The Dangote refinery will reduce Nigeria's dependence on imported petroleum products and create jobs. But it may not be the best for the environment.
La nouvelle Dangote oil refinery of Nigeria is the largest in Africa. It will produce 650 barrels per day, which will enable it to solve the country's energy supply crisis. The refinery's first product is expected to hit the market by the end of July 2023.
Owned by Nigerian industrialist and Africa's richest man, Aliko Dangote, the refinery should increase the national refining capacity, eliminating the current consumption deficit. It will also reduce dependence on imports and stimulate economic growth.
it's about the first refinery of private crude oil in Nigeria. Nigeria's existing refineries, which have suffered from operational inefficiencies under government control, have failed to meet the growing demand for petroleum products. Hence the need to resort to imports.
Nigeria currently imports over 80% of its refined petroleum products. The country is biggest importer of refined petroleum products in Africa. Local production will therefore massively reduce the country's import bill.
According to Central Bank of Nigeria, the cost (including freight) of importing petroleum products into Nigeria doubled over a five-year period, from about US$8,4 billion in 2017 to US$16,2 billion (an annual average of US$11,1 billion), before increasing further to reach US$23,3 billion by the end of 2022.
The central bank indicates that the average annual cost of importing petroleum products into Nigeria could reach 30 billion by 2027, if the country continues to depend on oil imports.
This money can now potentially be saved through the Dangote refinery which will fill the supply gap.
In my previous searches, I have found that there is a link between Nigeria's dependence on crude oil exports and its weak local refining capacity. This is also the case for Mexico, which exports its crude oil abroad for processing.
Based on my experience in the secteur, I outline the four areas where the Dangote Refinery is expected to impact the Nigerian oil sector and, by extension, the Nigerian economy.
Reduced dependence on oil imports
The most notable impact of the Dangote Refinery will be the increase in local refining capacity, which will reduce imports.
The Dangote Refinery is expected to help Nigeria meet 100% its needs for refined petroleum products (gasoline, 72 million liters per day; diesel, 34 million liters per day; kerosene, 10 million liters per day and aviation jet, 2 million liters per day), with surplus products for the export market.
The refinery's refined oil production, combined with that of other refineries in Nigeria, is expected to meet the estimated daily consumption of 72 million liters of gasoline.
The recent shortages of fuel have been attributed to the war between Russia and Ukraine. The price of imported fuel has increased by more than 100%. Importers worked at a loss due to price caps set by the government.
Apart from eliminating dependence on imports, the Dangote Refinery has the potential to reduce Nigeria's dependence on crude oil exports, as more crude oil will be refined domestically.
Local refining of crude oil will allow the country to pay for the refined product in naira, which will save scarce foreign currency and generate revenue from exported refined petroleum products.
The Central Bank of Nigeria says the Dangote Refinery could generate foreign exchange savings of $25-30 billion every year for Nigeria.
Support for related industries
The creation of the refinery should also contribute to reducing the production costs of industries that depend on petroleum products such as diesel to power their operations. In turn, this should increase their competitiveness in the global market while promoting local industry capabilities.
The refinery could also create an enabling environment for the emergence of related industries in and around it. For example, transport, housing and telecommunications companies will benefit from the construction and operation of the refinery.
The refinery is also expected to create jobs and entrepreneurial opportunities.
During construction, the refinery employed approximately 40 workers – 29 Nigerians and 000 foreigners.
The jobs were in engineering, construction, manufacturing, and operations, among others.
According to media reports, the refinery, when operating at full capacity, is expected to create more 250 000 direct and indirect jobs. I think that estimate is correct.
The country's current unemployment rate is expected to reach 40,6% in 2023.
Possible increase in carbon footprint
Operation of the Dangote refinery raises concerns about its potential impact on Nigeria's zero net emissions. Net zero emissions is an ideal state of emitting as many greenhouse gases as you take out of the atmosphere.
Decarbonization efforts are needed for countries to reach net zero emissions, but the path and time frame may vary, as countries may want to take a gas-first approach to transitioning to energy renewable.
During the COP26 climate change meeting in 2021, President Muhammadu Buhari engaged himself to achieve net zero emissions by 2060. This is to protect Nigeria's environment and ecosystem from the impact of climate change and reduce the country's greenhouse gas emissions.
Petroleum refineries contribute about 4% to global carbon emissions.
The Dangote Refinery respect World Bank, US, European and Nigerian emission and effluent standards.
The Dangote Refinery is an important step towards self-sufficiency in Nigeria's energy sector.
However, the refinery remains dependent on fossil fuels and is not a long-term solution to the country's energy needs.
Nigeria has a significant renewable energy potential, including solar and wind power.
Renewable energy can be harnessed to meet Nigeria's energy needs in a sustainable manner. The Dangote refinery should therefore be seen as a stepping stone towards a transition to cleaner energy sources in the medium term.
It is essential that Nigeria continues to invest in renewable energy and explore ways to reduce its dependence on fossil fuels in order to achieve its net zero emissions goal.