"Dangote refinery nears completion, faces oil output, subsidy hurdles"

" Dangote refinery nears completion, faces oil output, subsidy hurdles \r\nNigeria\u2019s oil production has fallen by half in a decade while petrol subsidies erode earnings and disrupt the fuels market in Africa, developments that could test the world\u2019s largest single-train refinery set for unveiling early next year.\r\n\r\nThe Dangote refinery is nearing completion as pre-commissioning tests reach concluding stages, making a launch date in the first quarter of 2023 feasible, BusinessDay has learnt.\r\n\r\nSources close to the company\u2019s plans said the refinery, with a capacity to process 650,000 barrels per day (bpd), could see the first refining runs begin as early March.\r\n\r\nPresident Muhammadu Buhari, who doubles as the Minister of Petroleum Resources, is expected to commission the refinery before he leaves office on May 29, 2023.\r\n\r\nThe bulk of the crude for the refinery operations is expected to come from Nigeria, given that the Nigerian National Petroleum Company Limited (NNPC) holds a 20 percent stake in the company on behalf of the federation, but the declining crude output would present a challenge.\r\n\r\nBusinessDay\u2019s analysis of data from the Organization of Petroleum Exporting Countries on Nigeria\u2019s oil production since 1999 showed that output has declined by 42 percent and has hovered around 1.5 million bpd under Buhari.\r\n\r\n\u201cThe greatest challenge that led to the drop in production in this administration has been oil theft,\u201d Ndubuisi Okereke, senior lecturer, Department of Petroleum Engineering at Afe Babalola University, told BusinessDay.\r\n\r\nWhile the NNPC has hired private contractors, and Nigeria has directed security agencies to step up the fight against oil thieves, the challenge persists and this could make it harder for operators to return to abandoned fields.\r\n\r\nInternational oil companies have abandoned onshore and shallow-water fields from where the bulk of Nigeria\u2019s oil is produced due to challenges dealing with host communities, crude oil theft and the state-oil firm\u2019s inability to pay its own share of crude oil production.\r\n\r\nDeepwater fields have emerged as the most attractive concessions but with the failure of the Petroleum Industry Act (PIA) to address some of their fiscal and regulatory concerns, analysts fear investments would be few and far between.\r\n\r\n\u201cDespite the passage of the PIA, confusion remains regarding the management and governance of the oil sector. Multiple entities are acting as fiscal agents, with the commission collecting upstream petroleum revenues, and the Federal Inland Revenue Service continuing to collect downstream revenues,\u201d analysts at the World Bank said in a new report.\r\n\r\nThey noted that the PIA does not explicitly eliminate in-kind payments and leaves the discretion to the Nigerian Upstream Petroleum Regulatory Commission. In contrast to internationally accepted best practice, the PIA excludes all ministers and vests in the commission the exclusive authority to decide how fiscal payments are to be made or when and how to conduct licensing rounds.\r\n\r\nAn analysis of the spending plans of oil majors in 2023 showed that Nigeria does not rank high in their priorities, with billion-dollar projects ignored in Nigeria for other countries.\r\n\r\nThis situation has crimped Nigeria\u2019s share of crude oil allocation, indicating that the Dangote Refinery may source crude from the international market if it must meet its refining capacity.\r\n\r\nSited inside a free trade zone, the refinery is positioned to sell products across Africa, and African countries including Ghana are already courting the refinery to boost their supply of refined products.\r\n\r\nDue to the enormous concessions granted by the Federal Government including favourable exchange rates, and ease of port access for its machinery and parts, the Nigerian government would expect that the country would be its primary market.\r\n\r\nThe challenge for the refinery would be how to sell the products below market price as the Federal Government intends to keep petrol subsidy till at least June next year.\r\n\r\nZainab Ahmed, Nigeria\u2019s finance minister, has said at different fora that the country would stop paying subsidies on petrol by June next, effectively kicking the can down the road so it can become the problem of Buhari\u2019s successor.\r\n\r\nThere is no telling if a new government by May 30, 2023 would withstand pressure and threats from labour groups to remove subsidies within its first days in office.\r\n\r\nWhile Peter Obi of the Labour Party and Atiku Abubakar of the Peoples Democratic Party have pledged to remove subsidies, Bola Tinubu, candidate of the ruling All Progressives Congress, has stated in its manifesto that removal would be phased.\r\n\r\nSome analysts say the government may continue the swap arrangement where the country\u2019s crude is exchanged for refined products \u2013 replacing refineries in Europe with the Dangote refinery.\r\n\r\nA global credit rating agency, Moody\u2019s Investors Service, said in a recent report that the Dangote refinery will improve Nigeria\u2019s current account modestly when fully operational and substitute imported refined petroleum with domestic products.\r\n\r\n\u201cIndeed, while Nigeria would no longer need to import refined petroleum, it would also lower the country\u2019s export of crude oil since a part of the production would be used domestically,\u201d Moody\u2019s said.\r\n\r\nContinuing subsidy payments will provide an incentive to marketers to smuggle petrol outside the country to profit from the arbitrage opportunity created.\r\n\r\nApart from these challenges, the movement of freight across Nigeria is hampered by poor road network, and truckers have to deal with policemen and other security personnel who extort them.\r\n\r\nThe integrated refinery and petrochemical complex in the Lekki Free Zone near Lagos will produce Euro-V quality petrol and diesel, as well as jet fuel and polypropylene, and will likely generate 4,000 direct and 145,000 indirect jobs.\r\n\r\nIt is expected to double Nigeria\u2019s refining capacity and help in meeting the increasing demand for refined petroleum products, while providing cost and foreign exchange savings. It is estimated to have an annual refining capacity of 10.4 million tonnes of petrol.\r\n \r\n \r\n \r\n "

"Dangote refinery nears completion, faces oil output, subsidy hurdles"

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