Dangote refinery to finally commence operation in October with 370,000 b/d

The long-awaited Dangote refinery heralded as a game-changer for Nigeria and sub-Saharan Africa, will receive its initial shipment of crude in the next two weeks.

From October onwards, it is set to commence the production of approximately 370,000 barrels per day (b/d) of diesel and jet fuel, Dangote Group Executive Director Devakumar Edwin, revealed.

The director, who is overseeing the $19.5 billion refinery, outlined a detailed production timeline, shed light on crude and product flows and laid out a litany of complications and delays to the project since it was first mooted in 2013.

“Right now, I’m ready to receive crude,” said Edwin, who previously ran Dangote Cement. “We are just waiting for the first vessel. And so as soon as it comes in, we can start,” he said during an exclusive interview with S&P Global Commodity Insights.

At its full planned capacity of 650,000 b/d, the refinery would make Nigeria self-sufficient in fuels and leave plenty more for export.

Nigeria is Africa’s largest oil producer, but it imports refined petrol despite having four refineries that have become dysfunctional. Oil explorers in the country export crude to foreign refiners and import it back to the country for sale to downstream players, eroding its foreign exchange reserves.

Dangote’s refinery is poised to be a game changer. However, due to persistent delays and cost overruns, doubts emerged about whether Aliko Dangote, Africa’s wealthiest individual, would ever complete the project.

In May, Business Insider reported that Nigeria’s goal to refine its oil is set to become a reality in 2 weeks with the commissioning of the project. Four months later, the world’s largest single-train refinery is yet to commence operation.

Meanwhile, fuel prices have skyrocketed in Nigeria after President Bola Tinubu scrapped the long-standing fuel subsidy that has kept oil prices at affordable prices for citizens in May.

According to Edwin, the refinery, officially inaugurated by outgoing President Muhammadu Buhari in May, will have a phased launch. It will start with the production of 350,000-370,000 barrels per day (b/d) of diesel and jet fuel by October, when the crude distillation unit, sulfur block and hydrogen plant should be online.

Subsequently, on November 30th, the refinery will ramp up to 650,000 barrels per day (b/d), with approximately half of the production dedicated to gasoline, a critical component of Nigeria’s fuel demand.

S&P Global analysts have projected that the refinery may not achieve its full operating capacity until mid-2025, with further delays still possible.

Still, forecasts from the capital market company suggest Nigerian gasoline production will exceed imports until the 2040s due to the refinery.

Although the refinery was designed to process light sweet Nigerian crude, state-owned Nigerian National Petroleum Corp, a shareholder in the project, can not supply the refinery until November, Edwin said. So, Dangote is buying oil from trading houses. Vitol and Trafigura recently carried out inspections of the plant, he explained.

“At the last minute, [NNPC] said, ‘We have actually committed our crude on a forward basis to someone else’, so immediately they don’t have the crude. This is a temporary issue, and the refinery should run on exclusively Nigerian crude by November,” he said.

He also emphasised that Nigerian oil will be purchased in US dollars, not naira, as some reports had suggested because it is located in a free zone on the outskirts of Lagos. However, due to its equity stake, NNPC will supply some crude at knockdown prices.

Edwin said the scale of the refinery meant being “solely dependent on Nigerian crude would not be advisable”, meaning the refinery can process most African crudes – apart from heavy Angolan grades – as well as Middle Eastern Arab Light and even US light tight oil.

“We can take even some of the Russian grades… if the global system opens up to allow us to receive them,” he said.

The root of the delay

While discussions were initiated as early as 2013, Edwin said Dangote only began physical construction five years ago following a string of delays and mishaps. “The first plot of land in a free zone in Ogun state was ditched following potentially “disastrous” political interference,” he said.

Following the acquisition of 33 square kilometres of land in Lagos state for $100 million, the team discovered that over 70% of the plot was swampy terrain and spent a year clearing it.

Then, faced with the possibility of rising seawater claiming the land in the next 70 years, Dangote spent $50 million elevating the land by 1.5 meters. “We had to hire the world’s largest dredger, second largest dredger, and third largest dredger to… pump in about 65 million cubic meters of sand.”

The company also had to construct a port capable of receiving extremely heavy assembled equipment because it lacked the infrastructure to assemble equipment in Nigeria, import 200,000 pikes to prevent sinking, buy 320 cranes and invest in a 10 million ton per year granite quarry.

Ultimately, delays proved a blessing, Edwin said, because “we had time to increase the capacity of the refinery [and] improve efficiencies in the design.” What will be the world’s largest single-train refinery began life as a 300,000 b/d project, Edwin said.