Nigeria’s biggest single local investment faces age-old threats

… Dangote insists its diesel is best in Nigeria

… Looks to Libya, Angola, others for crude oil

Nigeria’s oil and gas sector, the lifeblood of Africa’s biggest economy, where investments have been too few and far between, could be taking a hit due to the ongoing public disagreement between Dangote Industries Limited (Dangote) and the Nigerian Midstream and Downstream Petroleum Regulatory Agency (NMDPRA).

If it becomes fully operational, the $20bn Dangote facility, Nigeria’s biggest single local investment located in the outskirts of Lagos, could process half of Nigeria’s daily oil output.

Yet what should be a moment of pride for the country’s most important industrialist is swamped with allegations from Farouk Ahmed, head of NMDPRA, who publicly said the refinery’s diesel products are inferior to imported ones.

Read also:Nigeria’s risk profile seen rising on Dangote-NMDPRA dispute

Ahmed’s statement sparked a significant public backlash. Many experts found his remarks unacceptable, arguing that they undermined a major local industry and did not reflect the true quality of the refinery’s products.

“I am actually surprised that the NMDPRA boss still has a job. Isn’t it the goal to reduce or eliminate the need for imports? Nigeria spends $2.4 billion monthly on energy imports. With a fully operational Dangote refinery, we could produce 49.4 million liters of PMS, 26 million liters of diesel, and 12 million liters of Jet A1 daily,” Kelvin Emmanuel, an energy economist and board member at Obsidian Archenar Nigeria, said.

He added, “So, his diesel is way better than what is imported into Nigeria and if the National Assembly wants to go a step further, they can recruit SGS, which is one of the reputable gasoline testing firms in the world, and also PWC or KPMG to do an audit of the third-party rubbing roundtable certifications process for AGO and gasoline.

“The question is, Nigeria has been importing petroleum products for 52 years. In the last 20 years plus, the government has spent N12 trillion in turnaround maintenance and the refineries are still dead. In my opinion, I don’t think those refineries should be relied on anyways. So, if an entrepreneur takes up the challenge of investing $20 billion to build a refinery, the government should support him.”

Luqman Agboola, head of energy and infrastructure at Sofidia Capital, said regulatory uncertainty is a disincentive to oil and gas investment because it hampers the future of business operations, while infrastructure decay increases the cost of production, affects competition, and erodes companies’ profitability.

Read also : Dangote blames NNPC’s forward oil sales for refinery’s lack of crude

He noted that any factor that affects foreign investment will disproportionately hit the oil and gas sector, affecting players across the value chain and causing the country to lose out on potentially large energy deals.

“Regulatory and political risks are real headaches for investors in the oil and gas sector. As such, prior to investing there, investors undertake extensive due diligence to ensure that such risks are adequately addressed or mitigated,” Juwon Adebayo, energy and environmental lawyer at Center for Energy Resources Consulting, said.

Nigeria’s increased regulatory risk is also coming at a time there is mounting global advocacy aimed at halting all-new Final Investment Decisions (FIDs) for fossil fuels, especially oil and gas. The situation may create serious hurdles for new field development as over $150 billion worth of projects risk getting stranded in Nigeria.

Charles Ogbeide, energy analyst with a Lagos-based investment bank, said the comments from the regulator were reckless.

“The refinery is in the stages of completion and commissioning. They are producing AGO and it is normal for their sulphur level to be high for now,” Ogbeide said.

“That their products are inferior is an unfortunate statement that indicates that he has a personal grudge against Aliko Dangote,” he said.

Jide Pratt, country manager at Trade Grid and an energy analyst, said: “Didn’t this same regulator give a waiver? Why did the agency allow sales into the open market then? Or are they unaware the refinery is selling?

He added, “Why is the Port Harcourt refinery that is technically complete not selling and a 45 percent refinery is selling? Until the President decides to sort out the anomalies in this sector, nothing will change.”

Worth more than $15bn, according to Bloomberg, Dangote has enjoyed cozy relationships with Nigerian leaders. They consider him a champion of domestic industry as the country’s largest employer outside of the Federal Government and one of the country’s highest taxpayers.

Aliko Dangote, president of Dangote Group, said the refinery has continued to receive repeated orders for its products from all those who have purchased the same since the commencement of production.

Speaking during a tour of both Dangote Petroleum Refinery & Petrochemicals and the Dangote Fertiliser Limited complex by members of the House of Representatives on Saturday, Dangote wondered why a regulatory authority like the NMDPRA that should protect local industries is castigating the latter and even lying in the media to justify the need to continue the importation of dirty fuel into the country.

“Demarketing of a company by a regulator that is supposed to protect it, is very unfortunate,” Dangote said.

He openly challenged the regulator (NMDPRA) to compare the quality of refined products from his petroleum refinery with those imported, while advocating for an impartial assessment to determine what best serves the interests of Nigerians.

“We produce the best diesel in Nigeria. It is disheartening that instead of safeguarding the market, the regulator is undermining it. Our doors are open for the regulator to conduct tests on our products anytime. Transparency is paramount to us,” Dangote said.

“Our samples show a sulphur content of 87.6 ppm, approximately 88, whereas the others exceeded 1,800 ppm. Although the NMDPRA permits local refiners to produce diesel with sulphur content up to 650 ppm until January 2025, as approved by ECOWAS, ours is significantly lower. Next week, we aim to achieve 10 ppm, aligning with the Euro V standard. Imported diesel is capped at 50 ppm, but as you have seen, those from the stations, imported by major marketers, fall well outside this standard,” Dangote observed.

Despite being Africa’s largest oil producer, Nigeria grapples with issues such as theft, pipeline vandalism, and low investment. As a result, Dangote has had to import crude from distant sources such as Brazil and the United States.

“We are talking to Libya about importing crude. We will talk to Angola as well and some other countries in Africa,” Devakumar Edwin, Dangote refinery senior executive, told Reuters.

He added that international traders and oil companies are among the largest buyers of Dangote’s oil, much of which is being exported.

“The biggest off-takers are the big traders, Trafigura and Vitol and BP, and to some extent, even TotalEnergies. But all of them are saying they are taking it offshore,” Edwin said.

Traders and shipping data indicate that Dangote is ramping up gasoil exports to West Africa, capturing market share from European refiners.

Edwin stated that Dangote’s oil trading arm is now operational, with staff based in London and Lagos, to manage supplies and sell products.