Dangote Refinery, regulators’ sour relationship compounds Nigeria’s fuel challenge
Adewale Akintaro
The ongoing contest between the management of Dangote Refinery and the agencies responsible for regulating the nation’s oil and gas industry has continued to showcase the underbelly of the industry, EnergyDay investigations have revealed.
Because of the moribund nature of our four refineries located in Kaduna, Warri and Port Harcourt, which have remained inactive for years despite billions sunk into their revamp, Nigerians were happy to celebrate the imminent commencement of operations at the world’s largest single-train crude oil refinery in the world, the Dangote Refinery, after years of delays, when the refinery received its first cargo of 1 million barrels of crude oil from Shell International Trading and Shipping Co (STASCO) on December 8, 2023. At least, it offered alternative to moribund refineries and had given hope that much of fuel challenge would be addressed.
Within a spate of two weeks, the refinery received four more cargoes, three from state oil firm, NNPCL, and one from ExxonMobil.
On January 9, 2024, the 650,000 barrel-per-day refinery funded by Africa’s richest man, Alhaji Aliko Dangote, received its sixth cargo shipment of 1 million barrels of crude oil to help facilitate the initial run of the refinery as well as kick-start the production of diesel, aviation fuel, and LPG before, subsequently, progressing to the production of Premium Motor Spirit (PMS).
The long wait finally ended on January 18, 2024, when the refinery commenced operations with a promise to end the over two decades of importation of refined petroleum products by Africa’s biggest oil producer.
Apart from wetting the nation with refined petroleum products, Dangote Refinery is also expected to turn Nigeria into a net exporter of finished petroleum products.
However, this hope seems to be going up in flames, with reports that Dangote, unable to get feedstock for his massive refinery, had resorted to importing crude oil from the United States.
Apparently angered by his inability to secure crude oil for his refinery sited in Lekki, Lagos, the Kano-born billionaire publicly attacked International oil companies operating in the country, accusing them of refusing to sell to his firm.
Despite valiant efforts by concerned stakeholders to resolve the feud, major players in the industry are now engaged in bitter feud, with accusations and counter accusations of malfeasance flying around. The various factions have been busy defending themselves and blaming each other for the lapses observed in the industry.
Almost on a daily basis, scurrilous tales about unwholesome regulatory and financial dealings swirl around the quartet of Dangote Refinery, the Nigerian National Petroleum Corporation Limited (NNPCL), Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA).
For instance, members of Depot and Petroleum Marketers Association of Nigeria (DAPMAN), in April this year, accused Dangote of trying to create monopoly in the downstream oil sector by coercing regulatory agencies into forcing them to buy dirty fuel from his refinery.
The Dangote Group promptly denied the allegation, describing it as false, baseless, and mischievous.
According to the spokesperson of Dangote Group, Anthony Chijiena, the company’s refinery is designed to produce the highest quality petroleum products that meet very stringent international specifications.
The allegation had almost died down when the Chief Executive Officer of NMDPRA, Farouk Ahmed, on Thursday, July 18, opened another can of worms.
Ahmed claimed that despite the general belief in the country, Dangote refinery is still in the pre-commissioning stage and its products are largely substandard.
“There are lots of concerns about the supply of petroleum products nationwide and the claims by some media houses that we were trying to scuttle Dangote refinery; that is not so.
“We have not licensed them yet. I think they are at about 45 percent completion. So, in terms of quality, currently, the AGO quality in terms of sulphur is the lowest as far as West Africa’s requirement of 50 ppm.
“So we cannot rely heavily on one refinery to feed the nation because Dangote is requesting that we should suspend or stop all importation of petroleum products, especially Automotive Gas Oil, AGO, or jet kero (aviation fuel) and direct all marketers to the refinery”.
Ahmed maintained that banning the importation of petroleum products in order to allow Dangote refinery be the only supplier will be detrimental to the nation’s energy security and also harmful to the market due to the potential for monopolistic practices.
“Dangote refinery as well as some major refineries like Waltersmith refinery, produce between 650 to 1200 ppm. So, in terms of quality, their quality is much more inferior to the imported quality”, the NMDPRA boss had disclosed.
Despite the warring parties attempts at shifting blames, EnergyDay findings revealed that they are all guilty of one form of infraction or the other.
EnergyDay reliably gathered that top officials of NNPCL, NUPRC and NMDPRA were rattled by Dangote’s recent accusations that the agencies are endangering Nigeria’s energy security by undermining his business, hence their resolve to also throw him under the bus.
Dangote Refinery, however, rejected the allegations on Saturday, claiming that diesel bought from two filling stations and that from his refinery were tested at the refinery’s laboratories.
According to Dangote, the tests were carried out with an Energy Dispersive X-ray Fluorescence (ED-XRF) Spectro Photometer, using the ASTM D4294 method.
“Our quality is about 600 to 650 ppm and is one of the best in terms of quality at that time when we started. But as at today, we’re at 87 ppm. I want to plead with the regulator to come at any time, whether Sunday or Monday, or take the sample and I guarantee you that before he gets here, our PPM will be even below 10.
“The sample from TotalEnergies’s diesel showed 1,829ppm sulphur concentration. The sample from Matrix Retail showed 2,653ppm. Matrix was 61 below 66 and Total is 26 flash point.
“Our flash point showed 96. If you want to do the rest, we can run it at any given time. Today I want to announce to Nigerians that our parameters today are extremely, very good parameters.
“By the end of next week, we should be on 50ppm, and by August, it should be down to 10ppm”, the company said in a statement on Saturday obtained by BH.
However, findings revealed that before Dangote achieved its present 87 ppm status, the diesel it supplied to the Nigerian market was much dirtier.
According to credible energy platforms and news agencies like Platts, Bloomberg and Reuters, Dangote refinery initially produced a lower grade of gas oil (diesel) than expected while waiting to restart units needed to produce cleaner fuels.
According to Reuters, owing to the low quality (high sulphur level) of refined products from the refinery from March 2024, the company was forced to find buyers for it in only Nigeria and neighbouring West African markets.
Using data supplied by analytics firm, Kpler, Reuters claimed that exports of gasoil from the refinery hit 100,000 barrels per day (bpd) in May, almost doubling April’s levels.
While the volumes of gasoil shipped in June fell sharply, overall oil product exports including fuel oil, naphtha and jet fuel remained relatively elevated at 225,000 bpd, the Reuters data showed.
The bulk of the exports went to other West African countries, while one cargo was shipped to Spain.
According to Reuters, Dangote refinery was producing and exporting gasoil with 800-1,300 ppm gasoil, well above Nigeria’s 50 parts per million (ppm) sulphur content mandated by the PIA 2021 and ECOWAS standard of 200ppm limit.
In its reaction to Reuters report, Dangote Group did not deny that the sulphur content of its diesel is above the threshold established by the countries laws, but assured that it was on course to achieve 10ppm gasoil soon.
“We have commissioned the equipment and working gradually towards meeting the new standard”, the group had assured back on July 1.
Some officials in the Ministry of Petroleum Resources informed BH that local refineries and importers were allowed to sell diesel above 200 ppm locally to be sold locally since from January to June in order to give them more time to comply with the new standard.
Meanwhile, findings revealed that Dangote’s allegation that OICs sell crude oil to local refiners at a premium of about $5 above international prices is largely true.
On July 18, the management of Dangote Industries Limited doubled down on its earlier claim that international oil companies are still frustrating crude supply to its 650,000-capacity refinery.
According to Dangote, IOCs insisted on selling crude oil to their refineries through their foreign agents.
The company claimed that the local price of crude has continued to increase because the trading arms of IOCs offer cargoes at $2 to $4 per barrel, above NUPRC official price.
EnergyDay can confirm the allegation, as all oil companies operating in the country have trading arms that help sell their products while adding their own margins.
For instance, our correspondent sighted a sales document between Dangote Refinery and Shell International Trading and Shipping Company Limited (STASCO) for the purchase of the 1 million barrels of Agbami crude grade Shell supplied to Dangote Refinery in December 2023.
STASCO, one of the largest trading companies in Nigeria and globally, is the trading arm of Shell International, which trades over 8 million barrels of crude oil per day.
Other IOCs, it was learned, also have their own trading arms, which sell crude oil on their behalf. Even NNPCL, BH learned, has its own trading arm named Duke Oil.
However, Dangote Refinery prefers to buy directly from the NNPCL and IOCs to avoid the extra cost of $4 to $5.
Some industry players, who spoke with our correspondent on the development, said the practice (having a trading arm) is a normal practice in the business.
“To avoid the added tasks of taking up the ardour task of sales and marketing, most firms prefer to commission the task to third parties with enough expertise, while concentrating
on real production.
“Dangote can’t claim ignorance of this practice. He even came out some time ago that he’s going to set up his own trading firm in London, which will be saddled with selling his refined petroleum products.
“Like Oliver Twist, I think Dangote wants more. He had been spoon-fed in the past and will continue to ask for more as long as he believes he can get it.
“Apart from that, I don’t see anything wrong in the arrangement as it is all about business and making profit.
“However, to bring down the cost of refined products locally, the government can consider his request. But IOCs are not bound as the oil and gas industry is an international business, which runs on a willing seller and willing buyer policy”, explained the source, who did not want his name in print.
