The Economist Intelligence Unit (EiU) has issued a warning that additional delays in crude oil feedstock to the Dangote Petroleum Refinery and Petrochemicals may jeopardise Nigeria’s financial restoration and put extra stress on the native forex Naira.
The analysis and evaluation division of the Economist Group stated the Dangote Refinery, which started manufacturing in January, has encountered setbacks in petrol manufacturing because of a scarcity of crude oil feedstock.
It stated the $20 billion facility has efficiently exported varied merchandise, together with gasoline oil, naphtha, nitrogen fertilisers, gasoil, jet gasoline, and diesel however has been in a position to ramp up petrol manufacturing because of challenges in sourcing sufficient crude oil.
The delays are anticipated to have vital financial repercussions for Nigeria, doubtlessly worsening the already strained relationship between public funds and the administration of the naira, the nation’s forex.
The report stated although the federal government had beforehand scrapped the official petrol subsidy in June 2023, the observe of unofficially subsidizing petrol continues, with substantial implications for the nationwide price range. It identified that this has led to elevated forex losses, contributing to a widening price range deficit that has grow to be more and more troublesome to handle and will power the Central Financial institution of Nigeria to revert to stronger administration of the forex.
“Because the federal authorities unofficially subsidises petrol (the official subsidy was scrapped in June 2023), forex losses feed right into a widening price range deficit that’s changing into tougher to finance. This offers further incentive for the central financial institution to revert to stronger administration of the forex, as we already count on, however the diploma of market intervention may grow to be heavier. In the meantime, ongoing gasoline imports would cut back the current-account surplus from the 1.9% of GDP that we presently mission for 2025, doubtlessly resulting in decrease overseas reserves and the return to a extra inflexible and unstable foreign-exchange system,” it stated.
The delay in securing a dependable pipeline of inexpensive crude oil feedstock was attributed to low crude manufacturing because of oil theft and underinvestment, in addition to utilizing crude oil to repay excellent loans.
“The refinery has encountered a variety of issues, each sensible and political in nature. Essentially the most publicly mentioned situation is how the refinery can safe a dependable pipeline of crude oil feedstock at inexpensive costs. NNPC, the state oil agency, has not been in a position to present sufficient quantity. The federal government has promised to ship 450,000 b/d of oil to the refinery via NNPC in a pilot scheme, offered in naira, however the state oil firm is just not ready to make this a dependable association. Crude manufacturing in Nigeria is stubbornly low, on account of oil theft and underinvestment. Output was 1.31m b/d in July, towards an OPEC+ goal of 1.38m b/d. NNPC receives a various minority share of this and, furthermore, a large amount (about 90,000 b/d) is being dedicated as mortgage collateral,” it added.
The scenario, it stated, has been worsened by Worldwide Oil Firms (IOCs) working in Nigeria, which demand a premium of $3-$4 per barrel over the costs they obtain elsewhere. It famous that regulators are hesitant to implement the Home Crude Provide Obligation (DCSO)—which requires IOCs to promote crude to native refineries—out of concern that such enforcement may result in divestment.
The report emphasised that producing gasoline domestically would considerably profit Nigeria’s fiscal place and forex, on condition that petroleum merchandise account for 15% to twenty% of the nation’s items import invoice. The Dangote refinery, hailed as a transformative growth, is anticipated to resolve the paradox of Nigeria being a significant crude oil producer but nonetheless depending on gasoline imports. With a capability of 650,000 barrels per day (b/d), the refinery may doubtlessly remove the necessity for gasoline imports and protect native gasoline costs from exchange-rate fluctuations.
“The Dangote gasoline refinery is doubtlessly transformational for Nigeria, which has at all times been an oil exporter and gasoline importer. This truth is commonly thought to be a failure and a humiliation by politicians, companies and the media alike, however the brand new refinery has the flexibility to alter this,” it said.
