Daily Update: Despite Multiple Delays, the Dangote Refinery is Vital for Nigeria
Today is Wednesday, January 24, 2024, and here’s your curated selection of essential intelligence on financial markets and the global economy from S&P Global. Subscribe to be notified of each new Daily Update.
Lagos, Nigeria, meaning “lakes” in Portuguese, got its name from European traders. Unfortunately, Lagos is a misnomer since its supposed lakes are a network of saltwater lagoons connected via channels with the Atlantic Ocean. One of the largest of these lagoons, Lekki, has gained a reputation for being one of the most expensive places to live in Lagos due to its many beaches. However, the Lekki peninsula between the lagoon and the ocean is important to the Nigerian economy for a very different reason: the massive Dangote oil refinery and deep-sea port.
Nigeria is Africa's top oil producer, but the country is forced to export almost all its crude because state-owned refineries have been shut down for repairs. The Dangote refinery, with a capacity of 650,000 b/d, should help to end Nigeria’s dependence on the cycle of crude exports and gasoline imports. The Dangote crude distillation unit was designed to process 12 crudes simultaneously and is optimized for Nigerian crude grades.
Aliko Dangote, Africa’s richest man, announced plans for the Dangote refinery in 2013. The original production cost was projected to be $9 billion, but the project ended up costing over $19 billion and suffering repeated delays. On May 22, 2023, former Nigerian President Muhammadu Buhari inaugurated the refinery. Despite the launch, the refinery did not produce any oil products due to a lack of domestic crude feedstock. Finally, on Dec. 7, 2023, a crude oil tanker called OTIS unloaded 950,000 barrels of Nigerian Agbami crude at Dangote's offshore crude receiving terminal. In the same month, privately owned Nigerian National Petroleum, which owns a 20% stake in the refinery, agreed to supply 6 million barrels of crude oil as feedstock.
While Aliko Dangote celebrated these deliveries in public statements, S&P Global analysts does not expect that the refinery will reach full operating capacity until mid-2025, with further delays still possible.
Recent Nigerian economic data points to continued headwinds for the private sector. A renewed downturn in the fourth quarter of 2023 halted a period of recovery following the cash crisis at the start of the year. Demand is waning, and a survey of firms in June 2023 attributed higher prices to fuel costs. Reports of higher fuel prices remained well above average levels into the final quarter of 2023. S&P Global Market Intelligence forecasts that consumer price inflation in Nigeria will average 24.3% in 2023 and remain elevated at 18.5% in 2024.
There is a saying about Brazil, that it is “the country of the future and always will be.” This wry observation reflects the struggle of certain resource-rich developing nations to realize their tremendous potential. Perhaps the introduction of the Dangote refinery in Lagos can help Nigeria fulfill its potential by reducing a debilitating dependence on foreign refineries.
Today is Wednesday, January 24, 2024, and here is today's essential intelligence.
Written by Nathan Hunt.
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