The $19billion Dangote Refinery Plant is a legacy project that will see Nigeria netting N21 billion per annum. Besides, the refinery, being inaugurated today, is set to double the country’s refining capacity and help meet the increasing domestic fuel demand, while generating foreign exchange through exports. Experts also contend that the project would allow Nigeria, which currently relies on imported petroleum products and fertiliser, to progressively become self-sufficient and transformed into a major exporter while supporting job creation and reduce the current imports of fuel by about 80 per cent, contributing a large share to the Gross Domestic Product. Assistant Editor MUYIWA LUCAS and AMBROSE NNAJI report.
It has been a long awaited project, one that encapsulates hope for Nigerians that have had a rather fair share of disappointments in the downstream sector. However, the story of the country’s downstream sector, which deals with refining, distribution, and marketing of crude oil for domestic consumption, has been one of pains.
Since June 2019, none of Nigeria’s four state-owned refineries has worked, leading to non-refining of a single drop of crude oil into finished products like petrol for domestic consumption. The country depends on importation of petrol from Europe to cater to her domestic needs. This dependence on fuel importation has contributed largely to the excruciating pains of petrol scarcity experienced by the populace. Besides, the weak state of the local currency has also fueled the high price that motorists have to pay for the product because the product is being sourced at high cost from the international market.
To keep the product affordable for the people, government has had to continue to support a subsidy regime, which economists have said is no longer realistic. In the last eight years, the present administration is said to have injected N11 trillion into paying for subsidy just to ensure that Nigerians do not feel the full weight of what petrol should actually sell for in the market if left to market forces and pricing mechanism to determine. Stakeholders in the sector believe petrol would sell for as much as N700 per litre without the subsidy support from the government. The effect of this continued subsidy payment is that critical infrastructural provision by government has suffered, as little fund is left to meet other pressing needs. This is why experts contend that with subsidy removal, other sectors of the economy will benefit from proper funding.
But it is a known fact that removing subsidy without a functional refinery in place would be tantamount to bigger hardship for the people. And with government’s inability to get its refineries into a functional state, hopes appeared dashed for Nigerians hoping to get value from their God-given natural resource- crude oil. But now, all these are set to change. With the inauguration of the Dangote refinery today, it signals the beginning of a new dawn after decades of suffering.
Unveiling Dangote refinery, Africa’s largest
For a first timer entering into the palatial 10th floor office of the President, Dangote Industries Limited (DIL), Aliko Dangote, located in the “Marble House” in Ikoyi, Lagos, what strikes you first is the inscription: “Nothing is impossible,” tucked in a side corner on his personal desk. “Yes, that is my belief…nothing is impossible if you are determined,” Dangote told this reporter in an exclusive interview over a decade ago.
This unwavering belief seemed to have propelled him to build the biggest single refinery in Africa and one of the largest in the world being inaugurated today. The project, launched in 2016, was estimated as an investment of $19 billion. The Dangote Refinery, located in the Lekki Free Zone in Ibeju-Lekki, Lagos State, along the coast of Atlantic Ocean, is designed for 100 per cent Nigerian crude oil with flexibility to process other categories of crudes and will create nearly 50,000 jobs in and around Lagos.
Dangote Petroleum Refinery is configured to cater to 100 percent of the Nigerian domestic requirement of all refined products; that is, 53 million litres of petrol per day; 34 million litres diesel per day; 10 million litres of kerosene per day and, two million litres of Aviation Jet per day and also have surplus of each of these products for export.
The refinery site sits on an area of 2,635 hectares of land; that is, seven times the land size of Victoria Island, Lagos. This location allows for the transshipment of refined petroleum products to international markets. It has 177 storage tanks with 4.742 billion litre capacity, with capacity for loading of 2,900 tankers of 33,000 litres at a go. The processing facilities at the refinery include a crude distillation unit (CDU) and associated facilities, mild hydrocracking (MHC) unit, residual fluid catalytic cracking (RFCC), naphtha hydrotreater, and RFCC gasoline hydrodesulfurisation (HDS) unit, as well as alkylation units. Sulphur recovery and hydrogen generation facilities and a polypropylene unit are also being included. The hydrogen generation complex contains two steam methane reformer (SMR) units. These will generate 200,000Nm³/h of hydrogen and steam, which will be used to produce sulphur-free fuels. An additional set of processing units will be supplied by DuPont to produce clean fuels. These units include a STRATCO® alkylation unit, a MECS® sulphuric acid regeneration (SAR) unit, a MECS® DynaWave® sulphur recovery unit and a BELCO® EDV® fluid catalytic cracking unit. The refinery is also fitted with facilities such as a pipeline system, access roads, tank storage and crude and product-handling facilities. A marine terminal, including a breakwater, jetty and harbour, are also part of the refinery. The complex also includes a fertiliser plant, which uses by-products from the refinery as raw materials.
Described by stakeholders and international experts as a “world-class project,” this refinery berths as the world’s largest single-train 650,000 barrels per day petroleum refinery with 900 KTPA polypropylene plant; it is powered by a 435 MW power plant built by the firm, for stable electricity. This power plant’s capacity, experts say, is enough to meet the total power requirement of an electricity distribution company covering five states. It is also worthy of note that the pipeline infrastructure at the Dangote Refinery is the largest anywhere in the world, with 1,100 kilometers to handle three billion standard cubic feet of gas per day.
Design, conformity, etc
The refinery, based on design, complies with World Bank, US EPA, European emission norms and Department of Petroleum Resources (DPR) emission/effluent norms; it is built to process large variety of crudes, including many of the African crudes, some of the Middle Eastern crudes and the US light tight oil. In building the refinery and considering its location on the lagoon, 65 million cubic metres of sand was dredged, costing approximately 300 million euros. The world’s largest, the second largest and the tenth largest dredgers were deployed to elevate the height by 1.5 metres, all to insure against any potential impact of increase in mean sea level due to global warming.
The promoters also bought over 1,209 units of various equipment to enhance the local capacity for site works since even the biggest local civil contractors were unable to handle even small portions of the construction requirement. Still, 332 cranes were bought to build up equipment installation capacity, including building the world’s largest granite quarry of 10 million tonnes per year production capacity to supply coarse aggregate, stone column material, stone base, stone dust and material for break water.
It is also instructive to note that the firm developed a port and constructed two quays with a load bearing capacity of 25 tonnes/ sq meter to bring Over Dimensional Cargoes (ODC) close to the site directly, including constructing two more quays in the port with a capacity to handle up to Panamax vessels to export the fertiliser and the petrochemicals and two quays to handle liquid cargoes. This brings the port quays to six, including a Roll-on/Roll-off (RO-RO) quay. The facility is reinforced with 250, 000 piles. The Dangote Refinery, according to Wikipedia, has a Nelson complexity index of 10.5, which means that it will be more complex than most refineries in the United States, average 9.5, or Europe, average 6.5.The largest refinery of the world, the Jamnagar Refinery in India, has a complexity of 21.1. The Nelson complexity index basically increases with the number and capacity of chemical procedures after the distillation, such as hydrocracking, NHT, CCR, RFCC, polymerisation, etc.
A legacy project
Many have described the Dangote refinery as a legacy project owing to what it offers the country, the African continent and the world at large. For instance, the firm has trained 900 young engineers in refinery operations outside the country, and also trained another six mechanical engineers in the GE University in Italy. This is aside the 50 process engineers trained by Honeywell/UOP for six months and 50 management trainees. The Dangote Refinery Plant is a legacy project that will see Nigeria netting $21 billion per annum. The project utilised the coordination of various local and international suppliers and the coordination of multi-cultural work teams, providing temporary housing units on the premises that can house 33,000 persons.
According to the Group Executive Director, Strategy, Portfolio Development & Capital Projects, Dangote Industries Limited (DIL), Devakumar Edwin, Nigeria exports raw materials and imports finished products, and by this, it translates to essentially importing poverty into the country. Edwin, in an interview published by PMI, explained that Dangote Group has always focused on import substitution as exemplified in its sugar and cement business, which has now been replicated for its petroleum refining.
Realising that the world has been migrating to Euro V, Edwin revealed that the entire refinery was designed to produce Euro V fuel. “With all the new regulations coming in, we will have nothing to fear because we will be able to meet the quality standards. I can export this fuel to any country in Europe or the U.S. Also, the African market is mostly dependent on imported secondhand cars; so to replace those with electric cars is not going to be quick or easy. We believe that at least for the next couple of decades there will be a good market, especially within Africa, for petrol, diesel and aviation fuels,” Edwin said.
The Group Chief Branding and Communications Officer, DIL, Anthony Chiejina, in an exclusive chat with The Nation, noted that the refinery is a huge global game changer. According to him, “the international oil market will never be the same; both oil traders and suppliers will be jolted and the terrain will change for a long time. Dangote is one of the few companies in the world executing a Petroleum Refinery and a Petrochemical complex directly as an Engineering, Procurement, and Construction (EPC) Contractor. Globally, apart from three companies, no individual owner has done the complete EPC Contract for a Petroleum Refinery,” Chiejina said during a facility tour of the complex.
Significance for Nigeria
The inauguration of the Dangote Refinery is already generating positive vibes for the country. For instance, Moody’s, a leading global rating agency, in one of its reports, said the coming on stream of the Dangote refinery would lead to a modest improvement in Nigeria’s current account. This, Moody’s based on the projection that the country would stop the importation of petrol.
“Dangote refinery will improve Nigeria’s current account modestly when fully operational. Substituting imported refined petroleum by domestic products will save current transport cost and other related costs on an import bill that reached $14 billion in 2021. Indeed, while Nigeria would no longer need to import refined petroleum, it would also lower the country’s export of crude oil since a part of the production would be used domestically,” Moody’s said in its report.
Edwin, basking in the euphoria of the inauguration of the refinery and its attendant benefits to the country and the African continent, explained that “this refinery is going to be a game-changer for the country because, at a minimum, there will be a value addition to the treasury of $10 billion in terms of foreign exchange. So a key advantage will be the currency rate stabilisation. And if you talk about Africa as a whole, that’s going to be a matter of pride, that Africa can be self-sustaining, as far as the refined products are concerned.”
Still, a Professor Emeritus in Petroleum Economics and Policy, Wumi Iledare, told The Nation that the refinery will have a more direct impact on the local economy than the upstream sector business even if the direct contribution to government revenue is lower than the upstream. Besides, he is confident that if there is something to learn about the truck delivery impact, Dangote Cement delivery system offers a great lesson. “That the Dangote refinery complex became a reality is commendable and laudable. Its impact on the economy is not conjectural in terms of employment of skill and unskilled workers. In the short run, one expects less pressure on forex, especially if Nigeria crude is purchased and paid for in local currency. It is indeed a new dawn in the petroleum downstream market in Nigeria and perhaps, in the Gulf of Guinea countries. The only worry I have is the downstream market structure implications of the refinery on retail market pricing as a dominant firm. This is where the Authority must watch the market as it evolves from import dependency to a dominant firm player in the market,” Iledare said.
The National President, Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), Festus Osifo, said the Dangote refinery will have significant impact on fuel dynamics in the country, including easing pressure on the economy. “We welcome the bold move by operators of Dangote Refinery coming on stream and hope that its addition will enhance local production, reduce products importation as well as end the era of uncertainties in petroleum products pricing and evils of subsidy payment. With the Dangote refinery, there will be a significant impact on the fuel supply dynamics, including easing pressure on the economy, especially when combined with the ongoing revamping of the three refineries in the country,” Osifo said.
A Chattered Accountant, Mr. John Adidi, noted that with Dangote refinery’s capacity to refine 650, 000 barrels of crude oil per day it will overtime provide for the petroleum products needs of Nigeria and even have excess for export. As a private firm, he said its benefits to the nation will also be by way of taxes, like value-added-tax (VAT) and other taxes that will be available to government including of course company income tax.
“When the refinery gets into full operation, certainly the importation of petroleum products, which has had very serious foreign exchange impact on the nation, will be a thing of the past. Certainly, the refinery, which is the biggest in Africa, will be able to provide for the need of Nigerians and even have surplus for export. So, there’s going to be receipts in forex, exposure for purchasing of petroleum products abroad and we know how that affects the exchange rate itself,” Adidi said.
He further explained that since Dangote refinery will be producing locally, there are a lot of costs that be will now be avoided by the country unlike when importing. “So, the cost of producing one litre of fuel will certainly reduce. This is no doubt an expansion for the economy,” he said. Adidi added that because of the size of the Dangote refinery there will be a lot of jobs- direct and indirect, running into thousands that will come into the economy. Adidi is certain that with the refinery take-off, there may be a revival of depots across the country because the massive production from the Dangote refinery will ensure that products are distributed across the nation from the supply they receive.
The journey to reality
Dangote unveiled early plans for the refinery in September 2013, when he announced that he had secured about $3.3 billion in financing for the project. At the time, the refinery was estimated to cost about $9 billion, of which $3 billion would be invested by the Dangote Group and the remainder via commercial loans and begin production in 2016. However, after a change in location to the present abode, construction of the refinery did not begin until 2016 with excavation and infrastructure preparation and the planned completion was pushed back to late 2018.
In July 2017, major structural construction began, and Dangote estimated that the refinery would be mechanically complete in late 2019 and inaugurated in early 2020. An associated project at the site of the refinery, a urea fertiliser factory, was scheduled to begin operation in late 2018 and produce about three million tons of urea annually. In 2018, the project was expected to cost up to $15 billion in total, with $10 billion invested in the refinery, $2.5 billion in the fertiliser factory, and $2.5 billion in pipeline infrastructure. In July 2022, Dangote had to borrow N187 billion to complete the refinery.
It is worthy of note that for international financial organisation to have keyed into the project is also a testimony to the integrity of the promoter and the belief in the system. A group of local and international banks led by Standard Chartered Bank had agreed to provide a $3.3bn syndicated loan facility for the project. Also, the United States Trade and Development Agency provided a training grant of $997m for the human resource development for the refinery operation.
For Aliko Dangote, rescuing the refinery sub-sector of the oil and gas industry is more than a business – it is a way of rescuing his country and people from embarrassment as well as giving them hope of getting the product at not only an affordable price, but also with relative ease. Dangote’s first attempt at intervening in the refinery segment dates back to 2007, when in the twilight of former President Olusegun Obasanjo’s administration, he led a consortium – Bluestar, to buy the government-owned Port Harcourt and Kaduna refineries in a deal worth $721 million. These refineries, with 210,000 barrels per day (bpd) and of the 110,000 bpd capacity, were in a decrepit state at this period. But with the protest that ensued following the sale to the consortium, he had to pull out of the transaction. And so continue the woes of the state-owned refineries, a situation that has gone from bad to worse. Today, as the Dangote refinery billows, with high hopes and expectations of enthusiastic citizenry, Nigeria, nay Africa, can now rub shoulders with the rest of the world in crude oil refining capacities.
