Dangote Group's Foray into Crude Oil Production and the Future of Nigeria's Downstream Sector

Oyeyemi, thank you for joining us today. Thanks for having me Esther. What do you make of this announcement by the Dangote Group to begin crude oil production in the first quarter of 2025? And how much of a game changer or disruption would that be for the industry? Okay, so I think it's good for us in terms of increasing reserves, right, and also in terms of increasing production volumes, right. Will it disrupt the market? Perhaps not, because looking at the volume, the volumes are significant anyway, 20,000 barrels, all the proposed volumes is 20,000 barrels per day, and that's quite significant, right. But, I mean, considering that we are not yet hitting our production quota at the OPEC levels, I think we are fine. Will this actually cause disruption perhaps on the downstream end? Not necessarily. I guess the acquisition by Dangote refinery, I mean by Dangote of these oil assets as far back as 2015, perhaps feeds into the backward integration model with regards to availability of crude oil at the Dangote refinery. So I guess this should help the refinery with regards to getting feedstock for the refinery. However, looking at the volumes, obviously, if you put the volumes side by side with the capacity of the refinery, you would see that the volumes are not significant if we look at it vis-à-vis what the refinery can produce a day. Right. Okay. Well, let's talk about some other latest developments. Now, we know, we hear that Dangote refinery officials are meeting with oil marketers this week to decide on pricing metrics or pricing template. Now, this continues to be a gray area and quite controversial one too. What are your expectations in terms of how much clarity and if they can actually arrive at a workable pricing template? What are your thoughts? Okay. I think what has led to this actually had been, if you recall our engagement yesterday about a month ago, whereby we were speaking about the direct sale of crude oil on a NIA basis by the NMPCL to the Dangote refinery. We know there was a big question at that time as to will the NMPCL be the sole importer or uptaker of the refined products from the refinery. Now, at the time whereby this was concluded, this was not clear, but we have seen now that there's been a bit of clarity based on the announcement from the NMPCL to say that other marketers can actually lift refined products from the refinery. And what this means is that the NMPCL would not be standing as a middleman, one, between the refinery and the marketers. And two, the NMPCL will also no longer be the sole importer of refined products into Nigeria. So, what this means is that there are two aspects to the conversation. The first would be the ability for marketers to directly lift volumes of refined products from the refinery. And also what we hear based on news reports that the marketers can also import directly, which has been something that the NMPCL had either done as the sole importer. So, what this means essentially is that there is a likelihood that we may see more volumes, both from locally refined sources and also imported petroleum. Now, from a pricing perspective, I guess that may be what we call on a willing buyer, willing seller situation, whereby the marketers and the refinery will have to agree on a pricing template, because based on the announcement from the Minister of Finance a few days ago that the market effectively has been fully deregulated. So, what we would see is a sale on the willing buyer, willing seller basis between the marketers and the refinery. But that's quite, I mean, that's quite interesting. How do you see this impacting on the petrol right at a pump price, especially since margins for these marketers will obviously differ? Yes. So, I think there are two things that would potentially happen, right. The first would be that if we are going by what has been announced by the federal government that the downstream market has effectively been totally deregulated, what this means is that pricing will be subject to the vigorous of the market in terms of the international pricing of crude, the value of perhaps the Naira, albeit that the purchase is done in Naira, we will still have instances whereby there still needs to be some type of benchmark against the U.S. dollar. So, what this means essentially on one side is that the market will be the determinant of what the pricing will be. Is that good for you and I? Perhaps there's a bit of concern around that. And the concern around that is that what this means is that in the event that you have any type of shocks in the international market with regards to price escalation, that would also cascade as to what you and I will be paying as the pump price for the downstream products. Now, that's number one. Number two would be that there's an argument that if we have a fully deregulated market, we may see prices come crashing at the long run because there will be a lot of availability in the market, right. That remains to be seen. But let's assume that that goes on, then perhaps we may see a bit of reduction in prices within the mid-term to long-term. Right, Oyeyemi, we're going to have to leave it there. But thank you so much for that insight on this issue. Oyeyemi Oke, partner at AOT Law, looking at Nigeria's latest developments in Nigeria's downstream sector.

Dangote Group is looking to start crude oil production at its two Nigerian oil assets by the first quarter of this year. Meanwhile, the market awaits the outcome of this week’s meetings between the management of Dangote refinery and oil marketers over pricing metrics. Oyeyemi Oke, Partner at AO2Law joins CNBC Africa for more on this.

Dangote to begin crude oil production in Q1’25

Dangote Group is looking to start crude oil production at its two Nigerian oil assets by the first quarter of this year.

Dangote to begin crude oil production in Q1’25

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Dangote to begin crude oil production in Q1’25

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