Nigerian officials are determined to cut the country’s dependency on crude oil exports, and the construction of a vast oil refinery near capital city Lagos – an ambitious project pioneered by Aliko Dangote, Africa’s richest man – has been touted as the perfect solution. However, questions around infrastructure, pricing and timings continue to go unanswered. John Basquill reports.


Fuel is Nigeria’s largest export and its largest import. Unrefined fuel, mostly crude oil, accounts for around 95% of outgoing goods trade each year, yet Africa’s largest economy and most populous nation is dependent on imported petrol.

Central bank officials have long been keen to reverse that trend. Richard Audu Maikai, principal manager of the Central Bank of Nigeria’s (CBN) trade and exchange department, said in February the country’s “over-dependence on oil exports has exposed the economy to external shocks”. Speaking at the GTR West Africa event in Lagos, Maikai added: “This situation must not be allowed to continue.”

Essentially, high oil prices mean higher revenue on exported crude but higher government subsidies on the cost of petrol domestically. Oil price slumps mean those subsidies are lower, but so is revenue from commodities exports. The state has on occasion considered removing the fuel subsidy, but efforts to do so in 2012 were called off after nationwide protests.

That conundrum has given rise to the Dangote oil refinery project. Located in the Lekki Free Trade Zone east of Lagos, the vision is that the plant will be able to process 650,000 barrels per day, making it one of the largest refineries on the planet.

The Dangote Group’s executive director for strategy, Devakumar Edwin, says the refinery’s vast capacity means it will be able to meet domestic demand fully while producing “enough to allow for a small surplus of that fuel for export”, as well as a “large volume of diesel and jet fuel to international markets”.

Speaking to representatives from government and the Nigerian National Petroleum Corporation (NNPC), a major state-owned oil company, during a tour of the site in November last year, Edwin explained that Dangote’s vision is to buy crude at the export price and sell fuel at the import price, with refined products transported out by sea and road.


Years of delays

The project has already had support from the CBN, whose governor Godwin Emefiele said in March that once operational, the refinery “will not only satisfy local consumption but will also position Nigeria as a major exporter of petroleum products”.

However, it has been dogged by delays. Construction on the plant began in 2016 with an initial planned completion date of late 2018, and though that has since been pushed back to the end of 2020, sources familiar with the project dismiss any possibility of that deadline being met.

“Operational by the end of 2020? Not a chance,” says one source, speaking on condition of anonymity. “By 2023, maybe, but even that is a stretch.”

One issue is infrastructure. Much of the Lekki-Epe road, which runs east from Lagos, through Lekki and towards Ijebu, is residential and currently ill-equipped to handle transportation of vast amounts of fuel.

Theoretically, to meet domestic demand, the refinery would have to produce around 67 million litres of petrol per day – equivalent to Nigeria’s average daily petrol consumption for September 2019, the most recent month for which data is available.

If done entirely by road, that would equate to more than two thousand 33,000-litre trucks travelling from Lekki every day. Beyond worsening Lagos’ traffic problem, that prospect also gives rise to safety concerns. As recently as March this year, at least 17 people were killed when a truck hit bottles at a gas processing plant west of Lagos. The tragedy occurred just nine months after a fuel tanker crashed and exploded in central Lagos, killing upwards of 50 people.

Dangote representatives say they have already looked into acquiring shuttle barges to transport supplies by sea, alleviating pressure on roads around Lekki, but even if that option were to prove cost-effective it still leaves questions about wider distribution throughout Nigeria.

“The scale is huge,” says a second source, who represents a trading company active in Nigeria. “We need to start importing bitumen and building roads, building infrastructure. It’s all doable, but some transparency around where it’s going would certainly be comforting from an investor’s point of view.”


Crunching the numbers

There are also concerns over the financial aspects of the refinery project. Nigeria’s huge trade flows enable it to make millions on the foreign exchange market. For Dangote’s vision to come to fruition, the savings on imported petrol would have to be greater than the revenue from forex, but a January Africa Report study estimates that is not the case. Nigeria “would be losing US$11bn to save US$8.7bn”, it suggests.

The source close to Dangote acknowledges that is an area of uncertainty, though points out there are “other issues to consider: jobs, local development and the resulting boost to GDP”.

They point out, however, that pricing is another issue: “What happens if subsidies are required to ensure it is competitive with imports?” they ask. “Would it still be beneficial to the country’s finances?”

Part of that will be dictated by whether Nigeria is able to increase its domestic production capacity and supply the full 650,000 barrels per day itself, or whether feedstock to the Dangote refinery will also require imported crude.

Representatives from Dangote did not respond when contacted by GTR, and communications staff could not be reached by email or phone.

There are also unanswered questions for the Nigerian government around where the project leaves recent efforts to restore Nigeria’s existing refineries, which have gradually fallen into a state of disrepair.

Timipre Sylva, minister of state for petroleum resources, said in October last year it is “unfortunate that they had run aground over the years and were all presently operating at zero capacity”, but that “efforts were on to revamp” those facilities. He added authorities were “making a lot of progress” restoring refineries in Port Harcourt, while studies on refineries in Warri and Kaduna were ongoing.

Even as questions stack up, the government has remained steadfast in its support for the Dangote project. Sylva said in November that investors “all over the world will look at the success of this project” and pledged to back the refinery however possible.

“We must all support this project to succeed, because the success of this project signals a lot,” he said. “We are here to assure you, Dangote Group, that as a government, as NNPC, we will support this project as much as we can.”