Dangote Refinery Getting a Third of Its Crude from US, Set to Shake West African Supply Market

The 650,000 barrels per day Dangote Crude Oil Refinery near Lagos is getting at least a third of its crude oil supply from the United States, underscoring the  cheapness of US oil compared to other producing countries’.

A report by Bloomberg said on Thursday that Nigeria’s new mega Dangote oil refinery is slowly grinding into gear, with analysts and traders watching its ramp up closely to try to understand when it will start pouring petrol into the market.

“The 650,000 barrel-a-day Dangote plant outside Lagos is taking advantage of cheaper US oil imports for as much as a third of its feedstock as it starts up,” the report added.

According to Bloomberg, Dangote has been shipping products in recent weeks while readying two units to enable petrol output that will deliver a long-promised transformation of the fuel market both in Nigeria and the region, according to analysts.

“Dangote is going to influence Atlantic Basin gasoline markets this summer and for the rest of the year,” said Alan Gelder, consultancy Wood Mackenzie’s Vice-President of Refining, Chemicals and Oil Markets.

“When the Residue Fluid Catalytic Cracking (RFCC) comes online, that’ll really shake things up because it alters the West African gasoline (petrol) supply balance,” he said, referring to the unit that upgrades heavier products.

The refinery is running at about 300,000 barrels a day, nearly half its nameplate capacity, according to the average estimate of analysts at WoodMac, FGE and Citac. The complex has started shipping jet fuel, diesel and naphtha as it widens to a full slate of products. 

Wood Mackenzie expects to see the petrol-focused units to be online from June, while other analysts expect the RFCC to take until the end of the year. Dangote Industries said earlier this month that petrol deliveries will start in May. A company spokesperson didn’t immediately respond to questions.

“The refinery is already having a sizable impact on product markets even running in its most stripped back form at minimum rates,” said Ronan Hodgson, an energy analyst at FGE. Units that boost diesel quality will also start up in the coming months.

As much as a third of the oil shipped into the giant refinery so far has been US grade WTI Midland, according to shipping information compiled by Bloomberg. That’s likely to continue as long as the foreign oil undercuts the price of local supplies, Hodgson said.

Dangote could be about to change that. 

Nigeria released new rules earlier this week that will compel its oil producers to sell crude to domestic refineries in a bid to reverse the country’s reliance on imported refined products. It’s not yet clear how much each refinery will need to take.

Earlier in January, it was reported that the $19 billion giant new oil refinery, the largest in Africa, was set set to import crude from the US, a sign of how competitive American barrels had become in the global market.

Trafigura Group sold 2 million barrels of WTI Midland to Dangote refinery for end-February delivery,  the first time that the giant refinery had purchased non-Nigerian crude, traders said.

Booming US oil supply over the past decade or so has transformed the global market, reaching as far afield as Asia. Nigeria’s economy is mostly dependent on petroleum exports.

The new refinery, owned by Aliko Dangote, Africa’s richest person, is also sourcing domestic crude under a supply deal with the trading arm of the state company Nigerian National Petroleum Company Limited (NNPC).

The first cargo that arrived at the plant in December last year was Nigeria’s Agbami crude, sold by a trading unit of Shell Plc. This was followed by more Nigerian barrels including the nation’s Amenam, Bonny Light and CJ Blend streams.

As well as processing domestic feedstock, the new giant plant is equipped to run other African crudes as well as supply from further afield including the US and Saudi Arabia, Dangote Group said earlier.

West Texas Intermediate Midland barrels tend to be cheaper than grades like Nigeria’s, which are priced relative to the North Sea grade Brent.

Emmanuel Addeh

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