NNPCL trades oil for loans while Dangote imports crude for refining.

Dangote Group Executive Director Devakumar Edwin has announced that the Dangote Petroleum Refinery has begun importing crude oil and expects its first crude cargo in two weeks.

Although the Nigerian National Petroleum Company Limited (NNPCL) is responsible for trading crude oil on the country’s behalf, Edwin stated in an interview with S&P Global Commodity Insights published on Monday that the NNPCL had already committed its crude to other entities.

 

Even though NNPC announced last month that it had entered into a $3bn crude oil-for-loan deal with African Export-Import Bank, Dangote Refinery’s CEO did not reveal the other entities receiving the oil company’s crude. As part of the agreement, the company agreed to use its future oil sales to repay the bank.

 

In addition, yesterday, sources within NNPC told our correspondent that the company had entered into crude oil contracts with a number of entities, making it impossible for the organisation to meet Dangote’s need sooner.

 

However, a senior oil company executive has stated that preparations are already underway to meet the crude oil requirements of Dangote’s refineries in the month of November.

 

Edwin added that the Dangote refinery’s need to import crude was only temporary because the company would begin receiving supply from NNPCL in the month of November.

 

Edwin continued by saying that beginning in October 2023, the company would begin producing up to 370,000 barrels per day of crude, which would in turn produce Automotive Gas Oil, also known as diesel and jet fuel.

 

The head of the Dangote Group has stated that by November 30, 2023, the plant will be producing Premium Motor Spirit, also known as petrol.

 

When the Dangote refinery begins receiving crude oil from Nigeria, prices for diesel and jet fuel are expected to drop, according to oil marketers.

 

Meanwhile, Edwin said in the interview that beginning on November 30, the Dangote Refinery would begin gradually increasing petrol production, with the goal of reaching an impressive 650,000 barrels per day.

 

By saying, “Right now, I’m ready to receive crude,” he emphasised that the refinery was prepared to accept crude oil. The first ship will arrive any minute now. Therefore, we can begin as soon as it arrives.

 

Edwin explained to S&P that the delay in the original schedule was because the NNPCL had already committed their crude oil to another entity on a forward basis.

 

He assured them that the delay was only temporary, and that beginning in November 2023, the refinery would operate using only crude oil from Nigeria.

 

According to reports from Abuja yesterday, the NNPCL has made agreements to sell crude oil to other companies, but it plans to continue supplying the Dangote refinery with the commodity in November.

 

The national oil company announced the acquisition of a $3 billion emergency crude oil repayment loan from the African Export-Import Bank in the middle of August.

 

In a brief statement titled “Relief for the naira,” it revealed that it had acquired a loan from AFREXIM Bank in the amount of $3 billion.

 

NNPC Ltd and @afreximbank have signed a commitment letter and term sheet for a $3 billion crude oil repayment loan,” the two institutions said in a joint statement.

 

This agreement, signed today at the bank’s headquarters in Cairo, Egypt, will allow the NNPC Ltd to assist the Federal Government in its ongoing fiscal and monetary policy reforms to stabilise the exchange rate market.

 

O’tega Ogra, who was then serving as the Senior Special Assistant to the President on Digital/New Media, later clarified that the $3bn loan was not a crude-for-refined products swap loan, but rather an upfront cash loan against proceeds from a capped amount of future crude oil production, in a series of posts on X (then known as Twitter).

 

This proved that the state oil company had in fact promised to deliver Nigerian crude to the companies that had requested it.

 

Is this loan risky for NNPCL or the Nigerian Treasury?” Ogra had asked. No. NNPCL’s exposure is minimal and barely scratches the surface of their dues. This loan is not backed by any foreign government.

 

How do you plan on paying back the loan? The loan will be repaid with a portion of the revenue generated from oil sales in the future. It’s a calculated move made to strike a balance between immediate economic needs and potential output.

 

“How does this swap agreement differ from others?” This is not a crude-for-refined-products swap in which the government would benefit monetarily.

 

Since the refinery is in a free trade zone on the outskirts of Lagos, Edwin explained in a recent interview with S&P, the Nigerian oil would be purchased in dollars rather than naira.

 

However, due to its equity stake in the refinery, he said the NNPCL would supply some crude at discounted prices.

 

Edwin went on to say that the Dangote refinery could process all African crude grades except for the heavy Angolan grades, as well as Arab Light from the Middle East and light-tight oil from the United States.

 

If the international system opens up, he continued, “We can take even some of the Russian grades.” If you look at our production profile, you’ll see that I can meet the needs of the entire country with just 50% of my output.

 

“Excess petrol – of 10 ppm sulphur Euro 5 quality – will be exported to other African markets as well as the United States and South America, albeit in relatively small quantities. Meanwhile, diesel will be sold in sub-Saharan Africa and jet fuel in Europe.

 

Edwin was quoted by S&P as saying the refinery would bring “a huge amount of foreign exchange into the country” and establish a reliable supply of “environmentally friendly” refined products.

 

Edwin also said the refinery would help solve the fuel supply problems plaguing import-dependent West Africa, which have been exacerbated by the elimination of fuel subsidies in Nigeria, which has led to a thriving black market for petrol.

 

And he said that the money made from the refinery would be put back into the country to spur even more growth, demonstrating Aliko Dangote’s dedication to Nigeria.

 

There will be a return of capital, and it will be invested further. “Aliko Dangote is a native of Nigeria and he never takes his eye off of his home country,” Edwin said of the business magnate.

 

Businesses React

 

Chief John Kekeocha, National Secretary of the Independent Petroleum Marketers Association of Nigeria, has said that the Dangote refinery needs to begin producing refined products immediately.

 

He did, however, express optimism that diesel and jet fuel prices in Nigeria would drop once the facility began receiving crude oil from NNPCL for production.

 

If Dangote begins refining in Nigeria using crude oil from the country, diesel and jet fuel prices will drop. Now that we can make them locally, we won’t have to pay the per-unit fees that were previously required to import the refined products,” Kekeocha explained.

 

The news that the Dangote refinery would begin production in October was welcomed by other merchants.

 

According to Mike Osatuyi, IPMAN’s National Controller, Operations, the end of petrol imports will coincide with the refinery’s start of petrol refining in November.

 

This is great news for the people of Nigeria, the government of Nigeria, and oil companies. This means that eventually we won’t need to import petrol at all. According to him, this is fantastic news for Nigeria and the Tinubu administration because the federal government owns 20% of the refinery.

 

Dangote Group’s spokesman Tony Chijiena was unavailable for comment at press time. As of the filing of this report, there had been no response to multiple calls and text messages seeking comment on the development.

 

Although the Dangote Group’s CEO did speak with S&P, our correspondent was told by company sources that the group would respond through an official press release when the time was right.

 

Despite Aliko Dangote’s assurance that petrol produced there would begin flowing into the Nigerian market by the latest August, it was reported last week that production had not yet begun at the refinery.

 

Garba-Deen Muhammad, the NNPCL’s former spokesperson, was one of the employees forced to retire by the company on Wednesday.

 

Officials from the oil company did not respond to requests for comment, despite repeated attempts to get their side of the story.