ABUJA, Nigeria
Nigeria’s new Dangote petroleum refinery is Africa’s biggest – it will produce 650,000 barrels a day, giving it the potential to address the country’s energy supply crisis.
Owned by Nigerian
industrialist and Africa’s richest man, Aliko
Dangote, the refinery is expected to boost domestic refining capacity,
getting rid of the current consumption shortfall. It will also reduce import
dependency and stimulate economic growth.
It is the first privately
owned crude oil refinery in Nigeria. Nigeria’s existing refineries, plagued by
operational inefficiencies under government control, have failed to meet the
growing demand for petroleum products. Substantial imports have become
necessary.
Nigeria currently imports more
than 80% of
its refined petroleum products. The country is the largest importer of
refined petroleum products in Africa. Local production will therefore massively
cut the country’s import bill.
In 2021, Nigeria spent US$11.3
billion on importing refined petroleum products.
Nigeria subsidises the pump
price of petrol. Since the country imports the bulk of its refined petroleum
products, official reason for sustaining petrol subsidies was to minimise the
impact of rising global oil prices on Nigerians.
According to the new corporate
entity solely licensed to operate Nigeria’s petroleum industry, NNPC Limited, Nigeria spent $10
billion on fuel subsidies in 2022 and is expected to spend $7.5
billion on fuel subsidies by mid-2023.
This represents about 24% of
Nigeria’s 2022
budget and is an unsustainable drag on public finances. This money can
now potentially be saved with Dangote refinery plugging the supply shortfall.
In my previous research, I have found that there is a link between Nigeria’s crude oil export dependency and its weak local refining capacity as well as the subsidy. This is also the case with Mexico, which exports its crude abroad for processing.
Based on my experience in
the sector,
I set out the four areas where the Dangote refinery is expected to make an
impact on Nigeria’s petroleum sector and, by extension, the Nigerian economy.
The most notable impact of
Dangote refinery will be the increase in local refinery capacity, which will
reduce imports.
Dangote refinery is expected
to help Nigeria meet 100% of it’s
refined petroleum product needs (gasoline, 72 million litres per day; diesel,
34 million litres per day; kerosene, 10 million litres per day and aviation
jet, 2 million litres per day), with surplus products for the export market.
The refined petroleum output
from the refinery in combination with other refineries in Nigeria is expected
to meet the shortfall of the estimated daily consumption of 72
million litres of petrol.
The country has faced several
fuel shortages in the past, which have caused prices
to surge for transport and basic commodities.
Recent
fuel shortages have been blamed on the Russia-Ukraine war. The price
of imported fuel rose more than 100%. Importers operated at a loss due to price
ceilings set by the government.
Besides eliminating import
dependency, the Dangote refinery can potentially reduce Nigeria’s crude oil
export dependency as more crude oil will be refined domestically.
Refining crude oil locally
will enable the country pay for the refined product in naira which will save
scarce foreign exchange and generate revenue in exported refined petroleum
products.
The establishment of the
refinery is also likely to help reduce the cost of production for industries
that rely
on petroleum products such as diesel to power their operations. In
turn, this should increase their competitiveness in the global market while
promoting local industry capabilities.
The refinery could also create
an environment for allied industries to emerge in and around it. For instance,
businesses in transport, housing and telecommunications will benefit from the
construction and operations of the refinery.
And the refinery should create
jobs and entrepreneurship opportunities.
While under construction, the
refinery employed about 40,000
workers – 29,000 Nigerians and 11,000 foreigners.
The jobs were in engineering,
construction, manufacturing and operations, among other areas.
In full operation, the
refinery, according to media reports, is expected to create over 250,000 direct
and indirect jobs. I believe this is a fair estimate.
The country’s current
unemployment rate is expected to reach 40.6% in
2023.
The operation of Dangote
refinery raises concerns about its potential impact on Nigeria’s net zero
emission goals. Net zero is an ideal state where the amount of greenhouse gas
emissions produced and greenhouse gas emissions taken out of the atmosphere is
balanced.
Decarbonisation efforts are
required for countries to achieve net zero but the path and time might differ
as countries may want to take a gas-led approach to transition to renewable
energy.
At the COP26 climate change
meeting in 2021, President Muhammadu Buhari committed to
net-zero emissions by 2060. This is to protect Nigeria’s environment and
ecosystem from the impact of climate change and reduce the country’s greenhouse
gas emissions.
Nigeria has an Energy Transition Plan to get
closer to a more sustainable economy. The plan assumes greater use of natural
gas as a “transition
fuel”.
Oil refineries contribute
about 4% of
the global carbon emissions.
The Dangote refinery complies with
World Bank, US, European and Nigerian norms for emissions and effluents.
The Dangote refinery is a
significant step towards self-sufficiency in Nigeria’s energy sector.
However, the refinery is still
reliant on fossil fuels, and it is not a long term solution to Nigeria’s energy
needs.
Nigeria has significant renewable energy potential,
including solar and wind power.
Renewable energy can be
harnessed to meet Nigeria’s energy needs in a sustainable manner. Therefore,
Dangote refinery should be viewed as a stepping stone towards a transition to
cleaner energy sources in the medium term.
It is essential that Nigeria continues to invest in renewable energy and explore ways to reduce its reliance on fossil fuels to achieve its net zero emissions goal.
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