Fuel: Can the NNPC-Dangote Refinery Deal Be the Game Changer?

With the interest by the Nigeria National Petroleum Corporation to take up 20 per cent equity in Dangote Refinery and Petrochemical Ltd, coupled with other such interventionist, it appears efforts are now being concerted to save the downstream sector. Nevertheless, maximising the huge potential and numerous benefits for Nigerians and the nation’s economy, should be the driving force for an accelerated completion of the refinery. Chris Paul reports

Just last week the Nigerian National Petroleum Corporation (NNPC) expressed interest in purchasing a 20 per cent minority equity stake in Dangote Refinery and Petrochemical Ltd. Located in Lagos and reputed to be Africa’s biggest oil refining facility and the world’s largest single-train plant, Dangote Refinery, the 650,000 barrels per day (bpd) integrated refinery, is expected to process a variety of light and medium grades of crude, including petrol and diesel as well as jet fuel and polypropylene.

Owned by Dangote Group and reported to be worth about $15 billion, the Refinery is designed to produce up to 50 million litres of petrol and 15 million litres of diesel a day, roughly 10.4 million tonnes of the product, 4.6 million tonnes of diesel, and 4 million tonnes of jet fuel per year, in addition to having a fertiliser plant, which will utilise the refinery by-products as raw materials.

Unfolding the investment plans, last Wednesday, at the end of a two-day virtual Nigeria Oil and Gas Opportunity Fair (NOGOF), 2021, tagged: “Leveraging Opportunities and Synergies for Post Pandemic Recovery of the Nigerian Oil and Gas Industry,” the NNPC Chief Operating Officer, Refining and Petrochemicals, Mustapha Yakubu, said discussions were already on-going with the Dangote Group for the acquisition of the stake.

According to him, the collaboration will further ensure undisrupted product supply to Nigerians when the arrangement comes on stream.

Coordinated by the Greenfield Refining Projects Division (GRPD), which is one of its divisions, the negotiation is the corporation’s strategy to collaborate and seek strategic partnerships with private investors.

“At the moment, we have Dangote Refinery, which is the 650,000 capacity barrels per day plus a mini 80,000 tonnes per annum petrochemical plant.

“What are we doing there? I can tell you today that we are seeking to have a 20 per cent minority stake in Dangote Refinery as part of our collaboration and you know that there’s a huge quantity of crude for that refinery.

“That’s 650,000 barrels, going into a single crude distillation unit (CDU). When that comes on board, it will also wet the nation for us,” he said.

Explaining further, he said the corporation is also interested in partnering the African Refinery in Port Harcourt, a co-location facility, the CNCEC Chinese group, which is interested in building two refineries in Nigeria, the Waltersmith modular plant, in addition to collaborating with Azikel refineries on condensate production.

The global excitement for renewables, notwithstanding, Yakubu assured that Nigeria had a local, domestic and regional market for her hydrocarbons; adding that Africa’s reliance on fossil fuels will continue at least in the next two decades.

Like a true nationalist, the NNPC COO said the country could not fold its arms and do nothing with its hydrocarbons, just because the International Energy Agency (IEA) has predicted a net-zero emissions scenario by 2050.

Disclosing the disturbing leak of the nation’s petroleum products, Yakubu said, “Today, when you are bringing products into Nigeria, they disappear to neighbouring countries. There’s nowhere in countries around Nigeria that they sell fuel for less than N400 per litre. So, there’s a market,” he said.

Talking about the dysfunctional refineries, he said the need to do a full rehabilitation beyond the regular turnaround maintenance necessitated the deliberate effort to power the refineries down.

“We believe the only way to do that is to power them down to reduce some of the cost. We have heard that we are spending so much money on the refineries, yet they are idle.

“Of course, there are costs associated with idle refineries; we have staff salaries and remuneration and then the power plant utility operations. And also we need to maintain the plants in terms of preservation and lost investments because they are assets that we believe can be brought to life,” he said.

Admitting NNPC’s inability to run the refineries, Yakubu stated that the corporation was exiting the running of the country’s four refineries, and it had recently called for bids from competent and qualified contractors for that purpose.

Opting for a new model, the Operation and Maintenance (O&M) for the running of the facilities, he said the move was important to bring in O&M professionals, especially given the fact that as an engineer in the NNPC, no matter how competent, the employee must exit when they hit 60 years of age.

Optimistic that the state oil company will select the best contractors to handle the project, the COO said Expression of Interest (EoI) for organisations that would run the refineries was already out and many people had been evaluated.

The challenge, however, is getting local lenders to finance fossil fuel businesses because of the renewable energy drive.

But he added that the NNPC is also looking for investors for the rehabilitation of its pipelines because they remain the best way to transport products from refineries to depots.

It will suffice, at this point, to enlighten Nigerians on how big a deal the Dangote Refinery is; as the obvious game changer to solve the persistent fuel crisis in the country, today.

Located in the South-East of the Lekki Free Trade Zone (FTZ) in Ibeju-Lekki, Lagos, the Dangote Petroleum Refinery is covering a land area of approximately 2,635 hectares (six times the size of Victoria Island).

The following projects are within the Lekki FTZ and they include:

• Largest Single Train Petroleum Refinery in the World – 650,000 barrels-per day (more than enough to meet Nigeria’s petrol needs and for export)

• Two of the World’s Largest Fertilizer Trains – three Million Tonnes per Annum (It is bigger than the 1.4 million tonnes per annum Indorama Fertilizer Limited).

• Largest Sub-Sea Pipeline Infrastructure in any country in the World – 1,100 kilometres to handle 3 Billion Standard Cubic Foot of gas per day.

• The 400 MW Power Plant in the Refinery alone will be able to meet the total power requirement of Ibadan DisCo of 860,316 MWh covering five states including Oyo, Ogun, Osun, Kwara and Ekiti.

Dangote Petroleum Refinery can meet 100 per cent of the Nigerian requirement of all refined products (Gasoline, 57 million litres per day; Diesel, 27 litres per day; Kerosene, 11 million litres per day and Aviation Jet, nine million litres per day) and also have surplus of each of these products for export.

The $12 billion investment is estimated to create market for $11 billion per annum of Nigerian Crude.

Designed for 100 per cent Nigerian Crude with flexibility to process other crudes, the refinery has strategically located marine infrastructure for crude receipts and product trade.

Dangote brought in several Over Dimensional Cargo(ODC), due to the size of the refinery project. The company possesses a Crude Distillation Column; a piece of equipment equivalent to the length of a soccer field and the weight of 320 large elephants. Building local capacity is a major advantage of the Refinery for the country. The facility employed over 10,000 Nigerian personnel on site.

Employment by the various contractors and subcontractors at the site is 7,500; while the current ratio of Nigerians to expatriates is 93per cent Nigerians to 7per cent Expats.

A total of 900 Nigerian engineers are being trained in design, engineering and design of the refinery. There are other engineers currently undergoing training.

The company recently completed the training of 200 artisans selected from the host communities in the areas of Masonry, Carpentry, AC Electricians, Plumbing, Welders, Iron-benders and Auto Mechanics. This was achieved in collaboration with the Nigerian Directorate of Employment and Nigerian Content Development and Monitoring Board. This is one of Dangote Refinery’s Corporate Social Responsibility programmes within the host communities.

Therefore, Nigeria stands to benefits immensely from the establishment of the Refinery in the area of technology, employment, generation of power, local capacity development, production of petrochemicals, increased demand for domestic crude and unhindered availability of the product.

Further more, development of local area and ancillary industries, availability of high quality products (Euro V Grade), annual foreign exchange earnings from exports could reach as much as USD 5.5 billion; while annual foreign exchange saving from import substitution could be as much as $7.5 billion.

In terms of on site accommodation and other Infrastructure, over 63,000 – peak manpower is estimated to be consumed by this humongous refinery.

Site office, warehouse, laydown areas have been completed and they have provided: accommodation for 16,000 workmen; accommodation for 20,000 work men and 2,000 managers.

Local accommodation is available in plenty areas around Lekki Free Trade Zone. Lots of large housing complexes have come up in the last four years considering project demand.

Dangote Refinery also houses the largest fertiliser Plant in West Africa. Dangote Fertiliser Project is the largest Granulated Urea Fertiliser complex coming up in the entire fertiliser industry history in the world, with an investment of $2.0 billion capacity of three million tonnes per annum (MTPA).

The Dangote Fertilizer complex consists of Ammonia and Urea plants. With associated facilities and infrastructure to produce three MMTPA Urea, the complex is expected to produce: over 4,400 million tonnes Ammonia, per day, 8,000 MPTD each of Melt Urea and Urea Granulation.

From Halder Topsoe, Snamprogetti, to Uhde, the Ammonia, Melt Urea and Urea Granulation plants region of the Refinery has a multi technology capacity that gives it a great edge over global competition.

With a captive Power plant comprising of three Steam Turbine Generators of 40 MW capacity each, this aspect of the Refinery has a Total of 120 MW

Another major leverage for the Nigerian economy is the East-West Offshore Gas Gathering System (EWOGGS).

For decades, Nigeria has been accused of polluting the atmosphere by flaring gas, while the country itself has been facing shortage of gas.

EWOGGS pipeline project will unlock significant gas supply for the industry and will considerably reduce flaring.

Power Plants, Fertiliser, Refinery and Petrochemical Projects and others will benefit from this gas supply.

Some of the benefits derivable from EWOGGS include availability of gas for commercial use. This nullifies the need for future gas import as the project becomes the platform for the diversification of Nigeria’s economy.

It will ensure increased government revenue, while meeting demand for domestic petrochemical products.

Foreign exchange from exports will increase, as lots of direct and indirect jobs will be created. Coming from the chaotic trials and error that have characterised measures by government to bring sanity back to the downstream sector of the nation’s oil and gas industry, this deal is indeed a big boost.

What may be an issue is the sneaky suggestion by the NNPC COO that fuel price might get to about N400 per litre in order to give the refinery investor the appropriate pricing for fuel to have the desired return of investment (ROI).

If the owners of the refinery do not yield to a tempting sense of irredeemable greed, as the obvious dominant player in the downstream sector, Dangote Refinery can easily recoup its investment, at least in the first four years, selling fuel to Nigerians at double digit price.

Amid the growing number of private refineries in the country, it goes without saying that before the controversial $1.5 billion Port Harcourt Refinery repair comes on stream in the next 48 months according to the Minister of State for Petroleum, Timipre Sylva, Nigeria will be awash with Petroleum products powered by private refineries.

As disclosed by the Prosecuting counsel in the disbanded Okoi Obono-Obla’s Special Presidential Investigation Panel for the Recovery of Public Property (SPIP), Tosin Ojaomo, prior to its dissolution, the agency had uncovered an NNPC account blessed with about $60 billion domiciled in Texas, USA.

The NNPC can take $12 billion or more from that account to build a second or bigger version of the Dangote Refinery to fully establish Nigeria as the refinery hub for Africa.

It won’t be out of place to do a quick feasibility check on what the Dangote Refinery could make from the sale of fuel alone, among the almost limitless profit lines at the facility’s disposal, if the operators choose to run it with the interest of Nigerians at heart.

About 159 litres of premium motor spirit (PMS) can be generated from a barrel of crude oil. Take note that the domestic need of Nigeria has been placed at 50 million liters of petrol daily. Dangote Refinery has the capacity to refine 650,000 barrels per day.

650,000 barrels of crude oil x 159 litres of petrol= 103,350,000 liters of petrol.

Subtract the domestic need of 50 million liters and you are left with over 53 million liters for export.

Now, if Dangote decides to have pity on Nigerians or NNPC says this 20per cent stake is given in the form of crude oil supply to the refinery; in order to get Dangote to sell fuel to Nigerians at, say, N50 per liter of petrol.

50 million litres of petrol x N50 = N2,500,000,000 gross revenue daily for the refinery.

Multiplied by 30 days, Dangote will be making N75 billion monthly. Per year, the facility will gross no less than N900 billion.

Also, note that importing petroleum products creams off over 50per cent of Nigeria’s foreign exchange revenue; which has played a major role in devaluing the naira to the state it is in at the moment.

So, with a Dangote Refinery coming into operation, it is likely that the naira may, at its worst, bounce back to an average of N100 to $1.

This will happen within the first six months of optimal operation by the world’s largest Refinery.

In other words, at an exchange rate of N100 to one dollar, Dangote’s N900 billion will translate to $9 billion within its first year of active Petroleum refining business.

That is over 70per cent of RoI.

In other words, Dangote would have recouped $9 out of the $15 billion invested in the refinery from selling petrol to Nigerians, alone, exclusive of what the facility will generate in revenue from the other derivatives such as fertiliser, gas etc.

All considered, Nigeria can be said to have placed her downstream on a redemptive course for the enabling of a robust production and distribution of petroleum products that will make the Nigerian people heave a sigh of relief that at last they can now buy fuel at far less than N100 per litre.

It is not a dream, but a possible and present reality that can be accomplished, only by a caring people’s Government.