Nigeria’s Richest: Dangote Refinery Sparks Transformation Amid Nigeria’s Energy Challenges

Two months ago, the Dangote Oil Refinery began gasoline production, supplying Nigeria’s state oil company, the Nigerian National Petroleum Company (NNPC). This marks a historic shift, as Africa’s largest oil producer is refining its own crude for the first time in decades. The state-of-the-art $20 billion facility, launched in January 2024, began gasoline production in September and is expected to reach full capacity by November. With a processing capacity of 650,000 barrels of crude per day, the refinery is more than capable of meeting Nigeria’s needs. Significantly, it purchases crude and sells refined fuels domestically in the local currency, a move that conserves Nigeria’s precious foreign exchange reserves, particularly U.S. dollars.

However, Aliko Dangote, the refinery’s owner and Africa’s second-richest man, has found himself at odds with what he refers to as Nigeria’s “oil mafia.”

Speaking at an investment conference in June, Dangote acknowledged that he had anticipated pushback but underestimated the power of what he called the “oil mafia.” Emmanuel, a Nigerian oil expert, noted that these entrenched interests were resistant to change, viewing Dangote’s refinery as a threat to their business model.

Since oil was discovered in Nigeria in 1956, the country’s downstream sector has been plagued by opaque practices and a lack of accountability, particularly within the NNPC. For decades, Nigeria exported its crude oil, which was refined overseas and swapped for finished products, including gasoline, which were then imported back into the country. Remarkably, the NNPC only started publishing its accounts five years ago, even though oil revenues constitute nearly 90% of Nigeria’s export earnings. Until recently, only the NNPC had a clear picture of the financial flows and the individuals involved in these “oil swaps.”

While Dangote’s refinery holds promise for Nigeria, it faces challenges beyond his control. Since the 1970s, NNPC has subsidized fuel prices for local consumers, gradually recouping these funds through reduced royalty payments to the Nigerian treasury. However, in 2023, President Bola Tinubu eliminated the subsidy after it cost the government $10 billion—more than 40% of its tax revenue. Additionally, he stopped the policy of artificially supporting the naira, allowing market forces to determine its value. As a result, Nigerians are now paying about $2.30 per gallon of gasoline—a price that, while low by U.S. standards, is three times what they paid just a few years ago.

It remains uncertain whether the Dangote Refinery can reach its full potential. Nigeria’s famous Bonny Light crude, a high-quality, light-sweet grade, is a key benchmark for West African oil production and a favorite of U.S. refiners, particularly on the East Coast. However, two years ago, NNPCGROUP CEO Melee Kyari revealed that Nigeria was losing nearly all output from the Bonny oil hub due to widespread vandalism.

Kyari explained that frequent acts of sabotage along Nigeria’s major pipelines, from Atlas Cove to Ibadan, and others linked to the country’s 37 depots, have rendered these lines inoperable. Some pipelines, such as the route from Warri to Benin, have not functioned for 15 years due to theft and damage. He recalled a tragic fire near Sapele, which resulted in multiple fatalities and forced the shutdown of the affected line, emphasizing that losses remain significant throughout the pipeline network.

Oil theft is a persistent challenge for Nigeria’s energy industry and could hinder the refinery’s ability to source all its crude locally. According to Akinosho of the Africa Oil+Gas Report, despite directives to supply the Dangote Refinery, the NNPC can only provide around 300,000 barrels per day—far short of the refinery’s full capacity.

At the same time, a wave of divestments by international oil and gas companies from the Niger Delta has reached a peak. Over the past several years, numerous global energy giants have withdrawn from Nigeria, despite reforms aimed at encouraging investment, including the Petroleum Industry Act (PIA) of 2021. As a result, Nigeria’s oil production has declined sharply, from around 2.1 million barrels per day in 2018 to the current 1.3 million barrels per day.

The Dangote Refinery represents a major step forward for Nigeria’s energy independence, but the challenges it faces—from entrenched interests to oil theft and declining production—highlight the complexities of reshaping the country’s oil industry.

Have you read?
Highest-Paid Athletes in the World.
Largest stock exchanges in the world by market capitalization.
Countries with the largest air forces in the world.
Best European destinations to travel to as a student.
Largest Cities in Africa.