Nigeria’s giant Dangote refinery is benefiting from record margins for producing jet fuel that it is mostly selling abroad, while the domestic airlines it also supplies have threatened to stop flying because of the surge in fuel prices.
The refinery, the largest on the continent, was built to turn Africa’s biggest oil producing country into a net exporter of refined products, end Nigeria’s reliance on fuel imports, and shield its economy from global energy shocks.
It became fully operational at the start of this year and is producing at its maximum capacity of 650,000 barrels per day.
That has improved local fuel availability but domestic fuel prices are still among the highest in Africa as Nigeria’s market is fully deregulated, meaning fuel prices are not subsidised by the government as they are in most African countries.
The issue is further complicated by the state oil company’s long-standing debt repayment agreements that mean Dangote has to import most of its crude oil, making it easier to balance its books if it sells abroad.
CLASH WITH THE NEEDS OF THE AVIATION INDUSTRY
Industry body the Airline Operators of Nigeria said prices, taking logistics and storage costs into account, have climbed to 3,300 naira ($2.44) per litre, nearly triple the level in February before the start of the Iran war.
Nigeria’s energy regulator said Dangote was selling jet fuel at 1,879 naira ($1.39) per litre, little changed from imported fuel prices of about 1,900 naira ($1.41) per litre delivered to Lagos earlier this month.
The Middle Eastern conflict has led to unprecedented energy disruption and the risk of jet fuel shortages is pressing. Airlines around the world have hiked prices, added fuel surcharges and grounded planes.
Nigerian airlines last week threatened to halt all flights, prompting the government on Thursday to approve measures including some relief on debts owed by local airlines and ordering talks to try to agree lower prices.
DANGOTE’S MARGINS COULD BE EVEN BETTER?
Dangote, meanwhile, as a new, highly efficient refinery, has been able to take advantage of record margins for producing jet fuel from crude.
Its profits could be even higher if it could rely on Nigerian crude and avoid almost all freight costs.
State oil firm, the Nigerian National Petroleum Company Limited’s joint‑venture crude, however, is tied to oil-backed loans and pre‑export deals.
That means much of Nigeria’s roughly 1.5 million barrels per day of production goes to paying debts to international oil majors, banks and traders. The NNPC does not disclose its obligations, but analysts estimate they amount to about 400,000 bpd.
Dangote Group Vice President Davekumar Edwin said Dangote imported most of its crude from the U.S., as well as some from other African producers and Brazil. He did not give precise figures.
He said the bulk of the 24 million litres of jet fuel it produces daily was shipped to Europe, although he also said the refinery largely supplied the needs of Nigerian airlines, which the aviation industry estimates at about 2.1 million litres per day.
EUROPEAN BUYERS ARE WILLING TO PAY UP
As European buyers are willing to pay a premium ahead of the peak demand summer travel season, European imports from Nigeria have averaged 78,000 to 96,000 barrels per day in April so far, data from Kpler and LSEG showed, the highest on record.
Alan Gelder, senior vice president for refining, chemicals and oil markets at Wood Mackenzie, said European refiners had earned about $15 per barrel.
He estimated Dangote’s margins at more than double that as a result of access to Nigerian crude and the plant’s scale and sophistication. Edwin did not disclose figures, but the profits from producing jet fuel hit a record on international markets in March.
Dangote, as a private refinery, prices its products in response to global markets, Gelder said, and that building a big refinery “does not automatically mean fuel prices fall”.
Dangote plans to list shares in the coming months and is expanding the complex to 1.4 million bpd capacity, which could make it the world’s largest refinery by the end of the decade.
