Nigeria's new Dangote mega refinery near Lagos is seeking to buy millions of barrels of US crude over the next year as it ramps up processing rates, a sign of the challenges that Africa's largest producer faces in lifting its own oil output.
The plant, built by Africa's richest man Aliko Dangote, issued a so-called term tender for the purchase of 2 million barrels a month of West Texas Intermediate (WTI) Midland crude for 12 months starting in July, according to a document seen by Bloomberg. The tender closes on May 21, it said.
The call for US oil highlights how influential the plant will be in global crude and fuel trading. It also reflects Nigeria's struggle to lift its own crude production, which remains well below theoretical capacity, as well as Dangote's willingness to tap cheaper supplies than it can find at home.
"Supply of Nigerian crude is insufficient or unavailable and sometimes unreliable," said Elitsa Georgieva, Executive Director at Citac, an energy consultancy specialising in the African downstream sector.
"WTI on the other hand, is available, with reliable supply and competitively priced," Georgieva added.
Buying different feedstock also provides flexibility and optionality for the refinery, so the tender makes economic sense for Dangote, Georgieva said. Nigeria has been unable to meet its 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 West African nation have all contributed to declining production.
In spite of various assurances by the federal government and the Nigerian National Petroleum Company Limited (NNPC) of meeting the country's Organisation of Petroleum Exporting Countries (OPEC) quota, Nigeria recorded an estimated 30 million barrels underproduction in the first four months of 2024.
A recent THISDAY analysis of the latest data from the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) indicated that whereas Nigeria was meant to produce a revised 1.58 million barrels per day during the period, on the average, output was 1.32 million bpd.
In April, the NUPRC data showed that Nigeria recorded a volume of 1.28 million bpd, compared to 1.23 million bpd in March. It further showed production of 1.32 million bpd in February and 1.42 million bpd in January this year.
In all, excluding condensates which are outside OPEC's computations, the country managed to drill 44.2 million barrels in January, 38.3 million bpd in February, 38.1 million barrels in March and 38.4 million barrels in April.
The data further showed that whereas Nigeria was supposed to record an estimated 190 million barrels in the four months spanning January to April, it could only drill 160 million barrels for the period, indicating a 17.1 per cent deficit.
In November 2023, OPEC+ handed Nigeria a revised 1.58 million bpd oil output target in 2024, lower than Africa's largest oil producer had hoped for, because the country failed to consistently meet its 1.74 million bpd production target.
Despite massive spending to curb insecurity in the Niger Delta by the NNPC and the federal government, oil theft, assets vandalism and outright sabotage are rampant in the area where Nigeria extracts its oil from.
The country currently has a multi-billion naira contract with local security groups in the region aside the huge spending on the official security agencies deployed to curb the menace in the area.
Nigeria's projected oil production in its budget this year is about 1.78 million bpd, with a benchmark price of $77.96 per barrel. It's unclear where the federal intends to get funding to close the huge gap between projected and actual production.
To ensure enough local supply to the giant 650,000 barrel-a-day Dangote refinery, Nigeria's upstream regulators released new draft rules last month that will compel its oil producers to sell crude to domestic refineries, the Bloomberg report said.
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, Bloomberg said.
Meanwhile, in a major milestone, the world's largest single-train petroleum refinery, the 650,000 barrels per day Dangote Refinery has commenced export of its finished products to the European market.
For the first time, a cargo of Low- Sulphur Straight Run Fuel Oil (LSSR) produced at the Lekki Free Trade Zone-based facility has reached European market, thus expanding the company's opportunity for revenue
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The 90,000 tons cargo was loaded at Dangote's terminal in Lekki on April 25 and discharged in Rotterdam on May 13, Argus Media quoted data from trade analytics firm, Kpler.
The cargo will likely be used as a blendstock to produce very-low sulphur fuel oil (VLSFO), market participants said.
Roughly 72 per cent of the fuel oil exported from Dangote has been delivered to the US since the refinery offered its first LSSR export tender mid-February. A total of just under 620,000 tons has been delivered so far.
Another LSSR shipment of 83,400 tons departed the refinery on May 7, another trade analytics firm, Vortexa stated.
It is scheduled to arrive in France on May 22, but market participants say this is unlikely to be the cargo's final destination.
The LSSR price assessments on a fob Amsterdam-Rotterdam-Antwerp (ARA) basis have stayed at a $5/bl premium to front-month Ice Brent crude futures this week, narrowing from an 18-month high of $7.50/bl in mid-April.
Maintenance work that began in the first quarter affected fluid catalytic cracking (FCC) units at some refineries. The FCCs take LSSR and low-sulphur vacuum gasoil to increase gasoline yields.
