The Dangote Group, one of Nigeria’s largest conglomerates, is gearing up to begin crude oil production by the fourth quarter of 2024.
According to a report from S&P Global Commodity Insights, the company is actively seeking a floating production, storage, and offloading (FPSO) vessel with a capacity of 650,000 barrels of crude. This development is set to bolster Dangote’s crude oil supply and support its massive refinery operations, which have faced crude shortages in recent months.
The move marks a significant step for Dangote in Nigeria’s upstream oil sector, as it looks to solidify its position not just in refining but also in oil exploration and production.
Dangote holds an 85% stake in West African E&P Venture, a company that operates in two Nigerian oil blocks – OMLs 71 and 72.
These blocks, located in shallow waters in the Niger Delta region, are just 22 kilometers from the onshore Bonny terminal, a key hub for Nigeria’s oil exports.
Other key players in this venture include Nigeria’s state-owned Nigerian National Petroleum Company (NNPC), which holds a 55% interest, and First E&P, a Nigerian upstream oil firm that operates the two blocks.
These blocks contain two key oilfields: the Kalaekule and Koronama fields. Although these fields were discovered as far back as 1966 and first produced oil in the 1980s under Shell, production peaked in 1999 at around 21,000 barrels per day before declining by 2003.
Despite the slowdown, experts believe these fields still have substantial potential. Data from Commodity Insights shows that the fields hold nearly 300 million barrels of recoverable oil and an estimated 2.3 trillion cubic feet of natural gas.
Production at Dangote’s OMLs 71 and 72 is expected to begin as early as 2026.
Commodity Insights predicts that by 2036, production from these blocks could reach approximately 43,000 barrels of oil equivalent per day (boe/d).
The company’s focus on starting oil production is aimed at solving some of the crude supply issues that have plagued its refinery in recent months.
Dangote’s oil production plans come at a critical time for its recently commissioned $20 billion refinery.
The refinery, which is located in Lagos, came online in January 2024 and was designed to address Nigeria’s long-standing dependence on imported petroleum products. The plant produces petrol, diesel, jet fuel, and naphtha for both domestic use and export.
However, the refinery has struggled with crude supply issues since its inception.
The refinery was originally expected to source 300,000 barrels per day (b/d) of Nigerian crude from the NNPC, which had agreed to supply crude in exchange for a 20% stake in the project.
But in a public dispute, the NNPC’s stake was eventually reduced to 7.2%, and it has since been unable to meet its supply obligations fully.
In its first few months of operation, Dangote’s refinery had to import significant volumes of crude oil from the United States, specifically WTI Midland crude.
This reliance on foreign crude sparked criticism and raised concerns about Nigeria’s ability to support its largest refinery with domestic resources. According to data from S&P Global, Dangote received nearly 200,000 barrels per day of Nigerian crude in September 2024, but the plant has not imported any US crude since mid-July 2024.
Given the NNPC’s challenges in fulfilling its crude supply obligations, Dangote has been exploring other options.
The company has floated the possibility of acquiring crude oil from other countries, including Libya, Senegal, and Brazil, to meet its needs.
Sources within the company have warned that the NNPC may only be able to meet about 60% of the refinery’s crude demand, prompting Dangote to diversify its supply sources.
This exploration of alternative crude suppliers highlights the significant operational challenges Dangote faces in running Africa’s largest refinery, which was designed to process 650,000 barrels of crude per day.
Despite the current difficulties, analysts remain optimistic about the long-term success of Dangote’s refinery.
Commodity Insights expects the refinery to reach full, steady-state production by 2027, at which point it should be producing around 327,000 barrels per day of petrol.
This output would make Dangote’s refinery a crucial player in meeting Nigeria’s domestic fuel demand, as well as serving export markets in Africa and beyond.
The refinery has the potential to significantly reduce Nigeria’s dependence on imported refined products, which has been a major economic burden for the country.
For decades, Nigeria has imported much of its fuel, despite being one of the world’s largest producers of crude oil. This paradox has been driven by the lack of adequate refining capacity within the country.
Dangote’s refinery is seen as a game-changer in this regard, with the potential to reshape Nigeria’s energy landscape.
Dangote’s refinery and upstream oil ventures come at a time of great uncertainty and transformation in Nigeria’s oil industry.
The Niger Delta, where the Kalaekule and Koronama fields are located, has been a hotspot for conflict and unrest over the years. Militancy, vandalism of oil infrastructure, and environmental degradation have all contributed to production challenges in the region.
Despite these challenges, the Nigerian government has made efforts to attract investment in the oil and gas sector.
The passage of the Petroleum Industry Act (PIA) in 2021 was aimed at reforming the sector, improving transparency, and increasing investor confidence. The PIA has been seen as a critical step in addressing the longstanding issues that have hindered the growth of Nigeria’s oil industry.
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