Dangote Refinery is expected to operate at full capacity within 30 days, processing 650,000 barrels of crude oil per day. This development has intensified debates surrounding fuel security, market competition, and the implementation of the Petroleum Industry Act (PIA). While some view it as a step toward energy independence, others see it as a power play that could create a monopoly in Nigeria’s petroleum sector.
Breaking the Cycle of Fuel Importation
Nigeria has long relied on fuel imports despite being a leading crude oil producer. The Dangote Refinery has the potential to change this, with a production capacity that matches the country’s daily petrol consumption of 50 million litres.
Dr. Dioudo, an energy expert, acknowledged the refinery’s capacity but cautioned that deeper structural issues must be addressed:
“The Dangote Refinery can meet Nigeria’s fuel needs and improve supply chains, but regulatory agencies like the NMDPRA and the government must ensure competition. Energy security will be best achieved if multiple refineries, including NNPCL’s facilities, are fully operational.”
NNPCL recently announced that its Port Harcourt and Warri refineries were functional, adding another layer of competition to the market. However, industry analysts question the credibility of this claim, given NNPCL’s continued reliance on fuel imports.
Fuel Importation vs. Local Refining: A Legal Battle Unfolds
Despite the refinery’s capacity, NNPCL and private marketers continue to import fuel, citing pricing and economic factors. This has led to a legal dispute between Dangote, the NNPCL, the NMDPRA, and the FCCPC, with Dangote arguing that fuel imports contradict the PIA.
Daniel Effa, an industry analyst, defended the right of importers to remain in the market:
“The regulation allows all players to operate freely. If NNPCL and marketers find it profitable to import, they should be allowed to do so.”
Others argue that the real issue is regulatory enforcement. According to Ayodele Lawadio:
“The PIA states that fuel should only be imported if local refining cannot meet demand. If the Dangote Refinery and government refineries are fully functional, why is importation still happening?”
The Crude Supply Dilemma
A major challenge for local refineries is securing crude oil. The PIA mandates that 500,000 barrels of crude be allocated to local refiners before exports, yet this has not been enforced. Many modular refineries have struggled to obtain crude, leaving them unable to operate at full capacity.
Uche, a market observer, stressed the importance of prioritising local crude supply:
“Nigeria is an oil-rich country. There is no reason we should be importing crude oil for local refining. IOCs should meet domestic demand first before exporting.”
However, international oil companies (IOCs) argue that they operate under long-term contracts. They also claim that if they are to supply local refineries, they should be compensated at a premium.
Ayodele Lawadio revealed a concerning practice:
“Local refiners are being asked to pay a $4 premium per barrel to access Nigerian crude. This forces them to import crude at international prices, increasing production costs.”
This pricing challenge means that even with local refining, fuel prices may not significantly drop due to foreign exchange fluctuations and additional supply costs.
Monopoly Concerns: Reality or Misconception?
The FCCPC has joined the legal battle, arguing that limiting fuel imports could create a Dangote Refinery monopoly. However, analysts argue that a monopoly would only exist if other refiners were prevented from accessing crude oil.
Daniel Effa questioned the monopoly claims:
“Monopoly in what sense? Dangote is not a filling station chain. Marketers can lift products from either Dangote or NNPCL, so why is there a debate about competition?”
The Nigerian government’s reluctance to enforce the PIA’s domestic crude supply obligation has fueled monopoly fears. By allowing modular and state-owned refineries to struggle for crude, Dangote remains the dominant supplier.
The FX and Fuel Price Connection
Fuel importation continues to drain Nigeria’s foreign exchange reserves, with the CBN estimating that petrol imports account for 40% of forex demand. This weakens the naira and drives up fuel prices.
I.M. Moses highlighted the economic contradiction:
“We are spending scarce forex to import petrol when local refiners can meet demand. This contradicts the government’s economic policies and puts unnecessary pressure on the naira.”
Even if Dangote reaches full capacity, fuel prices may remain high if local refiners must pay international prices for crude. The cost of production, exchange rates, and global oil prices will ultimately determine pump prices.
The Politics of Refining: NNPCL’s Role
NNPCL’s stance in the legal battle raises questions about its priorities. Despite claiming that the Port Harcourt and Warri refineries are operational, it continues to import petrol, contradicting its supposed refining capacity.
Dr. Dioudo questioned the government’s management of national assets:
“After years of turnaround maintenance and billions of dollars spent, why is NNPCL still importing fuel? A private company has built a functional refinery, yet the state-owned refineries remain unreliable.”
Daniel Effa further criticised the policy contradictions:
“If the government truly wanted energy security, Dangote would not be sourcing crude from the US. The whole purpose of refining locally is to ensure a stable supply. If crude is still being imported, what has changed?”
The Way Forward
To resolve these issues and create a stable petroleum industry, key measures must be enforced:
- Full PIA Implementation: The government must ensure that local refiners receive their mandated crude allocations.
- End to Fuel Imports: Once local production meets demand, import licenses should be revoked.
- Regulatory Oversight: The NMDPRA must enforce policies that promote competition without undermining local production.
- Transparency in NNPCL Operations: The government should clarify whether its refineries are functional and why fuel importation remains necessary.
The Dangote Refinery represents a transformative shift in Nigeria’s petroleum industry, but the path to energy security is riddled with challenges. The ongoing legal battles will determine whether the country prioritises local refining or continues to depend on fuel imports.
Ultimately, the solution lies in enforcing existing policies, ensuring fair competition, and prioritising domestic crude supply. Until then, Nigeria’s fuel security remains uncertain, and the monopoly debate will persist.
