According to some analysts marketers decision to start buying products from Dangote, we will be able to save at least 24 trillion naira ($14.3 billion) yearly.
For decades, Nigeria has relied on imports to meet fuel demand, spending about $15 billion annually. Now, new alliances aim to cut these expenses by investing in homegrown energy, targeting affordable petrol for consumers and boosting the economy.
New agreements among the Nigerian National Petroleum Company Limited, Dangote Refinery and independent oil marketers may end long-standing issues over fuel imports.
The NNPCL and oil marketers will now take petrol directly from local refiner Dangote instead of importing it, aiming to reduce import costs, stabilise petrol prices and make fuel more affordable for consumers.
Energy expert, Faith Nwadishi, praises this move for its potential to strengthen the economy.
“If we begin to buy products from Dangote, we will be able to save at least 24 trillion naira [$14.3 billion] yearly,” said Nwadishi. “Nigeria depends on that. The economy depends on that. If there’s no fuel, you see the hardship it takes on people. Products cannot come from farms to markets.” according to report by Voice of America (Africa) service.
Sharing optimism, David Etim, an energy expert and entrepreneur, said he believes this is the right step toward energy independence.
“Energy self-sufficiency or energy dependency is actually a national security issue,” said Etim. “It’s just like food security. No country in the world that depends on outsiders to provide such an essential input to its social life as energy can call itself independent. So, the fact that Nigeria has moved from energy dependency to energy independency is a significant move in a very positive direction.”
Nigerians currently pay high fuel prices, with some areas reporting more than 1,200 naira per liter ($0.71). This deal raises hopes as the oil sector shifts to local production.
Consumers such as Felix Chukwuemeka, an Abuja businessman feeling the heat of rising prices, eagerly await relief.
“From my house to my junction, we paid 300 ($0.18), but now we are paying 600 naira ($0.36),” said Chukwuemeka. “So, you can see the expense is doubled. … It would be very exciting to many of us, especially in the business sector, if the price of petrol seems to reduce, because it will really enhance our business.”
Despite optimism, Nigeria’s four refineries remain nonfunctional, raising sustainability concerns.
Senior economist Paul Alaje emphasises the need to revamp refineries and stabilise the currency for lasting gains.
“The more you abandon your refinery, it becomes moribund, it becomes sunk cost to the economy. And sadly, this is reality today,” said Alaje. “… Nigerians will be looking at a price between 500 to 600 naira per liter of PMS [petroleum motor spirit]. But, do I think this is achievable even under this current agreement? I doubt very much. Why? There is a big elephant in the room. This elephant is called the exchange rate.”
While the new alliances in the oil sector signal a positive step toward stable, affordable fuel, experts stress the need for transparency, accountability and strict implementation to ensure that Nigerians benefit.
For now, there’s been no notable impact on the cost of PMS across the country.
However, if successful, these agreements could mark a major shift for Nigeria’s oil industry — securing energy independence, easing prices and boosting economic growth.
Before now it was reported that the NNPCL and other marketers imported more than two billion litres of Premium Motor Spirit (petrol), within 42 days from October 1 to November 11, 2024.
As dealers intensified the importation of PMS, Automotive Gas Oil (diesel), and Aviation Turbine Kerosene (jet fuel), domestic refiners opposed the development and called on the government to halt the issuance of import licences to marketers.
However, oil marketers insisted that the downstream petroleum sector had been deregulated, and as such, dealers were free to source products from wherever they found them cheaper.
According to documents during the 42-day period, the NNPC and its partners imported 1.5 million metric tonnes of PMS, 414,018.764 metric tonnes of diesel, and 13,500 metric tonnes of jet fuel. This is worth about N3tn or $1.8bn.
One metric tonne of PMS is equal to 1,341 litres. This means 1.5 million metric tonnes represents 2.011 billion litres of petrol.
Pushing For Export
Dangote refinery has already agreed to export more than 200,000 mt of its petrol according to a company official, as local demand for costlier, higher quality fuel has disappointed stakeholder expectations.
Speaking to S&P Global Commodity Insights November 11, an executive at the refinery confirmed that the refinery had signed its first export orders for its petrol and will begin dispatching product “as soon as the ships arrive”.
Championed as a project to end Nigeria’s import dependence for fuel, the 650,000 b/d refinery had been widely expected to market all of its gasoline domestically to service roughly 340,000 b/d of local demand.
However, since beginning petrol production in September and significantly improving the quality of its fuel in October, rising prices have meant the refinery has struggled to shift its supply.
Facing a fivefold increase in prices at the pump from the previous year, locals have warned that fuel affordability has been severely challenged, while the regulator, the NMDPRA, said in August that demand could drop by as much as a quarter year-on-year.
On October 29, refinery CEO Aliko Dangote complained that the refinery was wasting money holding over 500 million liters (around 3.1 million barrels) of fuel in storage, while the company has blamed illicit low-quality imports for undercutting its prices and threatened to sue state oil company NNPC for continuing its fuel imports.
In the first week of November, the refinery made its first attempt to sell petrol abroad, issuing a public tender for the fuel type, but later appeared to bow to public pressure by revoking the offer.
Three West African traders said the refinery initially issued a tender to sell 40,000 mt of gasoline, which two confirmed specified product with a sulfur content of 150 parts per million.
One source said that the refinery had called the initial tender a “mistake”, while a second called the move “controversial” while Dangote continues to produce less than a third of Nigeria’s domestic gasoline demand.
The refinery official confirmed that the 40,000 mt tender had been canceled, but said Nov. 11 that the company had the surplus product to begin exporting. “We have the stocks,” he said.
Since starting operations in January, Dangote has sold its diesel, jet fuel and other products on the global market, mostly via traders Vitol and Trafigura and international energy company BP, according to S&P Global Commodities at Sea data.
Initially, it agreed an exclusive supply agreement with NNPC for its gasoline, but by Nov. 4 had also begun selling to local marketers, the refinery executive said.
The refinery has reported that its gasoline meets quality standards with a sulfur content of below 50 ppm, marking a significant improvement for the Nigerian market, for which 500 ppm was still the standard in late 2023.
The improved fuel quality has added upside to domestic retail prices, but has also meant that more prospective buyers are lining up for supplies.
Speaking on the sidelines of African Energy Week, Mustapha Abdul-Hamid, CEO of Ghana’s National Petroleum Authority, said November 7 that Ghana is interested in potential gasoline imports from the refinery, which was previously producing above its 50 ppm national standard.
“Now it’s able to do 50 ppm it definitely should be cheaper to buy out of Nigeria than from Rotterdam,” said Abdul-Hamid, venturing that supplies could be blended with 500 ppm product from Ghana’s Tema refinery.
Traders have also expressed interest in routing the product to regional West African shorts or destinations such as New York, which could present attractive arbitrage opportunities from Nigeria.
Sources speculated that closer ties between the refinery and the Caribbean, evidenced by a recent state visit by the Prime Minister of Grenada and chairman of the Caribbean Community (CARICOM), could also translate to a potential term contract.
A representative for the Dangote Group said the partnership will initially focus on trade opportunities for its cement business, though officials had previously hinted that the business would be open to crude-for-products deals with its Caribbean counterparts.
Platts, part of S&P Global Commodity Insights, assessed CIF WAF gasoline at a $50/mt premium to European 10 ppm barges, having risen from an $8/mt premium October 1. Gasoline in the offshore market typically trades as a differential to Platts 10 ppm FOB AR barges.
Sustain Regional Connectivity
The Dangote Refinery is reportedly in talks with eight African countries to secure fuel supply agreements.
The refinery’s management is in the advanced stages of discussions with South Africa, Angola, Niger Republic, Chad, Burkina Faso, Central African Republic, and Namibia to commence fuel lifting.
Apart from Premium Motor Spirit (PMS), Dangote refinery has begun exporting diesel fuel to some African countries. The exports increased significantly in May, reaching nearly 100,000 barrels per day. Also, there has been an increase in aviation fuel exports from the refinery.
The chairman of the Dangote Group, Aliko Dangote, said at the onset of petrol production in September that the refinery is prepared to supply the local and regional markets with petrol, diesel and other products like polypropylene.
“This Refinery will change Nigeria and Africa’s Oil and Gas Industry dynamics. Meeting the demands of the Sub-Saharan African region. We have good petrol that guarantees the engines of vehicles last longer as the quality matches global standards,” Dangote noted.
Recently, Ghana announced its intention to buy fuel from the Dangote Refinery. Mustapha Abdul-Hamid, chairman of Ghana’s National Petroleum Authority, shared this information at the OTL Africa Downstream Oil Conference in Lagos, stating that the deal could save Ghana approximately $400 million monthly on fuel imports from Europe.
Currently, Dangote refinery , and the Nigerian petroleum marketers are at odds over pricing disputes with the latter accusing the refinery of setting excessively high petrol prices.
Moreover, these marketers have shown a preference for importing petrol rather than sourcing it from Dangote Refinery due to pricing issues.
Nevertheless, as Dangote Refinery hits full production capacity and works on competitive pricing, Nigerian marketers might begin to favour local procurement if the refinery can provide attractive terms, a dependable supply, and effective distribution.
Quality Issues
Dangote recently raised concerns about the impact of low-quality fuel imports on the growth of its domestic production.
Although Nigeria introduced new fuel quality standards last October, limited control infrastructure has hindered their enforcement. In a statement, Dangote asserts that cheaper yet lower-quality imported fuel is undercutting local sales of its own high-quality gasoline.
Nigeria recently reduced the maximum allowed sulfur content in fuel to 50 parts per million (ppm), down from 150 ppm, in an effort to improve air quality and reduce health risks associated with pollution. The gradual reduction of the sulfur cap aligns with an initiative from the Economic Community of West African States (ECOWAS) to harmonize regional fuel standards. However, enforcement of this new standard is being limited by the lack of testing facilities in Nigeria, according to Aliko Dangote, CEO of the refinery.
Due to limited control capacity, high-sulfur fuel imports continue to enter the market, creating competition for Dangote’s refinery, which produces fuel meeting the new standards.
Aliko Dangote specified during a meeting in Abuja on October 29 that the gasoline produced by his refinery complies with the 50 ppm threshold, with some lots reaching a level of 10 ppm. However, cheaper non-compliant imports have reduced demand for its gasoline.
The Dangote Group, which recently began gasoline production in September at its 650,000 barrels per day refinery, faces difficulties in moving its stock. The company has been forced to store about 500 million liters of gasoline due to insufficient local demand, Dangote stated in his release.
Internal refinery sources have also reported that new trade routes and low-quality fuel blending hubs have emerged in places like Malta and Lomé. These centers allow international traders to produce lower-cost blends, further compromising the competitiveness of Nigerian-produced fuel. Dangote also revealed that a trader recently rented a depot near the refinery to blend lower-quality products, thereby reducing costs.
European players have taken a stricter stance by lowering sulfur content in their fuel exports to West Africa. The ports in the Amsterdam-Rotterdam-Antwerp hub have enforced a strict 50 ppm limit to combat the export of harmful fuels. However, Dangote points out that this has not prevented the development of new trade routes to blending points with less stringent regulations.
Pushing For Local Industry Support
Dangote is advocating for a protectionist policy to support local companies in the oil sector. According to the group, the Nigerian government should consider measures similar to import tariffs applied in the United States and Europe on certain products to protect domestic industries and strengthen the country’s energy independence. Dangote’s refinery, inaugurated in January 2024 with a $20 billion investment, is an ambitious attempt to reduce Nigeria’s dependence on fuel imports.
Another challenge facing the refinery is the issue of crude oil pricing. Since October, Dangote and the Nigerian National Petroleum Corporation (NNPC), Nigeria’s state oil company and a 7.2 per cent shareholder in the refinery, agreed to transact in Naira for crude purchases and finished products, aiming to mitigate currency fluctuation risks. However, the lack of an agreed pricing formula makes it difficult to set sales prices for Dangote’s products.
Without an agreement on the exchange rate, the six crude oil shipments delivered by NNPC to the refinery in October remain unbilled, according to a company source. Dangote has nevertheless indicated that its gasoline is being offered at 990 Naira per liter, a price benchmarked against international markets and aligned with the NNPC’s offerings to local retailers.
The Dangote Group thus seeks to draw the attention of authorities and sector stakeholders to the importance of stricter regulations and policy support for the development of its refining initiative, a cornerstone of Nigeria’s energy self-sufficiency goals
