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Better refinery prospects for Nigeria

Hydrocarbon Engineering,

Business Monitor International (BMI) has revised its refining capacity and refined products production forecasts for Nigeria in order to reflect a delay in the coming online of the Dangote Group refinery project in the country.

Dangote Group expects its 500 000 bpd Nigerian refinery project to come onstream in late 2017 or early 2018, according to George Nicolaides, Dangote Industries’ operations director for petroleum refining. In addition to this revised deadline, the refinery’s capacity has moved to the upside, given initial plans for a 400 000 bpd refinery.

A 2019/2020 start date allows for a five to six year planning and construction period, a more credible timeline than the three to four years highlighted by the Dangote Group. The Jubail refinery in Saudi Arabia, with a similar capacity of 400 000 bpd, took about five to six years from design to first production. The Dangote refinery is only now in its initial design phase, with detailed engineering design to begin in the coming months. As such, it is unlikely to see daylight before 2019/2020, BIM holds.

While there are downside risks to this project, BMI does believe that the refinery will be built.

The project secured its first financing commitment, signing an agreement for US$3.3 billion in loans from a syndicate of 12 local and international banks, arranged by Standard Chartered internationally and Guaranty Trust Bank domestically. The loan joins a US$3 billion equity commitment from Dangote Industries, meaning the project is over two thirds financed. The remaining funding is being sought from export credit agencies and development institutions.

In addition to the securing of its first financing commitments, Aliko Dangote’s significant track record of success in his past projects reinforces the credibility of the project. Project management will also be carried out by India Engineers Limited, an Indian state owned company, which has a long record of refinery upgrades and construction work both in India and internationally.

Nigeria has a structural need for this refinery, BMI hols. While the country has nameplate refining capacity sufficient for it to be a net refined fuels exporter, the adverse consequences of fuel subsidies, poor maintenance and general outages and operational failure have seen refining utilisation rates remain below 30% in the past 10 years. As a result, Nigeria is a net importer of refined fuels, importing some net 190 000 bpd of refined fuels in 2013.

This comes at a significant cost to Nigeria. According to data from the National Bureau of Statistics, Nigeria spent US$1.18 billion on refined fuels imports on the first quarter of 2014 alone. Given its large refining capacity, the Dangote refinery will enable Nigeria to turn this situation around, supplying the domestic sector and enabling refined fuels exports.

Furthermore, BMI highlights that the new context of lower crude prices in the coming years further reinforce the country’s need for such a refinery, increasing the likelihood of the project materialising.

After being displaced from its traditional US market due to rising domestic shale oil production, Nigeria has been struggling to find a place for its light sweet crudes in an increasingly oversaturated global market. With continued oversupply and lower crude oil prices forecasted over the coming years, Nigeria will see the value of its crude oil exports decline, and will therefore see this critical source of state revenue take a tumble, causing fiscal pressure on the state.

With the value of crude oil exports in decline, Nigeria will benefit strongly from erasing its need for expensive refined fuels imports. Should Nigeria manage to turn to exporting the high value-added products, the country could have even more to gain.

Provided the refinery does not encounter significant delays or crude supply outages, the Dangote project will have the capacity to turn around Nigeria’s refined export trade situation, pushing the country into a net refined fuels exporter status.

Adapted from a press release by Emma McAleavey.

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