Dangote refinery in Lagos reportedly plans to purchase at least 24 million barrels of US crude oil over the next year as it increases its processing capabilities.
The $20 billion refinery, established by Africa s richest man Aliko Dangote, has issued a term tender to buy two million barrels per month of West Texas Intermediate Midland crude for a year starting in July, according to a report by Bloomberg.
This amounts to 24 million barrels of West Texas Intermediate Midland crude in one year.
The request for foreign oil by a refinery located in Africa’s top producing country demonstrates the significant role the facility will play in the international crude and fuel markets.
It Is set to become the largest refinery in Africa once it is fully operational.
The tender will close at 3 p.m. on May 21.
This tender illustrates the challenges faced by Nigerian crude in competing with American supplies, according to one trader dealing in West African crude.
One-third of feedstock from US market
Earlier, Nairametrics had reported that the mega refinery sources one-thirds of its feedstock from the United States, choosing more affordable oil as it increases production.
The latest report showed that one out of every three barrels of feedstock at Dangote refinery comes from the US.
Despite being one of Africa’s leading crude oil producers, Nigeria struggles to meet its Organization of Petroleum Exporting Countries (OPEC) quota and domestic supply demands.
Consequently, the Dangote Refinery has obtained up to a third of its oil from the US grade WTI Midland, according to shipping data compiled by Bloomberg.
Furthermore, Ronan Hodgson, an energy analyst at FGE, noted that this pattern is expected to continue as foreign oil remains more cost-effective than local supplies.
Hodgson also mentioned that units designed to enhance diesel quality in the oil firm are set to begin operations in the coming months.
“The refinery is already having a sizable impact on product markets even running in its most stripped back form at minimum rates,” Hogson said.
NUPRC policy may change trend
Meanwhile, Nairemetrics also reported that Nigeria Upstream Petroleum Regulatory Commission (NUPRC) has mandated all oil companies in Nigeria to supply crude to domestic refineries that are unable to procure it locally.
Producers are allowed to export crude only after meeting these domestic supply obligations.
The NUPRC will act as an intermediary between local refiners and producers when agreements on crude supply are not reached, facilitating a sales purchase agreement using a willing-buyer, willing-seller model.
This new policy could benefit the Dangote refinery by enabling it to procure crude oil from local suppliers rather than depending on imports.
Yet, the exact quantity of crude each refinery will be required to purchase remains uncertain.
Dangote may miss May target for petrol supply
Meanwhile, analyst at the Standard and Poor’s’ Global (S&P) Commodities Insights projected that the refinery will start supply of petrol in the fourth quarter of this year rather than in May being stated by the company.
- This was disclosed by Kelly Norways, an African energy expert at the S&P, in a podcast entitled “Exploring West Africa’s oil product flows in a changing refining landscape,” where its analysts shared insights on the latest trends in the energy market across Europe and West Africa.
- Nairametrics had earlier reported that the $20 billion refinery will supply petrol to marketers in May 2024, according to sources familiar with the matter.
- However, this might not be the case anymore as analysts now project that the refinery may start the supply of PMS to local markets by June.
- It Is worthy of note that Dangote has begun selling diesel and aviation jet fuel to domestic marketers in April for as low as N1,000 per liter.
