By Chinelo Obogo
Chairman of Dangote Group, Aliko Dangote, is working to pool billions of dollars to ensure the steady supply of crude oil to his $20 billion oil refinery in Lagos, one of the largest in the world.
To make this happen, Dangote Industries is in discussions with banks, development financiers, oil traders and industry players to secure the funds needed for this critical supply.
Financial Times reported that the refinery, once at full capacity, will process 650,000 barrels of crude oil per day, but Dangote needs reliable access to crude to reach that goal. The company has already sourced crude from markets like the U.S. and Brazil and is in talks with African oil producers, including Libya and Angola, to ensure the refinery’s smooth operation. According to Devakumar Edwin, a senior Dangote executive, these ongoing discussions are essential for meeting the refinery’s ambitious production targets.
Dangote sees the refinery as a major solution to Nigeria’s long-standing reliance on imported refined petroleum products. With production already reaching 420,000 barrels per day, Dangote hopes to hit full capacity by mid-2025, although earlier deadlines have been delayed. Once at full scale, the refinery would reduce Nigeria’s dependence on fuel imports, which currently cost the nation billions annually.
However, securing the necessary crude presents a financial challenge. Experts estimate that Dangote needs to invest around $2 billion every 90 days to guarantee a minimum supply of 300,000 barrels per day.
The cost has raised concerns among investors, particularly given the recent devaluation of Nigeria’s currency, the naira. Some believe that the refinery may never achieve profitability in real terms due to the combination of high construction costs and the unstable exchange rate.
To mitigate the risk, Dangote has met with President Bola Tinubu and the Group Chief Executive Officer of the Nigerian National Petroleum Company Limited (NNPC Ltd), Mr Mele Kyari, to discuss ways to secure a steady supply of crude. NNPC has agreed to supply 365,000 barrels per day of crude to the refinery, with payments to be made in naira, a move aimed at reducing the impact of currency devaluation. However, questions remain about NNPC’s ability to fulfill these commitments, given its existing forward oil contracts.
NNPC holds a 7.2% stake in the refinery, which was reduced from an original 20% after it failed to meet financial obligations related to the project.
Despite this, NNPC is expected to play a key role in supplying the refinery with crude oil, though Dangote will need additional sources to meet the refinery’s full capacity.
The Africa Finance Corporation (AFC), which has already invested in the project, is working with Dangote to raise the necessary funds for crude procurement. The AFC was involved in earlier financing rounds for the refinery and continues to support its expansion.
Once fully operational, the refinery will meet Nigeria’s entire petrol demand, which stands at approximately 30 million to 35 million liters daily. Some critics have raised concerns about Dangote’s potential to dominate the market, particularly given his dominant position in the cement sector. Refineries profit from the difference between crude oil costs and refined product prices, and Dangote’s control over the nation’s refining capacity could spark concerns about market competition and pricing.
Despite the challenges, Dangote’s refinery offers significant potential for Nigeria. If successful, it could eliminate the country’s dependence on fuel imports, reduce costs, create jobs, and drive economic growth. But with billions of dollars on the line, securing reliable crude supplies and overcoming financial hurdles will be key to the refinery’s long-term success. The stakes are high, and only time will reveal whether Dangote’s ambitious vision can be fully realised.