EXPLAINER: What you should know about Dangote refinery and how it affects you

On Monday, President Muhammadu Buhari launched the Dangote Petroleum Refinery and Petrochemicals Complex, Africa’s largest petrochemical refinery and the world’s largest single-train petroleum refining facility. The refinery is said to be capable of meeting Nigeria’s daily need. Owned by Africa’s richest man, Alhaji Aliko Dangote, it is estimated to have cost N8.7 trillion ($19 billion). […]

On Monday, President Muhammadu Buhari launched the Dangote Petroleum Refinery and Petrochemicals Complex, Africa’s largest petrochemical refinery and the world’s largest single-train petroleum refining facility. The refinery is said to be capable of meeting Nigeria’s daily need.

Owned by Africa’s richest man, Alhaji Aliko Dangote, it is estimated to have cost N8.7 trillion ($19 billion). But what exactly does the Nigerian public stand to benefit — and how does it affect our lives?

In this explainer, Daily Trust highlights the benefits and states what Nigerians stand to gain from having this facility on their soil.

WHERE IS DANGOTE REFINERY LOCATED?

The refinery is located in Lekki Free Trade Zone in the Ibeju Lekki Local Government Area of Lagos, Nigeria’s commercial capital. It is about 50 kilometers from the city centre. The zone, which was conceived when President-elect Bola Tinubu governed Lagos, was brought about by a collaboration of the Chinese and Nigerian governments.

The refinery covers a land area of approximately 2,635 hectares, which is about six times the size of Victoria Island, an upscale area of Lagos.

WHAT’S ITS CAPACITY?

The refinery has the capacity to process 650,000 barrels of crude oil (plus 900,000 tonnes of polypropylene) per day in a single train. It is said to have the best plants and equipment and the latest technologies across the world.

It will produce Premium Motor Spirit (PMS), otherwise known as petrol, Automotive Gas Oil (Diesel), Aviation Turbine Kerosine (ATK); that will meet Nigeria’s demand and also those of other African countries.

HAS IT STARTED OPERATION?

At the launch of the refinery, which had not less than five Presidents and Heads of State in attendance, Africa’s richest man said the Dangote Refinery will supply its first tranche of petroleum products to the market before the end of July.

WHAT ARE THE BENEFITS FOR NIGERIA?

There are quite a lot of economic benefits for Nigeria in this venture. According to the Director-General of the Lagos Chamber of Commerce and Industry (LCCI), Dr Chinyere Almona, the refinery would save and generate foreign exchange, create jobs, positively affect the value of the naira, broaden prosperity for the downstream sector and provide growth opportunities for businesses.

In an interview with a special edition of London-based The Economists Magazine, Africa’s richest man said, the refinery’s production of critical products like naphtha and polypropylene would stimulate the development of other industries, such as cosmetics, plastics, and textiles. Refineries on this scale could save Nigeria up to $10 billion in foreign exchange and generate approximately $10 billion from exports.”

Nigeria has been battling with low quantity of oil production primarily due to reduced quota allocation from the Organization of Oil Producing Countries (OPEC) as well as the unending oil theft/bunkering going on in the creeks of the Niger Delta region.

Although the Nigerian National Petroleum Company Limited (NNPCL) recently launched an onslaught on oil thieves and boost local production, more needs to be done to improve the production capacity of the country to at least the 2.3 million barrels per day it usually produces.

Today production is said to be fluctuating between 1.2 to 1.8 million barrels per day.
However, the four refineries of the country situated in Rivers, Delta and Kaduna state have not been functional to be able to refine a reasonable amount of petrol for the country.

But with a capacity to refine 650,000 barrels per day, the Dangote refinery is expected to bring succour to Nigeria’s local refining capacity.

The outlet on its website said the refinery would meet 100 per cent of the Nigeria’s requirement of all refined products (Gasoline, 53 million litres per day; Diesel, 34 litres per day; Kerosene, 10 million litres per day and Aviation Jet, 2 million litres per day), and also have surplus of each of these products for export. and also have a surplus of each of these products for export.

In addition, the Dangote Petroleum Refinery is expected to boost Nigeria’s crude market as it is designed to process crude from Nigeria and other countries.

CONSERVING FOREX

One of the reasons why Nigeria’s local currency has weakened over the years is inability of the nation to activate its production capacity so as to earn foreign exchange.

Similarly, since the country imports majority of what it consumes including, petroleum products, it becomes even more difficult to conserve foreign exchange.

In a report by Chapel Hill Denham, the report noted that Dangote refinery is expected to generate up to 66 million litres of PMS, ATK, AGO, HHK, slurry, and other petroleum products with a capability to refine 650 kb/d of crude.

On the occasion of the launch, Dangote said the refinery will also make vital raw materials available for a wide range of manufacturers in the plastic, pharmaceutical, food and beverages, packaging and construction companies. That means some firms that import these items will now source them locally.

WHAT DO NIGERIANS STAND TO GAIN?

The refinery operation will generate massive job opportunities. Nigeria’s unemployment rate stands at 33 per cent according to figures from the National Bureau of Statistics (NBS). The country’s youthful population which forms majority of the unemployment bracket will have a glimmer of hope especially those with specialty in the oil and gas sector.

The Dangote refinery stated that the facility has the capacity of generating over 100,000 indirect employment at retail outlets, 26,716 filling stations and 129 depots in Nigeria. It added that it will ease availability of products by helping to open up service stations, and 16,000 trucks for transport that would create additional jobs.

Already, the refinery has created over 30,000 jobs for people currently working at the project site, through various contractors.

I HAVE A JOB, SO WHAT?

Even if you are employed, there are still other benefits from this project. For instance, most residents of Abuja spent virtually the whole of 2022 in fuel queues.

Various factors were adduced to this, among which is the non-availability of the products and also the importation of bad and contaminated fuel in the first quarter of the year. The engines of different vehicles got bad while multiple generators packed up. In a country battling regular power supply, the importance of generators cannot be overemphasized. With the coming of the refinery, fuel scarcity and contamination will largely be addressed.

WILL THE PUMP PRICE OF PETROL DROP?

According to the Group Chief Executive Officer of Nigerian National Petroleum Company Limited (NNPCL), Mele Kyari, in-country refining of crude would compress the logistics cost around petrol supply by about N17 per litre.
This could save Nigeria over 1.02bn daily as Kyari who spoke in an interview earlier in the year, revealed that NNPCL supplies over 60 million litres of petrol daily to keep Nigeria wet with the product.
So while it is very unlikely that the start of operation at the refinery would lead to a massive reduction in the price of petrol, it will certainly reduce freight costs and enhance supply security.

WILL IT END SUBSIDY?

In 2022 alone, Nigeria has spent trillions to subsidze petrol. The subsidy regime alone has been fraught with corruption allegations, as industry players believe it is time for subsidy to go.

However, the Dangote refinery is expected to bridge the subsidy gap in the sense that if the petroleum sector is fully deregulated, the products will be at competitive prices

This is because the cost of freight, carrying the crude and refining it and bringing it back as refined products will be addressed, thereby adding more economy value to the country.

But the chairman of Coronation Capital, Aigboje Aig-Imoukhuede, at a recent meeting in Abuja, while noting that the decision to have fuel subsidy in Nigeria is not grounded in any economic thinking but purely political decision, stressed that Dangote Refinery would not necessarily provide solution to the subsidy regime as the facility will operate as an international entity.

“From an economic standpoint you now have the ability to refine 650,000 barrels of crude per day in Nigeria once that refinery is commissioned. On whether or not it is going to mean that you can remove fuel subsidy, the first question should be: Will Nigeria give Dangote subsidised crude oil? At what price will Nigeria give Dangote crude oil?

“If you want to continue with fuel subsidy, the only way the Dangote Refinery is going to be able to generate fuel at sub-international market price is if you give the company subsidised crude oil. Now, Dangote is not asking for subsidised crude oil, nor are Nigerians asking for subsidised crude oil,” the former chief executive officer of Access Bank Plc said.

This Explainer is produced in partnership with the Centre for Democracy and Development (CDD)