Challenges Faced by the Dangote Refinery: The Role of IOCs in Nigeria's Refinery Sector

In the global energy market, Nigeria plays a key role and is the largest African oil producer.  The International Oil Companies (IOCs) have contributed significantly to Nigeria's oil sector. Nigeria encounters multiple obstacles, such as Integrated Globalist Policies, the IOCs' exportation policies, and Other Factors that impede its goal of realising a refinery revolution. Also, Nigeria mostly depends on the importation of refined petroleum products. Despite this, the country's richest man and largest local investor, Aliko Dangote, aims to change the narrative, and then, it seems, he is set for a great battle. This article focuses on the obstacles faced by the Dangote Refinery, particularly the influence of IOCs, and examines how these interactions impact Nigeria's goal of achieving self-sufficiency in refined petroleum products. Moreover, it suggests possible ways to enhance Nigeria's capability to independently refine petroleum products.

Historical and Current Role of IOCs in Nigeria's Oil Industry

The discovery of oil in 1956 in Oloibiri town led to the presence of major multinational oil companies like Shell, ExxonMobil, Chevron, Total, and Eni, shaping Nigeria's oil industry and boosting the economy. As the market for petroleum products rose after the independence of Nigeria in 1960, Shell-BP embarked on the establishment of a refinery at the Nigerian city of Port Harcourt, which was completed in 1965 and had an initial processing capability of 38,000 bpd. The Nigerian government later upped its stake from 50% to 60% in 1972, and the company was named the Nigerian Petroleum Refining Company (NPRC). That same year saw the refinery’s capacity raised to that of sixty thousand barrels per day. The government rebranded this remaining 40% into NNPC Refinery and took complete state control of it in 1978. This shift of control over refinery ownership came soon after the establishment of the Nigerian National Petroleum Corporation (NNPC), which aimed to increase Nigeria’s dominance in the oil sector. Other than ensuring the ability to control the price of oils and the generated revenue when it became a member of OPEC in 1971, this move was also encouraged by other factors in the global oil market that impacted Nigeria’s geopolitical policies. This has, therefore, involved the IOCs in developing Nigerian oil reserves through partnerships with the Nigerian government through joint ventures and production-sharing contracts.

However, this collaboration has not been without some challenges. The IOCs are more focused on the exportation of crude oil than the refining in Nigeria. This has led to Nigeria exporting most of its crude oil while relying on importation options to meet the requirements for refined petroleum products. The primary and instrumental strategies applied by the IOCs have depended more on global market pricing and profit maximization, goals which are preferably associated with exporting crude oil than developing local refining facilities.

Furthermore, these have significantly impacted Nigeria's status as a crude oil exporter and an importer of refined products. This dependency on imports has exposed Nigeria to global oil price volatility and supply chain disruptions. The concentration has been on areas that generate greater profit, mainly exploration and production. This has left Nigeria’s refining sector underdeveloped and contributed to the ineffectiveness and scarcity of refined petroleum products.

The Refinery Revolution in Nigeria

Although there are four major oil refineries in Nigeria, none of them is currently operating at full potential, and every succeeding government has made it a point of political campaign. In recent years, officials have been making laudable attempts to drive private investment. These include plans to upgrade existing refineries and the issuance of 25 refining licenses (conventional and modular) to indigenous companies. All of these measures, if implemented robustly, will stimulate development and changes to the sector in the medium to long run. Nigeria has, however, in the recent past, embarked on capacity build-up to meet the refining capacity it lacked. The Nigerian government, over the years, has deemed it necessary to put more effort into the development and rehabilitation of its refineries. One of these efforts is the establishment of Dangote Refinery, an indigenous and private refinery company.

Dangote Refinery: Expectations and Challenges

The Dangote refinery, located in Lagos, Nigeria, is the largest petroleum refinery in Africa and Europe. Its initial plans were unveiled in 2013, and it was inaugurated on May 22, 2023, after incurring a cost of $20 billion. With a refining capacity of 650,000 barrels, the refinery is expected to not only provide petroleum products to Nigeria but also to other African countries that currently depend solely on Europe for their energy needs. The Dangote refinery promises to refine enough crude oil for Nigeria with even excess for export. However, a lot of questions arise: will the petrol price reduced? Will the refinery put an end to the occasional long queues at the filling station, often orchestrated by artificial scarcity? But, one thing is certain in respective of the answer to the above questions. It will contribute to expanding Nigeria’s economic growth.

Former President of Nigeria Muhammadu Buhari and other authorities at the officially unveiling of Dangote Petroleum Refinery

Furthermore, the new administration hastened the startup of the Dangote refinery to supply the market with refined petrol and ease the pressure on Nigeria’s currency after abolishing the payment of fuel subsidies and unifying the exchange rate. The aim is that the refinery would both save and earn dollars supplying fuel domestically, reducing the need for imports, and exporting the surplus. As a result of the Dangote refinery's operation, it is expected that the era when some individuals or institutions come to Nigeria to extract crude oil, export it, refine it, and import the refined petrol at a huge cost will be forgotten. 

However, despite all these expectations, the Dangote refinery is facing the challenge of a lack of supply of crude oil from the IOCs and importing crude oil from other countries. These issues raise many concerns from different individuals, including the refinery management, stakeholders, government officials, and citizens. The founder, Aliko Dangote, said: “The international oil companies were used to exporting crude for foreign exchange and were not ready to stop. Even though the Nigerian National Petroleum Company Ltd was doing its best to supply feedstock to the refinery, the IOCs wanted to sell outside the country.” This shows that the IOCs have their interest in mind, which is profit-making, and not the interest of the nation, which is the constant supply of refined petrol products locally and economic stability. IOCs planned to frustrate the survival of the first African largest oil refinery as they deliberately hiked the cost of crude oil above the market price, forcing the refinery to import crude oil from other countries, including the United States. Noteworthy, it seems the objective of the IOCs is to make sure that local refineries such as Dangote refinery do not succeed and ensure that Nigeria remains a country that exports crude oil and imports refined gasoline products.

It is unsurprising that the founder of the Dangote refinery expressed regret and stated that he would not have opted to build a refinery if he had known what it would entail. Not only the IOCs but also other multinationals are only interested in exporting raw materials (such as crude oil and other commodities) to their home countries, creating employment and wealth for their countries, adding to their Gross Domestic Product, and dumping the expensive refined products into Nigeria. Therefore, Nigeria and Sub-Saharan Africa are facing unemployment and poverty while they create wealth for themselves at our expense.

The refinery revolution on its part has the mission of rebalancing Nigeria’s dependency ratio, thus minimizing the importation of and over-reliance on refined products from the more industrialized nations, creating employment opportunities for the citizens, and boosting the economy. But the journey has not been smooth sailing as many might have expected as result of the activities of the IOCs and local players. The main difficulties include the issues of its funding, guaranteeing the supply of crude oil, infrastructural challenges, and bureaucratic and regulatory restraints.

Potential Solutions and Strategies

• Regulatory Reforms: Effective regulations are crucial for driving growth in the refining sector. Therefore, it is necessary to implement bold and decisive reforms. Regulations play a vital role in instilling confidence within the refining sector and increasing its appeal to potential investors. For instance, addressing issues related to licensing, taxation, incentives for local refiners, and ensuring adequate supply of crude oil.
• Enhancing Domestic Production: Local production of refined products should be encouraged through supportive policies, a constant supply of crude oil feedstock, and infrastructure development to reduce import dependency.In Nigeria, local refineries need to explore different options to ensure a consistent supply of feedstock by the IOCs and local players. This will help to maintain optimal levels of refining output. The refinery owner Aliko Dangote reportedly said at the Africa CEO forum: “If we have 100% Nigerian crude, then that's fine, but we can't wait because sometimes production is up and down,”
• Strengthening Local Refining Capacity: In addition to the Dangote Refinery, the government should rehabilitate existing refineries and encourage the establishment of new ones. Public-private Partnerships (PPPs) area key consideration for bridging this gap.

Reference

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