A recent Bloomberg report has revealed that the $20 billion Dangote refinery has issued a tender to buy 2 million barrels per month of West Texas Intermediate Midland (WTI) crude oil for 12 months starting in July.
This totals 24 million barrels over the year.
This decision highlights several key issues. Firstly, it reflects Nigeria’s ongoing struggle to boost its crude oil production, which remains well below its potential capacity.
Secondly, it underscores Dangote’s strategy to source cheaper and more reliable crude supplies from the US rather than relying solely on Nigerian crude. Finally, it demonstrates the significant role the refinery is set to play in the global crude and fuel trading markets.
Elitsa Georgieva, Executive Director at Citac, an energy consultancy specializing in the African downstream sector, commented on this development.
She explained, “Supply of Nigerian crude is insufficient, unavailable, and sometimes unreliable.
WTI, on the other hand, is available, with reliable supply and competitive pricing.” Georgieva further noted that purchasing different types of crude oil gives the refinery flexibility, making the tender a sensible economic decision for Dangote.
Nigeria has been unable to meet its Organization of Petroleum Exporting Countries (OPEC) + quota for over a year.
In April, the country produced about 1.45 million barrels per day of crude and liquids, which is significantly below its estimated production capacity of 2.6 million barrels per day.
Several factors contribute to this shortfall, including crude oil theft, aging oil pipelines, low investment levels, and the divestment of major international oil companies from Nigeria.
In an effort to ensure sufficient local supply for the 650,000 barrel-a-day Dangote refinery, Nigeria’s upstream regulator, the Nigeria Upstream Petroleum Regulatory Commission (NUPRC), introduced new draft rules last month.
These rules will require Nigerian oil producers to prioritize selling crude oil to domestic refineries. Oil companies in Nigeria will be compelled to supply crude to local refineries that struggle to procure it locally.
They will only be permitted to export crude after fulfilling these domestic supply obligations.
According to the new regulations, the NUPRC will mediate between local refiners and producers when they cannot reach agreements on crude supply. The commission will facilitate sales purchase agreements using a willing-buyer, willing-seller model.
This policy could benefit the Dangote refinery by enabling it to secure crude oil from local suppliers, reducing its dependence on imports. Although currently operating at about half capacity, the refinery has been importing cheaper US oil for up to a third of its feedstock needs.
Since the beginning of the year, the refinery has received at least one supertanker carrying around 2 million barrels of WTI Midland each month.
Despite the significance of this development, an official from Dangote declined to comment on the Bloomberg report.
This move by the Dangote refinery highlights the broader challenges facing Nigeria’s oil industry and the strategic decisions being made to ensure its success.
