Nigeria’s Dangote oil refinery, the largest in Africa, has been reselling cargoes of U.S. and Nigerian crude due to technical problems, according to four trade sources familiar with the matter. Despite beginning production in January, the refinery is encountering operational issues that are affecting its crude distillation unit (CDU). This development has raised concerns among industry experts and traders about the refinery’s impact on the market and Nigeria’s fuel self-sufficiency goals.
Reselling Amid Technical Problems
Three sources revealed that the reselling of crude by the Dangote refinery is directly linked to the ongoing technical problems it faces. The refinery’s management has been forced to resell cargoes of Nigerian Escravos and Forcados crude, as well as U.S. WTI Midland crude, to mitigate the operational disruptions. Despite these claims, a Dangote executive insisted that the CDU is operational, although the persistent resales suggest otherwise.
“Such resales by refineries are quite rare but not unknown,” said one trader. This uncommon practice has contributed to fluctuations in crude prices, with Brent crude falling by as much as 2.5% towards $80 a barrel before recovering slightly to above $81 by 1700 GMT. The market response underscores the sensitivity of crude prices to operational stability in major refineries.
Aiming for Full Capacity
The Dangote refinery, built at a staggering cost of $20 billion by Africa’s richest man, Aliko Dangote, aims to reach full capacity soon. Once fully operational, it is expected to be the largest refinery in both Africa and Europe. This significant development has the potential to disrupt the highly lucrative Europe-to-Africa fuel trade and transform Nigeria into a major exporter of refined fuels.
Despite Nigeria being Africa’s biggest oil producer, the country has historically relied heavily on fuel imports due to insufficient refining capacity. The Dangote refinery represents a strategic move to reverse this trend, making Nigeria self-sufficient in fuel production. However, the current technical challenges raise questions about the timeline and feasibility of achieving these ambitious goals.
The refinery has been importing multiple crude cargoes monthly since its inception. The decision to resell these cargoes indicates the severity of the technical issues it is facing. Traders have observed that the resales are not a common practice, highlighting the unique situation at the Dangote refinery.
Impact on the Market
The resales and technical issues at the Dangote refinery have had a noticeable impact on the crude oil market. The rare practice of refineries reselling crude cargoes has led to price fluctuations, underscoring the market’s sensitivity to operational disruptions in major refining hubs. The refinery’s performance is being closely monitored by industry experts, traders, and stakeholders in Nigeria’s energy sector.
“The news of resales has definitely added to the volatility in crude prices,” noted an industry analyst. Brent crude’s initial decline and subsequent recovery reflect the market’s cautious response to the developments at the Dangote refinery. The ongoing technical issues highlight the challenges faced by large-scale industrial projects in achieving operational stability.
In the face of these challenges, the Dangote refinery continues to strive towards stabilizing its operations and achieving its production targets. The successful resolution of the technical issues is crucial not only for the refinery’s profitability but also for Nigeria’s broader energy strategy. Achieving full operational capacity would mark a significant milestone in Nigeria’s journey towards fuel self-sufficiency and reduced reliance on imports.
Source: ReutersÂ
