LAGOS, NIGERIA – Aliko Dangote, Africa’s wealthiest individual, is negotiating billions of dollars in additional funding to scale up production at his flagship $20 billion refinery on the outskirts of Lagos. The refinery, set to become one of the continent’s largest and most transformative infrastructure projects, is designed to reduce Nigeria’s dependence on imported petroleum products and reshape the country’s energy landscape.
According to Financial Times reports, Dangote is in talks with a range of financiers, including commercial lenders, development banks, and oil traders, to secure the necessary capital to ensure a steady and sustainable supply of crude oil to the refinery. Once fully operational, the Dangote Refinery is capable of processing up to 650,000 barrels per day (bpd), making it one of the largest refineries in the world.
While production at the plant began earlier this year, with 420,000 bpd currently being processed, Dangote has set ambitious targets to reach full capacity by mid-2025, despite challenges in meeting earlier projections. The refinery’s recent move into jet fuel and naphtha production in September, followed by the start of petrol production in October, has raised hopes that Nigeria’s long-standing reliance on imported fuel could finally be alleviated.
Securing Crude Supply Amid Volatile Market
Dangote’s refinery, which aims to process locally sourced crude, is facing significant hurdles in securing a stable supply of feedstock. The Nigerian National Petroleum Corporation (NNPC), the state oil company, was initially expected to provide a substantial portion of the crude oil needed. However, Dangote has encountered complications in ensuring a consistent supply from NNPC, especially given the country’s ongoing energy sector challenges.
In recent meetings, Dangote sought assurances from Nigerian President Bola Tinubu and NNPC’s CEO, Mele Kyari, to secure a guaranteed supply of 365,000 bpd, which would be paid for in Nigeria’s increasingly devalued currency, the naira.
However, the situation has been complicated by the Nigerian state oil company’s inability to meet financial obligations. NNPC’s stake in the refinery has been slashed to 7.2% after the company failed to make payments on a $2.7 billion deal for crude supplies. NNPC initially paid $1 billion in 2021 but has struggled to cover the remaining $1.76 billion, leading to concerns about the state oil firm’s ability to meet Dangote’s supply needs.
Financial Pressures Mounting
The refinery’s financing and operational costs have been a growing concern for stakeholders. Sources familiar with the situation told Financial Times that Dangote’s efforts to secure further funding are driven by the mounting operational costs, which could reach up to $2 billion every 90 days to maintain a minimum supply of 300,000 bpd of crude. Analysts are also raising alarms about the refinery’s ability to turn a profit, given the volatility of the naira and the rising cost of crude oil imports.
“The refinery was built over-budget, and the naira, which is a major currency for future revenue, has devalued massively,” one source said. As Nigeria’s currency continues to depreciate, the cost of financing and importing crude has become significantly more expensive, putting further strain on the project’s financial viability.
Potential for Market Disruption
Despite these challenges, Dangote remains committed to using the refinery to meet Nigeria’s domestic demand for petrol, which he estimates at 30 to 35 million litres per day. If successful, the refinery would drastically reduce Nigeria’s reliance on expensive foreign fuel imports, saving billions of dollars annually and creating a more self-sufficient energy market.
A report by the Knightsbridge Strategic Group (KSG), a geopolitical intelligence firm, suggests that Dangote’s refinery could not only reduce Nigeria’s fuel import bill but also provide a competitive alternative to European countries looking to reduce their dependency on Russian oil. Once at full capacity, Nigeria could potentially become a significant exporter of refined oil products, especially to Europe.
However, the report also cautions that persistent crude oil shortages and the continued devaluation of the naira could delay the refinery’s full operational capacity. “The longer NNPC delays its supply of crude, the more likely the refinery will face financial troubles due to its massive debt commitments,” the report stated, forecasting that the refinery may not reach full production until at least the second quarter of 2025.
Political and Economic Implications
The ongoing challenges at Dangote’s refinery also have broader political and economic implications for Nigeria. The government’s failure to resolve the issues surrounding fuel supply could exacerbate inflation, increase fuel prices, and potentially lead to social unrest. The removal of fuel subsidies earlier this year has already sparked protests, and further delays in the refinery’s ramp-up could intensify public dissatisfaction.
In light of these challenges, Dangote’s refinery is poised to be a pivotal project for Nigeria’s future energy independence, but its success hinges on overcoming significant financial and logistical hurdles in the months ahead. As Nigeria navigates this critical juncture, the outcome of Dangote’s negotiations for additional funding and crude supply will likely shape the future of the country’s oil and gas sector.