Will the Dangote refinery solve Nigeria's oil issues?

Rasheed Sule fixes tires for a living on a roadside in Lagos, the largest city in Nigeria. His air pump needs fuel, but it's hard to find any these days.

"If there isn't any fuel, we won't be able to work. We buy from the black market where a liter costs between 1,000 naira ($0.61/€0.55) and 1,500 naira," Sule told DW.

Nigeria is caught up in a fuel crisis. Long queues at gas stations are an everyday reality for consumers in Africa's leading oil producing country.

"I'm supposed to be in the office now. I'm not in the office. So, I will spend hours...queueing for fuel, one motorist told DW. "I just left a filling station now. We were just two vehicles to buy fuel and it finished."

Nigeria has long been an importer of refined oil, which meant consumers had to endure shortages and higher prices.

So when the new oil refinery built by Aliko Dangote, Africa's second-richest person, went online in January, Nigerians were hopeful.

But the end to shortages and drastic fuel price cuts they were hoping for never materialized.

Some analysts have said the Dangote refinery is simply not enough to ease the country's fuel crisis.

"It's not enough to feed our local refineries. It's not enough to feed Dangote refinery for instance, which is what we are talking about right now," said energy expert Omono Okonkwo.


Not enough local crude oil

The $20-billion Dangote project is designed to process 650,000 barrels of Nigerian crude oil per day. But because it battled to secure enough crude oil locally, it is having to rely on purchases from outside of the country.

"If we have 100% Nigeria's crude, yes, fine but we can't wait because sometimes the production is up and down," Dangote told The Africa Report magazine.

Finance expert Gbolahan Olojede said Dangote's difficulties are part of the struggles of Nigeria's oil industry to meet local demand.

"It's unbelievable that 20 years ago, in 2005, we were able to do as much as 2.5 million barrels per day. But today, Nigeria is struggling to do 1.2 million, which is barely half of what we used to do. So, while Nigeria is a big producer, it is indeed suffering a great deal from its own capacity to meet internal needs," said Olojede

Crude imports to feed the Dangote refinery will affect pricing too, Okonkwo told DW. "They still have to import crude and that is priced in dollars. So, at the end of the day, they need to turn out a profit in their business."


Controversy over pricing

The Dangote refinery isn't making sales to oil marketing companies within Nigeria. Concerns over the price at which the refinery is selling its refined crude has been a major factor.

According to the state-owned Nigerian National Petroleum Company Limited (NNPC Ltd), Dangote asked for N842.61/liter ($0.51) in its first sale last week, taking the price at the pump to N950.22/liter in Lagos. But the going rate at the pump was N855.

Although Dangote denied selling to NNPC at N842.61/liter, it did not disclose the actual price.

The government said it would not intervene.

But Bayo Onanuga, a special adviser to President Bola Tinubu, told the media that since fuel has been deregulated, both companies must work independently in a deregulated market.

"The Premium Motor Spirit regime has been deregulated. Dangote is a private company. NNPC should not forget it's a limited liability company. Whatever controversy both of them are having is their problem," said Onanuga.

According to Onanuga, the Nigerians could stand to gain now.

"It's the consumer who benefits if a price war starts. If NNPC fuel is too much, the public can go to the market and bring in their fuel and sell at the price that they think is very reasonable and profitable for them. So, my answer is that as far as this is concerned, the government is not dabbling into this controversy," he told DW.

Experts have said the challenges of pricing and scarcity of crude need comprehensive solutions and that the Dangote refinery is just one piece of the puzzle.

"Dangote refinery is a good initiative but other players, I mean, other refineries, the Port Harcourt refinery, the Warri refinery and other modular refineries must work for price to be stabilized," said Jeremiah Olatide, a fuel marketer.

"Licensed importers must be allowed to thrive. There will be healthy competition and prices will fall."


DW