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Dangote Mega Refinery Launch: Anticipating the Pace of Nigerian Crude Operations


Michael Chen

May 14, 2024 - 15:46 pm


Dangote Industries Unveils Mega Refinery Under Skepticism Amid Stalled Nigerian Crude Sales

Refining pipework at the Dangote Industries Ltd. oil refinery and fertilizer plant site in the Ibeju Lekki district of Lagos, Nigeria, on Monday, May 22, 2023. Aliko Dangote, Africa’s richest person, announced the opening of a mega refinery in Nigeria — seven years late — to a backdrop of skepticism about how fast it will really be able to ramp up. Photographer: Benson Ibeabuchi/Bloomberg

Amid the serpentine assembly of refining pipework, the Dangote Industries Limited has initiated operations at its long-awaited oil refinery in Nigeria. The project, spearheaded by Africa's wealthiest individual, Aliko Dangote, unfolds against a tableau of doubts pertaining to the speed at which the refinery will scale up its production. The inauguration ceremony, orchestrated against the industrial backdrop of the Ibeju Lekki district in Lagos, unfolded seven years later than originally planned.

Uncertain Markets and the Struggle to Clear Oil Cargoes

In a parallel development, Nigeria's crude oil designated for May loading is exhibiting a gradual resolve in the market after encountering a tepid demand from European buyers. This lukewarm interest had cornered vendors into dropping prices to catalyze sales. Currently, a consensus among trading experts suggests that nearly ten shipments of Nigeria’s crude remain open for sales. Despite representing only a fraction of the nation's total export capacity for the month, it is expected that additional transactions will be finalized within the week, following a slight downturn in the asking prices.

The Slow Dance of May Crude Supply Sales

The marketing cycle for West African crude typically kicks off approximately six weeks ahead of the designated loading month. This timeline underscores the sluggish progression of sales involving Nigeria's May crude supplies. Analysts point to a more broad-market downtrend within the Atlantic Basin's crude market. Factors such as an influx of US oil exports have resulted in the depression of refinery feedstock prices in both Europe and West Africa. Concurrently, European refineries are emerging from routine seasonal maintenance. The downward pressure on prices extends beyond regional producers, affecting prominent European suppliers, including Azeri Light and West Texas Intermediate.

“We've got much weaker margins, so crude demand is taking a hit,” explained James Davis, Director of Short-term Oil Market Research at FGE. The slowdown in Nigeria’s offloading pace can also be attributed to sellers who sought premiums over the Dated Brent benchmark – rates that Europe's refiners felt were not coalescing well with their financial operations.

Adjusting to Market Dynamics

Insights from Energy Aspects Ltd. indicate that the premiums initially attached to May cargoes were incongruent with the pricing structure preferred by European entities. However, as offer prices recede, the movement of volumes is beginning to pick up. Christopher Haines, a global crude analyst with Energy Aspects, noted that “lower offers have seen volumes move.” A bolstering in forward diesel pricing seems to also be underpinning this development.

In efforts to stay competitive, certain Nigerian crude grades, like Qua Iboe aimed at Asian markets and Bonny Light targeted towards the Mediterranean or East, have been subjected to competitive pricing schemes. An analysis earlier in the week from Sparta Commodities highlighted a diminishing surplus as a result of these adjustments.

Upcoming Sales and the Competition

That said, June and July still present a challenging sales landscape. An overhang of approximately thirty shipments for Nigeria's June loading remains unresolved, and July's offerings are projected to enter the market later in the current month. The standard volume per cargo is pegged at one million barrels.

In stark contrast, Angola's crude sales to China exhibit a robust standing, with fewer than ten out of 37 scheduled shipments for June still seeking buyers. Much of Angola’s crude is classified as a medium-to-heavy sweet variety, which is believed to align more suitably with the preferences of China's refining capabilities compared to Nigeria's lighter-grade output.

Recent market activity saw China’s Unipec securing three shipments of Angolan crude for June loading towards the tail end of the past week. In addition, Rongsheng Petrochemical acquired a supply of Angolan crude destined for July delivery.

The bustling oil market dynamics and Dangote's refinery rollout, while monumental, underscore the volatility and competitive nature of the crude oil sector. As Nigeria positions itself to enhance its refining prowess, the broader market remains in a state of flux, subject to the whims of demand, production, and geopolitical influences.

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