The need for US oil is a reflection of Dangote’s readiness to access less expensive supplies than it can find domestically and Nigeria’s difficulty in increasing its own crude production, which is still much below theoretical capability. It also emphasizes the refinery’s significant impact on the world’s fuel and oil commerce.
In order to increase its processing capacity, Dangote Refinery plans to purchase at least 24 million barrels of US oil over the course of the upcoming year.
The $20 billion refinery has put out a term tender for the acquisition of 2 million barrels of West Texas Intermediate Midland (WTI) crude every month for a period of 12 months beginning in July, or 24 million barrels of crude in a year, according to a report by Bloomberg.
The need for US oil is a reflection of Dangote’s readiness to access less expensive supplies than it can find domestically and Nigeria’s difficulty in increasing its own crude production, which is still much below theoretical capability. It also emphasizes the refinery’s significant impact on the world’s fuel and oil commerce.
Elitsa Georgieva, Executive Director at Citac, an energy consultancy specializing in the African downstream sector, said: “Supply of Nigerian crude is insufficient or unavailable and sometimes unreliable. WTI on the other hand, is available, with reliable supply and competitively priced.
“Buying different feed stocks also provides flexibility and optionality for the refinery, so the tender makes economic sense for Dangote,”
Nigeria has not been able to meet its Organization of Petroleum Exporting Countries (OPEC) + quota for at least a year. The nation pumped about 1.45 million barrels a day of crude and liquids in April, still far below its estimated production capacity of 2.6 million barrels a day.
Crude theft, aging oil pipelines, low investment, and divestments from oil majors operating in the country have all contributed to declining production.
To ensure enough local supply to the 650,000 barrel-a-day refinery, Nigeria’s upstream regulator, the Nigeria Upstream Petroleum Regulatory Commission (NUPRC), released new draft rules last month that will compel its oil producers to sell crude to domestic refineries. NUPRC 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.
Under the new rules, 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 Dangote refinery by enabling it to procure crude oil from local suppliers rather than depending on imports. The plant, currently running at about half capacity, is taking advantage of cheaper US oil imports for as much as a third of its feedstock. Since the start of this year, it has received at least one supertanker carrying about 2 million barrels of WTI Midland each month.
An official at Dangote declined to comment on the report, Bloomberg stated.