Dangote To Scale Up Investment In Oil, Gas Sector

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The year 2016 has come and gone. It was the year that the country entered into recession due to some obvious reasons that are intertwined with the mismanagement of resources by the past governments and the policies of the current federal government, there are still rays of hope as the Africa’s richest man, Aliko Dangote, has promised to scale up investment in the Oil and Gas sector.

With the intention of President Muhammadu Buhari to fix and get Nigeria refineries working, which the country is still waiting for. As God will have it, a ray of hope has indeed risen and seen in the giant ongoing world class Dangote Refinery which is currently under construction.

Nigeria once had four oil refineries, but currently has three refineries. There used to be two Port Harcourt refineries which were built in 1965 and 1989. In 1993 they were merged into one, with a total capacity of 10.500 million Metric Tonne Per Year (mt/yr). The three refineries with installed capacity to produce 445,000 barrels per day, but the refineries located in Port Harcourt in Rivers state, Warri in Delta state and Kaduna hardly produce beyond 50 percent.

At the moment, Nigeria imports over 80 percent of petroleum products into the country, with the attendant huge subsidies federal government pays importers to bring the products into the country.

Dangote plans to launch Nigeria’s first private crude oil refinery by 2019 while almost doubling his cement production on the continent by adding plants in eight countries as he shrugs off a regional economic downturn.

Dangote recently said the $12 billion refinery would have a capacity of 650,000 barrels a day, cornering the market in Africa’s most populous country, where fuel shortages are a perennial problem.

Until recently, Nigeria was Africa’s biggest crude oil producer but it imports 80 percent of its fuel because poor maintenance means its four refineries never reach full output. Its current daily consumption is 260,000 barrels, according to the International Energy Agency.

A slump in commodity prices has hammered Nigeria’s economy, along with many others on the continent and raised the cost of borrowing but Dangote, whose business empire stretches from cement to flour and pasta, is pushing hard into oil and gas.

Dangote said, “It will be ready in the first quarter of 2019 and the mechanical completion will be end of 2018 but we will start producing in 2019.”

He also disclosed the plant, which will include a $2 billion fertilizer unit, was being funded through loans, export credit agencies and our own equity.

Some $3.25 billion had come from local and foreign banks, while the central bank had also chipped in. The IFC, the private sector arm of the World Bank, has lent $150 million.

Dangote also has plans for a gas pipeline through West Africa. Nigeria has the world’s ninth largest proven gas reserves, at 187 trillion cubic feet (tcf), but loses half of it to flaring and re-injection.

Despite the new focus on oil and gas, the business magnate said he planned to build cement plants in Cameroon, Ethiopia, Kenya, Mali, Niger, Nigeria, Senegal and Zambia by 2018.

The collapse in oil prices has hit Nigerian companies hard, with many unable to access dollars due to central bank foreign exchange restrictions imposed to prop up the naira.

Dangote also said he was eyeing a listing on the London stock exchange “within the next year or two”.

According to a report by Lagos Chamber of Commerce and Industry (LCCI), on challenges facing the downstream sector, lack of clarity in the deregulation of the downstream, frequent vandalism of pipelines, 90 per cent of the pipelines are out of operation, high cost of funds to execute projects, overcapacity of tank farms in the country, low utilization, high cost of operation, confusion over Forex for the importation of products, different between the official and parallel rates, marketers exposed to Forex differential among others.

The report noted that, low refining capacity utilization, less than 20 per cent in the last 10 years, encouraging massive importation and fuelling inefficiency had affected the refining capacity.

On way forward the chamber said, companies’ survival will hinge on efficiency, saying drastic costs reduction, with revenues down.

It noted that the upstream already shelved over $350 billion of future investments and downstream cannot be an exception.

Dangote Group early last year ventured into oil and gas when it began the construction of the largest single industrial undertaking in the world, the Dangote Refinery and Petrochemicals.

The project sited at the Free Trade Zone, Ibeju-Lekki, Lagos, sitting on over 2,630 hectares of land, an area eight times larger than Victoria Island, Lagos, will have a refining capacity of 650,000 barrels of crude per day compared to a combined capacity of 445,000bpd of all currently existing government’s four refineries.

When completed, the project is expected to meet the yearnings and aspirations of Nigerians who have been subjected to frequent acute scarcity of petroleum products and also save Nigeria over $7.5 billion through import substitution.

The entire project will cost the Dangote Group over $12 billion with the refinery projected to be ready by first quarter of 2019 while the fertilizer plant will be ready early 2018.

Most interestingly and importantly as stated by the presentation, the refineries has the capacity to create over 1,500 direct and over 138,000 indirect employment, with 1000 contractors, 2000 service providers, with a whooping 135, 000 new retail outlets & trucks which will also create jobs, and even enthroned 1,200 to be employees. Indeed, all these and its ability to cushion the negative effects of none availability of crude oil product in Nigerian, qualifies this project as a major ray of hope for Nigerians.

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