Dangote launches $20bn oil refinery in Nigeria

Although it is a large crude oil producer, country has faced challenges supplying its citizens with refined oil products

Lagos, Nigeria | AGENCIES | The world’s largest single train refinery was on May 22 commissioned in Nigeria. The $20 billion giant refinery was built by the Dangote Group which is owned by Africa’s richest man Aliko Dangote.

The refinery is planned to meet Nigeria’s growing demand for refined oil products and to supply the rest to the African and global market.

The Dangote Equity Investments put up about 50% of the money used to build the refinery and the rest was debt finance from banks such as Access and Zenith banks.

“We have built a refinery with a capacity to process 650,000 barrels per day in a single train which is the largest in the world … We decided on a plant designed with state-of-the-art technology and a scale in a capacity that will be a game-changer in Africa and the global market,” said Dangote at the commissioning.

“There will be constant availability of high-quality fuels for our transportation sector, the refinery will also make available to our industries vital raw materials for a wide range of manufacturing,” said Dangote.

Located in the Lekki Free Trade Zone area of the Lekki Deep Sea Port which is the commercial hub Lagos, the refinery is designed to refine 650,000 barrels of crude oil and 900,000 tonnes of polypropylene into refined products per day. It has a daily production capacity of up to 59 million litres of petrol, nine million litres of diesel, 20 million liters of aviation jet fuel, and others.

The refinery sits on over 2000 hectares of land in the 16,500-hectare free trade area which is planned to host an airport, a manufacturing start-up community, and commercial and residential areas.

Becoming self-sufficient

Although it is a large crude oil producer, Nigeria has faced challenges supplying its citizens with refined oil products because of lack of adequate refining capacity. The country has relied on imports from the United Arab Emirates, India, the Netherlands and Belgium.

Between 2015 and 2019, the cost of importing refined petroleum products into Nigeria exceeded the exports by $58.5 billion, according to news reports out of Lagos that quoted figures from the Organisation of Oil Producing Countries (OPEC). The refinery is expected to generate about $201 billion in revenues per year.

“Nigeria can be self-sufficient in all products that we consume and at the same time export our excess output to the rest of the world,” said Godwin Emefiele, the head of Nigeria’s Central Bank.

Ghana’s President Nana Akufo-Ado, who was one of several West African heads of state present at the commissioning, described the Dangote refinery as a “spectacular project”. He said it “makes West Africa better and stronger.”

Timelines questioned

Outgoing Nigerian President Muhammadu Buhari performed the commissioning of the refinery and the first refined products are expected to hit the Nigerian market by late July or early August, according to Dangote whose production timelines have, however, come under scrutiny.

A report in the Sahara Weekly on May 14, just a week said the refinery will not possibly produce refined products as early as Dangote predicts.

“The ongoing technical commissioning process has not gotten anywhere close to the point of introducing raw hydrocarbon into the plant, let alone delivering petroleum products,” the report said.

The report lists a raft of regulations that stand in the way of early regulation.

“Hydrocarbon will be introduced only when the Nigerian Midstream Downstream Regulatory Agency (NMDPRA) approves and issues License to Operate the Refinery to Dangote,” the report said.

It listed three major pending regulatory stages: License to establish a Refinery, Approval to construct Refinery, and License to Operate the Refinery.

“Nowhere does inauguration or commissioning appear,” the report said, “So the Refinery can be inaugurated or commissioned as the Licensee desires, as long as no attempt is made to operate the Refinery by introducing crude oil and make products for sale, it does not concern NMDPRA.”

The report explained the technical work that is so far in very advanced stages including trial-running every single equipment, which takes time because of the lengthy time of construction of the refinery. Dangote first announced that he would construct the refinery at the All-Convention Luncheon at the Annual Conference of the Nigerian Association of Petroleum Explorationists (NAPE) in November 2014.

“Some equipment were installed six years ago, and were just standing there in the air, water or even underground. Anything, literally could have happened,” the report said.

The electrical and instrumentation works are usually invisible to the gaze of non-refinery workers, but they are key. Their installation needed extreme care and it consumes over 30% of the Refinery construction time. The refinery has 15 processing units that must all work together.

Questions around the long construction period are being asked because the Dangote Refinery is significantly an Indian supervised operation. A significant percentage of the 1,000 Nigerian engineers sent to training in India for the eventual operations of the facility, have returned and are currently engaged on site.

Dangote Industries was also advised by Jacobs Engineering and it licensed the Honeywell UOP for the basic engineering design.

According to the report, however, the relationship between the Nigerian crude oil refining sector and Indian engineering expertise goes back to 1988, when the second (larger) refinery in Port Harcourt, the major city in the country’s oil producing Delta region was being constructed.

Some of the experts working on Operations Planning were part of the construction of the Port Harcourt Refinery 35 years ago, according to the Sahara Weekly report.

This has led to questions whether Dangote Industries could have delivered this project much earlier if it had awarded it to a world- class EPC contractor like Bechtel, TechnipFMC, Siemens, and KBR.

“Yes”, said Alex Ogedengbe, a retired Group Executive Director at NNPC who was involved in the construction of the Warri and Port Harcourt Refineries in the 1980s.

“There are just about six or seven such EPC contractors in the world,” he explained during a private webinar organised by oil and gas analyst, Ronke Onodeko in April 2020.

But Dangote sources maintain that the cost would have been at least 30% higher if that route had been taken. And while it could be argued that Dangote Industries could have had good value for money if a Bechtel or KBR had handled the construction, multiple sources argue that the delay could have been minimized if the current structure had been in place since inception.

“We wasted the most time at the engineering stage,” one manager recalls. “A reputable EPC contractor would still have hired expertise from outside like we are doing and subcontract several units.

“Dangote Industries bought brand new equipment for this work; an EPC contractor might not have even done that, but it would have coordinated things better at the outset.”

One more advantage of building it yourself: all the equipment you purchase for logistics and construction purposes are yours.

According to Sahara Weekly, construction of the refinery began to take very good shape when Giuseppe Surace, an Italian engineer who had been Chief Executive of Saipem in Nigeria and Brazil, joined the project in June 2017 as the Chief Operating Officer.

On the factory floors, in the Executive Offices, everywhere on site, the consensus is that one of the best decisions that Aliko Dangote made was Surace’s appointment, the report says. “He saved the project,” said sources.

As of February 2021, the installation of the Crude Distillation equipment had been completed. So had the kitting up of the Residue Fluid Catalytic Cracking Unit (RFCCU).

Supply chain challenges thrown up by the COVID-19 slowed down work. A lot of the contractors on the refinery are Chinese and many who had travelled to China were caught up in lockdown. But construction picked up in mid-2021.

Infrastructure queries remain

How the crude oil will arrive at the refinery and how the refined products will be evacuated has also caused major challenges.

According to the plan, Single Point Mooring SPM buoys will play a huge role in crude oil delivery and petroleum products evacuation. Three SPMs will deliver the crude oil from vessels into a jetty from which it is pumped into the plant. And three SPMs will ferry petroleum products out to vessels on the sea for export.

There are also plans to evacuate 75% of refined products by road from 103 loading terminals to destinations within Nigeria and beyond.

But major new infrastructure is needed, including a 6-lane road through Epe, a town in the east of Lagos. This means the quality of Nigerian roads to take in products inland by tankers remains fraught one, according to the report.