The oil industry in Nigeria is gripped by anticipation of positive gains as the Nigerian National Petroleum Corporation (NNPC) contemplates acquiring 20 per cent stake in the Dangote Refinery.
The soon-to-be-commissioned Dangote refinery is an integrated refinery and petrochemical project reputed to be Africa’s biggest oil refinery and on completion, the world’s biggest single-train facility of its kind. The $15 billion facility with a 650,000 barrel refining capacity is expected to come on stream early next year and there is, justifiably so, measured excitement about its potential to be a solution to the instability in the downstream sector of the oil industry. It is calculated to be able to meet 100 per cent of Nigeria’s refined petroleum product requirement and even have a surplus for export and will generate 9,500 direct and 25,000 indirect jobs.
It is designed to produce up to 50 million litres of petrol and 15 million litres of diesel a day, roughly 10.4 million tonnes of petrol, 4.6 million tonnes of diesel, and four million tonnes of jet fuel per year, in addition to having a fertiliser plant which will utilise the refinery by-products as raw materials as well as a petro-chemical plant.
This huge project is attracting the interest of investors, both local and foreign, who want to be part of its expected success story. NNPC is taking the lead in the project following in the footsteps of successful National Oil Companies (NOCs) elsewhere in acquiring stakes in refineries across the world. Beside the NNPC proposal, three other oil firms have approached Dangote Industries to acquire a stake in the refinery. The firms from Western and Middle East countries are involved in crude production and trading and are looking to secure crude supply agreements, a similar objective being pursued by the NNPC.
If the NNPC equity participation sails through, it is expected that a significant crude oil market capable of generating annual revenue of about $11 billion would be unlocked. The profitable examples of the Federal Government’s stake holding in the Nigerian Liquified Natural Gas (NLNG) and Indorama Eleme Petrochemicals, should inspire a similar move with Dangote Refinery. It’s a far more sensible and viable option, in our view, than the confused attempt to repair the refineries.
In embarking on this investment trajectory, the NNPC is anticipating the provisions of the Petroleum Industry Bill (PIB) which when passed, will enable the conglomerate to transit from a parastatal to a private company owned by Nigerians. Then, the new NNPC will go to the capital market to source for capital to fund its investments and will have to deliver adequate returns to sustain its operations.
In the opinion of this newspaper, this proactive thinking on the part of NNPC management to get in and acquire a stake in a very attractive investment opportunity like the Dangote refinery, is laudable.
Interestingly, in our view, NNPC is following on the initiative of other oil conglomerates elsewhere like Saudi Arabia’s Aramco which has been buying up stakes in refineries outside its shores as part of its plan to boost its refining capacity. Also, Rosneft (an oil company controlled by the Russian Government), acquired a sizeable stake in India’s Essar refinery.
Speculations around the oil industry indicate that these acquisitions of refining capacity across the world by National Oil Companies (NOCs) is strategic with the shift in the structure of the oil industry in 2014 from supply tightness to supply surplus. This was due to the boom in the production of shale oil in the United States of America. It is increasingly vital, in the opinion of industry experts, for oil producers to have a guaranteed buyer for their crude and this is where the refineries come in.
In periods of stress, oil producers can be left with stranded cargoes looking for buyers as happened in 2020 in the wake of the COVID-19 pandemic. The industry is facing further structural shifts as the world embarks on an energy transition away from oil in order to reduce carbon emissions in line with climate change protocols.
In the case of the NNPC, the interest in Dangote refinery is also in conformity with government’s directive stipulating the mandatory participation of the corporation in any privately-owned refinery that exceeds 50,000 barrels per day capacity. The new vision is driven by the commitment to grow domestic refining capacity, improve petroleum products supply from local refineries and become a net exporter of petroleum products.
To finance this acquisition, the NNPC is already having discussions with African Export-Import Bank (Afreximbank) on the possibility of accessing a $2.5 billion facility. Also, one of NNPC’s divisions, the Greenfield Refining Projects Division (GRPD) is handling the negotiations with Dangote Refinery. NNPC has identified at least six refinery projects in which it intends to seek equity participation, five of them are at the development stage with the Dangote Refinery being the largest of them.
It is pertinent to emphasise that Dangote refinery, in entering these deals, is not looking for equity. It is a policy thrust designed to enable the company to secure crude from the market.