The London-based research group Economist Intelligence Unit (EIU) has voiced concerns over delays in petrol production at the Dangote refinery. Their recent report warned that these setbacks could negatively impact Nigeria’s already fragile financial and currency conditions. According to EIU’s latest assessment of Nigeria, the delays could intensify pressure on public finances, especially as the country struggles with removing the fuel subsidy in June 2023. Although the official subsidy has been scrapped, the federal government continues to unofficially shield petrol prices from market forces. The central bank is now more motivated to implement stricter currency management, as anticipated; however, the extent of market intervention may intensify.
Also, the report pointed out that the country is facing challenges in financing its budget deficit due to growing currency losses, which are putting additional strain on the country’s financial situation. According to the EIU, Nigeria’s current account may suffer from continuous fuel imports caused by the slow start of the Dangote production plant. This could lower the predicted 1.9% GDP projected for 2025, empty foreign reserves, and lead to a return to a stricter and less secure foreign exchange system. The Dangote production plant was once seen as a revolutionary force for the country’s oil-focused Economy but has struggled to expand its operations.
Dangote plans to produce 650,000 bpd to reduce the import reliance.
Over the years, the country has imported fuel to satisfy local needs despite being rich in oil, which has been a source of shame for many. The local production plant, with plans to produce 650,000 barrels per day (bpd), aims to change this narrative and reduce the country’s reliance on imports. Despite multiple setbacks, total production of the production plant is expected to be postponed again. The EIU predicts it may not operate at total capacity until 2026. The production plant has been operational since January 2024, creating and shipping Petroleum products like fuel oil, naphtha, nitrogen fertilisers, gasoil, jet fuel, and diesel.
Despite initial plans for full-scale petrol production by June, delays have pushed back the start date multiple times, with the August goal now uncertain, as highlighted in the EIU report. The refinery faces major challenges in obtaining a consistent supply of affordable crude oil. Despite the Nigerian National Petroleum Company (NNPC) being a government-owned oil company, it has failed to deliver the agreed-upon 450,000 barrels daily to the refinery. Continuous problems like Oil Theft and lack of Investment in the oil industry have reduced production levels.
OPEC’s 1.38 million bpd target falls short by 1.31m bpd, remaining unmet.
Moreover, As of July, the crude oil output was only 1.31m bpd; the OPEC agreement was a 1.38 million bpd target. Additionally, there is a significant amount of about 90,000 bpd being used as collateral for a loan. The local production plant faces challenges stabilising its operations due to the NNPC’s unreliable supply guarantee. The report highlighted the Dangote refinery’s reliance on buying crude oil from global markets. This method of importing has created hurdles, especially when trying to sell gasoline locally in naira, an essential objective for the Nigerian government. The conflicting currencies have made this approach impractical, especially considering the high prices that international oil companies charge for their crude.
EIU reports that oil companies operating in Nigeria request a premium of $3 to $4 per barrel compared to international market prices, possibly because of the costs associated with redirecting oil away from their usual buyers. The Dangote production plant has deemed these prices excessive and urges the government to intervene. The Nigerian government has not yet implemented the Domestic Crude Supply Obligation (DCSO), which would require IOCs to prefer local refineries. Tensions have risen between the refinery and regulatory bodies, particularly with the Downstream Petroleum Regulatory Authority (NMDPRA). In mid-July, NMDPRA’s CEO, Farouk Ahmed, expressed concerns about the refinery’s progress, suggesting that it was only 45% finished.
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This statement has increased doubts regarding the refinery’s capacity to achieve its updated production goals. Political and business leaders worry that the production plant could dominate the country’s petrol supply and create a monopoly, primarily if it can obtain low-cost crude oil. Some experts believe this could centralise too much control over the market, leading to price manipulation and market imbalance concerns. According to a recent report by EIU, the success of the Dangote Refinery is crucial for Nigeria’s economic prospects. Nigeria’s future economic trajectory is closely linked to the progress and success of this significant project.