The Economist Intelligence Unit (EiU) has issued a warning that additional delays in crude oil feedstock to the Dangote Petroleum Refinery and Petrochemicals may jeopardise Nigeria’s financial restoration and put further stress on the native forex Naira.
The analysis and evaluation division of the Economist Group stated the Dangote Refinery, which started manufacturing in January, has encountered setbacks in petrol manufacturing as a consequence of a scarcity of crude oil feedstock.
It stated the $20 billion facility has efficiently exported numerous merchandise, together with gasoline oil, naphtha, nitrogen fertilisers, gasoil, jet gasoline, and diesel however has been capable of ramp up petrol manufacturing as a consequence of challenges in sourcing satisfactory crude oil.
The delays are anticipated to have important financial repercussions for Nigeria, doubtlessly worsening the already strained relationship between public funds and the administration of the naira, the nation’s forex.
The report stated although the federal government had beforehand scrapped the official petrol subsidy in June 2023, the apply of unofficially subsidizing petrol continues, with substantial implications for the nationwide finances. It identified that this has led to elevated forex losses, contributing to a widening finances deficit that has turn out to be more and more tough to handle and will power the Central Financial institution of Nigeria to revert to stronger administration of the forex.
“Because the federal authorities unofficially subsidises petrol (the official subsidy was scrapped in June 2023), forex losses feed right into a widening finances deficit that’s turning into tougher to finance. This gives additional incentive for the central financial institution to revert to stronger administration of the forex, as we already count on, however the diploma of market intervention may turn out to be heavier. In the meantime, ongoing gasoline imports would scale back the current-account surplus from the 1.9% of GDP that we presently venture for 2025, doubtlessly resulting in decrease overseas reserves and the return to a extra inflexible and unstable foreign-exchange system,” it stated.
The delay in securing a dependable pipeline of reasonably priced crude oil feedstock was attributed to low crude manufacturing as a consequence of oil theft and underinvestment, in addition to utilizing crude oil to repay excellent loans.
“The refinery has encountered a variety of issues, each sensible and political in nature. Probably the most publicly mentioned problem is how the refinery can safe a dependable pipeline of crude oil feedstock at reasonably priced costs. NNPC, the state oil agency, has not been capable of present sufficient quantity. The federal government has promised to ship 450,000 b/d of oil to the refinery via NNPC in a pilot scheme, bought in naira, however the state oil firm is just not ready to make this a dependable association. Crude manufacturing in Nigeria is stubbornly low, on account of oil theft and underinvestment. Output was 1.31m b/d in July, in opposition to an OPEC+ goal of 1.38m b/d. NNPC receives a various minority share of this and, furthermore, a large amount (about 90,000 b/d) is being dedicated as mortgage collateral,” it added.
The state of affairs, it stated, has been worsened by Worldwide Oil Firms (IOCs) working in Nigeria, which demand a premium of $3-$4 per barrel over the costs they obtain elsewhere. It famous that regulators are hesitant to implement the Home Crude Provide Obligation (DCSO)—which requires IOCs to promote crude to native refineries—out of concern that such enforcement would possibly result in divestment.
The report emphasised that producing gasoline regionally would considerably profit Nigeria’s fiscal place and forex, provided that petroleum merchandise account for 15% to twenty% of the nation’s items import invoice. The Dangote refinery, hailed as a transformative growth, is predicted to resolve the paradox of Nigeria being a significant crude oil producer but nonetheless depending on gasoline imports. With a capability of 650,000 barrels per day (b/d), the refinery may doubtlessly remove the necessity for gasoline imports and defend native gasoline costs from exchange-rate fluctuations.
“The Dangote gasoline refinery is doubtlessly transformational for Nigeria, which has at all times been an oil exporter and gasoline importer. This reality is usually thought to be a failure and a humiliation by politicians, companies and the media alike, however the brand new refinery has the power to vary this,” it said.
