Commencement of Dangote Refinery's Production Would Improve Nigeria's Current Account Balance

Friday, February 12, 2021 / 3:16PM / by CSL Research / Header Image Credit: The Sun News

According to news reports, theInternational Monetary Fund (IMF), in its latest report on Nigeria's economy isprojecting that Nigeria's Dangote Refinery would boost the country'seconomy when it commences production by 2022 as it would significantly improvethe country's current account balance. Beyond its ability to meet the full demandfor domestic consumption of refined petroleum products-which are almost allimported at present, the refinery also has the potential to catalyze moredomestic crude oil production and boost GDP growth since crude oil for localrefining is not subject to OPEC quota.

About 80% of the refinedpetroleum products consumed in Nigeria are imported and this implies huge FXrequirements with its effect on the current account balance. Nigeria'srefineries have long operated at low levels due to many years of underinvestmentand poor maintenance. The country's external position worsened in 2020, ascontinued reliance on oil earnings and hot money has left the countryvulnerable to shocks. Current account deficit is projected at 3.4% of the GDPin 2020. In 2021, while we expect current account deficit to narrow, supportedby a gradual recovery in global economic activities and firming crude oilprices, we still estimate a current account gap at USD10.80bn (2.31% of theGDP).

DangoteGroup's refinery, with a planned installed capacity of 650,000 bpd is scheduledto come on stream in 2022 following delays caused by the corona virus pandemic.The refinery is also built with a 5-year plan to double capacity. It isexpected to be the Africa's biggest oil refinery and the world's biggestsingle-train facility, upon completion. The refinery is designed to produce upto 50 million litres of gasoline and 15 million litres of diesel a day.Nigeria's daily demand for refined crude oil was estimated to be around442,000bpd as of 2018, implying that Dangote Refinery alone can more than meetlocal demand and also earn FX for the country through exports.

Given thescale of demand for petroleum products in both Nigeria and the entire ECOWASregion as a whole, the country stands to gain significant export revenues if itincreases downstream production. The government has also been recentlypromoting the establishment of modular refineries. A small, privately ownedrefinery located in Ogbele, Ahoada, in the Rivers state expanded its refiningcapacity to 6,000 b/d in January 2020 according to EIA reports. The expansionscompleted at the refinery will allow it to produce and market other fuels suchas heavy residual fuel oil, marine diesel, and kerosene.