Based on a BusinessDay report, the World Bank in its latest Africa’s Pulse report noted that the 650,000-barrels-per-day Dangote refinery is expected to boost Nigeria’s external earnings by drastically reducing imports of fuel and contributing to the regional supply of petroleum products. Earlier this year, the African Petroleum Producers Organisation said that the Dangote refinery would reduce petroleum product imports across Africa by 36% upon commencement of operations. Since the refineries at Kaduna, Warri, and Port Harcourt with a capacity of 445,000 bpd have continued to operate below capacity due to many years of underinvestment and poor maintenance, Nigeria has had to import c.90% of the refined petroleum products consumed in Nigeria. This remains the case despite the continued talk of revamping these facilities.
Nigeria is experiencing one of its worst FX crises in history due to increasing demand for FX amidst low supply. Despite the high oil price occasioned by the Russia-Ukraine war, Nigeria has failed to benefit from it due to limited production and the maintenance of a subsidy regime, which is estimated to cost the country at least N4trn this year. High oil prices imply an increased cost of refined products and Nigeria continues to spend a huge part of its FX earnings on importation of Petroleum Motor Spirit (PMS) and other refined products due to the complete absence of local refining capacity. The country has also failed to increase its non-oil exports despite several projects introduced by the CBN, such as the FT 200 FX programme. Crude oil with decreasing production capacity continues to dominate the export earnings with a total value of N5.9trn representing 79.8% of total exports as of Q2 2022.
Dangote Group’s refinery, with a planned installed capacity of 650,000 bpd, will likely come on stream in 2023 following delays caused by the coronavirus pandemic and the need to source for more funds. It is expected to be Africa’s biggest oil refinery and the world’s biggest single-train facility upon completion. The refinery is designed to produce up to 50 million litres of gasoline and 15 million litres of diesel a day. BUA Group’s proposed 200,000bpd refinery in Akwa Ibom is also projected to be completed before 2025.
The government has also been recently promoting the establishment of modular refineries. With a total installed capacity of 650,000bpd from Dangote Refinery alone, the local refining capacity will more than offset local consumption, currently estimated at 593,000 bpd as of April 2022. These will, among other benefits, reduce the pressure on the local currency as the government will not have the need for dollars to import PMS (N4.56trn was expended on importation for Motor Spirit as of December 2021). Also, the apparent lack of transparency and incessant corruption in the administration of petrol subsidy and refineries will fizzle.