Nigeria is about unlocking significant crude oil market capable of generating annual revenue of about $11 billion, with equity purchase proposal by the Nigerian National Petroleum Corporation, NNPC, in the 650,000 barrels a day Dangote refinery.
The proposal is in conformity with government directive stipulating the mandatory participation of the Corporation in any privately-owned refinery that exceeds 50,000 barrels per day capacity.
Dangote group which is excited by the proposal said the NNPC is following in the footsteps of Saudi Aramco.
According to the group, NNPC is following in the footsteps of successful National Oil Companies (NOCs) in acquiring stakes in refineries across the world.
Saudi Aramco has been buying up stakes in refineries outside its shores as part of its plan to boost its refining capacity to up to 10 million barrels a day, b/d in the long term from around 5 million now.
The company currently owns and has stakes in four refineries abroad with a total refining capacity exceeding 2 million b/d.
Nigeria is relying on the Dangote Group’s facility, which is expected to be completed possibly next year, to significantly reduce the country’s dependence on imported fuel products.
The refinery is part of a $15billion petrochemical complex that will also house a gas processor and the world’s largest ammonia plant.
Industry sources argues that with an acquisition of a 20 per cent stake in the Dangote refinery, NNPC is embarking on a similar journey, like Aramco.
LEADERSHIP, reports that in 2019, Saudi Aramco started talks to acquire a 20 per cent stake in Mukesh Ambani group’s oil refining unit (Reliance). Reliance has a refining capacity of 1.2 million barrels per day. The deal was delayed due to the fallout of the pandemic but talks have recently restarted.
Also, in 2017, Rosneft (an oil company controlled by the Russian Government), acquired a 49 per cent stake in India’s Essar refinery. The Essar refinery has a capacity of 400 thousand barrels per day.
Justifying the NNPC’s stake purchase drive, sources close to the industry, narrated that the structure of the oil industry shifted in 2014, from supply tightness to supply surplus.
They traced this to the boom in the production of shale oil in the US.
The industry is facing further structural shifts as the world embarks on an energy transition away from oil in order to reduce carbon emissions and with this demand shift, it is increasingly vital 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. With a refining capacity of 10 million barrels across the world, Saudi Aramco is assured of a buyer for their crude oil production.
Another justification according to our sources is that when the Petroleum Industry Bill, PIB, is eventually passed, NNPC will transition from a parastatal to a private company owned by Nigerians.
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.
It is therefore forward thinking from the NNPC management to get in early and acquire a stake in a very attractive investment opportunity like the Dangote refinery.
LEADERSHIP can also, report that the acquisitions will not undercut the NNPC’s commitment to rehabilitate its own four refineries that are currently shut down and in need of repairs.
In March, the federal government approved $1.5 billion to rejuvenate two NNPC-owned facilities in Port Harcourt that have the capacity to refine 210,000 barrels of crude per day, while the privately held BUA Group recently announced plans to build a 200,000 barrels-per-day plant.
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.
Beside the NNPC proposal, three other oil firms have approached Dangote Industries to acquire a stake in Dangote oil refinery.
According to Devakumar Edwin, group executive director, of the refinery, the firms from Western and Middle East countries and involved in trading and crude production and are looking to secure crude supply agreements, a similar objective being pursued by the NNPC.
“They are seeking to have 20 per cent minority stake in Dangote refinery as part of collaboration, so that they can sell their crude,” Edwin told Reuters.
He said Dangote refinery is not looking for equity and the company wants to be able to secure crude from the market.
Edwin said the refinery is scheduled for mechanical completion this year with commissioning by January 2022.
The company has held talks with firms including Vitol and Trafigura over the supply of crude and lifting of petroleum products for sale abroad.
The Dangote refinery has the largest Single Train Petroleum Refinery in the World with 650,000 barrels-per day that is more than enough to meet Nigeria’s petrol needs and for export.
The Dangote Petroleum Refinery can meet 100 per cent of the Nigerian requirement of all refined products which include 57 million litres of petrol per day, 27 litres per day of diesel, Kerosene, 11 million litres per day and Aviation Jet, 9 million litres per day) and also have surplus of each of these products for export.
The project is estimated to cost $12 billion and creates market for $11 billion per annum of Nigerian Crude, and designed for 100 per cent Nigerian Crude with flexibility to process other crudes.