Dangote Refinery Eyes 2M Barrels of US Oil Amid Nigeria's Woes

Dangote Refinery seeks 2 million barrels of US crude monthly, highlighting Nigeria's oil production challenges.

By Athena Xu

5/16, 08:59 EDT
S&P 500
iShares 20+ Year Treasury Bond ETF
iShares 7-10 Year Treasury Bond ETF

Key Takeaway

  • Dangote mega refinery in Nigeria seeks 2 million barrels/month of US WTI Midland crude starting July, reflecting Nigeria's oil production challenges.
  • Nigeria's inability to meet its OPEC+ quota and maintain production capacity highlights the strategic shift to US imports for refinery feedstock.
  • The move underscores the global influence of the Dangote refinery and Nigeria’s pivot towards more reliable and competitively priced crude sources.

Dangote Refinery's Strategic Move

Africa's largest refinery, the Dangote mega refinery near Lagos, Nigeria, is making a significant move by seeking to purchase millions of barrels of US crude over the next year. The refinery has issued a term tender for 2 million barrels a month of West Texas Intermediate Midland crude starting in July, highlighting the plant's influence in global crude and fuel trading. This decision underscores the challenges Nigeria faces in boosting its own oil production, which has consistently remained below capacity due to various factors including crude theft, aging pipelines, and low investment.

Nigeria's Oil Production Dilemma

Nigeria, Africa's largest oil producer, has struggled to meet its OPEC+ quota for over a year, with production hovering around 1.45 million barrels a day in April, significantly lower than its potential capacity of 2.6 million barrels a day. The country's inability to ramp up production is attributed to several challenges, including crude theft, aging infrastructure, and divestments by oil majors. This situation has forced the Dangote refinery to look elsewhere for reliable and competitively priced crude supplies.

Refinery's Response to Local Supply Challenges

The Dangote refinery, built by Africa's richest man Aliko Dangote, is adapting to Nigeria's oil supply challenges by diversifying its feedstock sources. The refinery's decision to import US crude reflects a strategic move to ensure a steady and reliable supply of oil, necessary for its operations. The plant, which is currently running at about half its capacity, has been importing US oil for a significant portion of its feedstock, taking advantage of cheaper prices compared to local supplies. Nigeria's upstream regulators have responded by releasing new draft rules that will compel oil producers to sell crude to domestic refineries, aiming to secure enough local supply.

Street Views

  • Elitsa Georgieva, Citac (Neutral on Dangote Refinery's strategy):

    "Supply of Nigerian crude is insufficient or unavailable and sometimes unreliable. WTI on the other hand, is available, with reliable supply and competitively priced."