Dangote Refinery Clarifies Crude Supply Allegations, Makes Waves In Oil Markets

Dangote Refinery has addressed recent media reports suggesting that it has retracted earlier claims by acknowledging the Nigerian National Petroleum Corporation (NNPC) supplied 60% of the 50 million barrels of crude oil lifted by the refinery.

The company clarified that it has never accused the NNPC of failing to supply crude but remains concerned about the Nigerian Upstream Petroleum Regulatory Commission’s (NUPRC) reluctance to enforce the domestic crude supply obligations.

In a statement released on Friday, the Dangote Refinery emphasized that its primary issue lies with the NUPRC’s inability to ensure the refinery receives its full crude oil requirement from the NNPC and International Oil Companies (IOCs). The refinery requires 15 cargoes of crude oil for September 2024, of which the NNPC has allocated only six.

“Despite our repeated appeals to the NUPRC, we have been unable to secure the remaining cargoes necessary for our operations,” the statement read. The refinery’s efforts to procure crude oil from IOCs operating in Nigeria have been unsuccessful, with the companies either redirecting the refinery to their international trading arms or indicating that their cargoes are already committed elsewhere.

As a result, the Dangote Refinery has been forced to purchase the same Nigerian crude oil from international traders at a significant premium, adding an additional $3-$4 per barrel, which translates to $3-$4 million per cargo. This additional cost strains the refinery’s operations and underscores the challenges of securing adequate domestic crude supplies.

“We maintain that we are unable to secure our full crude requirement from domestic production sources,” the refinery reiterated. The company called on the NUPRC to fully enforce the domestic crude supply obligations as mandated by the Petroleum Industry Act (PIA), which was enacted to regulate and enhance the transparency and efficiency of the oil and gas sector in Nigeria.

The Dangote Refinery, one of the largest industrial projects in Africa, plays a crucial role in reducing Nigeria’s dependence on imported refined petroleum products. Ensuring a steady supply of domestic crude oil is essential for the refinery to operate at full capacity and contribute to the nation’s energy security and economic growth.

Meanwhile, the Refinery is set to exert significant pressure on Europe’s oil industry, particularly in Northwest Europe (NWE), according to the Organization of Petroleum Exporting Countries (OPEC). In its June 2024 Oil Market Report, OPEC identified Dangote Refinery as a major new supplier of diesel and jet fuel, a development expected to disrupt Europe’s oil and gas market dynamics and positively impact the Nigerian economy.

Since beginning operations in January 2024, the $20 billion Dangote Refinery has already begun to reshape global crude flows, with trading and ship tracking data showing its growing influence. The refinery’s rapid scaling to 400,000 barrels per day (bpd) in its first six months has allowed it to supply a substantial portion of its diesel, jet fuel, naphtha, and fuel oil to both domestic and international markets, with 90% of its jet fuel and diesel exports targeting Europe.

OPEC’s report highlights the potential for increased production from the Dangote Refinery to put downward pressure on NWE gasoil prices. This impact is further compounded by strong flows from the Middle East and new supplies from Mexico’s Olmeca refinery. Europe, which has relied heavily on imports from Asia and the U.S. following the EU’s ban on Russian diesel, now faces competition from these new entrants.

The refinery’s exports are already making waves, with British Petroleum (BP) securing its first jet fuel cargo from Dangote for delivery to Rotterdam. The refinery’s focus on light, sweet crude, including Nigeria’s Bonny Light and the U.S. WTI Midland, has led to significant shifts in crude flows. These changes are expected to tighten the light, sweet crude market globally, as Dangote continues to expand its operations and sources of feedstock.

Despite the challenges, the Dangote Refinery is poised to become a key player in the global oil market. Aliko Dangote, President of Dangote Group, emphasized the refinery’s commitment to processing Nigerian crude to add value within the country. As the refinery reaches its full capacity of 650,000 bpd, it is expected to further influence global oil prices and trade, particularly in Europe, where it is rapidly becoming a major supplier.