The world of oil is complex. This raw material is not homogeneous and in many cases cannot even be replaced (sometimes, oil extracted at one location cannot be used for the same purpose as crude oil extracted at another location. ). This richness and diversity creates strange and apparently contradictory situations. For example, the newly inaugurated Dangote Refinery in Nigeria is bringing oil from thousands of kilometers for its operations, while the facilities are surrounded by Nigerian oil. This strange situation has attracted considerable controversy and attention in the Nigerian media and the press specializing in raw materials globally.
Nigeria’s purchase of 2 million barrels of US crude by its new mega-refinery has surprised locals and strangers inside and outside the oil world. Why doesn’t an oil rich country like Nigeria use its own supply to power this huge plant? The purchase of US oil was published by the Bloomberg agency last Monday, which generated a series of negative news and opinions in the Nigerian media, as Nigeria is the largest producer in Africa and largely needs oil to balance its accounts. it depends on.
Built with a capacity of 650,000 barrels per day and owned by Aliko Dangote, Africa’s richest man, the Dangote Oil Refinery is touted in Nigeria as a panacea to end another paradox gripping the African country: that of derivatives. Permanent deficit products in the trade balance. That means Nigeria has to import gasoline, diesel etc. Despite being the richest country in terms of oil in Africa. The opening of this refinery, in theory, represents the end of this story. However, after the first days of operations and purchases of US crude, Nigerians are now wondering if the losses are now going to make no sense.
Why does Dangote buy American oil?
Bloomberg analysts offered several responses to this inconsistency. On the one hand, there are costs. It must be remembered that Dangote is a private refinery. Therefore its main objective is to maximize profits and generate value for its owners. This means that if refinery managers find cheap oil in another country, they will try to buy it to get the maximum profit from their refined products. Everything indicates that increasing oil production in the United States has helped to deepen US West Texas Intermediate Midland crude oil discountTo the extent that it could be profitable to transport it to Nigeria and process it.
Bloomberg analysts say Nigerian barrels of comparable quality to WTI typically trade at a premium to Brent (i.e., are more expensive). This means that, even after adding the additional cost of renting a tanker, you still It could have been more profitable to buy American shipments More than one from Nigeria in the market.
According to Elitsa Georgieva, chief executive of Sitac, an energy consulting company specializing in the African downstream sector, sourcing crude from outside Nigeria has always been a possibility. “However, Given the proximity to local crude oil fields and fiscal efficiency of domestic crude oil supply, should be significant economic incentives to boost processing of foreign crude,” he told Bloomberg in statements. It is important to note that Dangote has also been purchasing some Nigerian oil. Of.
Nigeria is the continent’s largest producer, but production has declined by 50% in the past decade. The country has faced a gradual withdrawal of large companies from onshore and shallow water sectors, which have been taken over by local companies with fewer resources and to some extent poor management. Crude oil theft and attacks on pipelines in the Niger Delta have also slowed production, especially onshore, while much of what is pumped is far from shore and often owned by foreign companies.
Most of Nigeria’s oil actually belongs to international companies, or is supplied by foreign companies that have already committed or will be sold in the future. According to Georgieva, the result (a lack of domestic barrels available to buy) could lead to a “need” for imports, creating the strange situation in which a truly oil-rich country has to buy crude from almost the other side of the world. It has to be imported so that its mega-refinery can function.? Dangote Refinery is Nigeria’s hope
The Nigerian government itself has been making this clear for months This refinery is the differentiating factor Not only for the country’s oil industry, but also to save its currency. The former president, Muhammadu Buhari, explained this March that it was a project that would “completely change the rules of the game for the country.” There are two fundamental reasons for this, the first is that it has allowed it to achieve energy self-sufficiency, because currently the country, despite being the main energy lung in Africa, imports oil because it does not have the infrastructure to refine it.
diesel and gasoline trade deficit
Nigeria Currently imports 90% of refined petroleum products And, in principle, thanks to this plant, I could reduce that figure to 0% and, moreover, become an exporter. Currently, the country exports barely $667 million of this product, while it has to import about $11.3 billion. The energy shortage is essential to satisfy the hunger of the highly populated country with approximately 213.5 million inhabitants.
Secondly, Nigeria’s currency has a serious problem of instability and oil plays an important role in its strength or weakness. In that sense, the President defended that this would lead to a paradigm shift About 10,000 million dollars do not leave the country and remain enrolled in nairaWhile export agreements denominated in the same currency amount to another Rs 10,000 million.
This is especially important in the current context, where the government is facing serious difficulties in attracting investors. Support the Naira and have, in fact, launched an ambitious policy to keep it afloat, Among the painful measures is the fact that it has limited currency trading by law and the central bank itself has had to inject massive liquidity, leaving its reserves at $32.16 billion, a six-year low. Is.
“We have built a refinery with the capacity to process 650,000 barrels per day (plus 900,000 tons of polypropylene) in a single train, the largest in the world. We have selected the best plant and equipment and the latest technologies from around the world, ” explained Aliko Dangote, Chairman of Dangote Cement. “When our plant is fully operational, we expect at least 40% of the capacity to be available for export, resulting in significant foreign exchange inflow into the country. “All this could help revive Nigeria’s ailing economy.
collapse of naira
The Naira has lost more than 50% of its value in the last twelve months in one of the most chaotic years for its currency. This was mainly due to the fact that the central bank set the price of the currency with an official rate, creating one price recognized by the government and another price in the market. The duel that the institution broke in this month of June changed the methodology of the official rate and caused a 30% drop in a few days. “If significant capital inflows are not seen, the naira will continue to decline,” the country’s central bank warned in its latest report.
This situation has given rise to rampant inflation which is seriously affecting the country’s economy. The latest CPI data is up 28.2% from the previous month, the highest figure in 30 years. When this problem plagued the world in 2022, it was barely 15%. Faced with this increase, the country has strongly increased its interest rates, which are already at 18.8%. Now the central bank in every meeting emphasizes the need to find demand for its currency to get out of this cycle of inflation and uncertainty.
The refining plant was a big support in facing this problem, however, everything could change radically if, far from becoming a major crude oil exporter, as was initially announced, the plant was to produce massive amounts of North American barrels. Buys. It will be necessary to see whether this is a one-time thing or this trend will continue further.