theft, aging oil pipelines,
insufficient investment, and divestments by major oil companies operating in
the West African nation.
In spite of the assurances given by the federal government
and the Nigerian National Petroleum Company Limited (NNPC) regarding meeting
the country's Organisation of Petroleum Exporting Countries (OPEC) quota,
Nigeria experienced an approximate underproduction of 30 million barrels in the
initial four months of 2024.
Despite extensive efforts to address insecurity in the Niger
Delta region by the NNPC and the federal government, incidents of oil theft,
asset vandalism, and sabotage continue to be prevalent in the area where
Nigeria's oil is extracted.
The nation presently has a multi-billion-naira contract with
regional private security organizations in addition to the substantial
expenditures made on the official security forces deployed to address the
regional threat.