New refinery may transform Nigerian economy, if it gets enough oil

Commissioning Africa’s largest refinery was supposed to have been one of the first ribbon cuttings of Muhammadu Buhari’s presidency. Instead, it was his last. 

Not that the seven-year delay dulled the festive air in Lagos as the $19 billion project by the continent’s richest man, Aliko Dangote, was declared open for business this month.

At the ceremony, Buhari described the refinery — the largest and most modern in Africa — as a significant milestone for the country. If everything goes according to plan, it could be economically transformative for Nigeria.

With the capacity to produce more than 100 million litres a day, the new refinery could meet all of Nigeria’s domestic need for refined petroleum products, which the national oil company puts at 68 million litres a day. That will mean petrol for cars, diesel for generators, kerosene for cooking, and fertiliser won’t have to be imported.

This would keep a lot of money in the domestic economy, and allow Nigeria to start exporting refined petroleum.

In 2022 alone — despite being Africa’s largest producer of crude oil — the country spent $23 billion on petroleum imports, according to the central bank. It is Africa’s largest importer of refined petroleum products.

This paradox has long hamstrung the Nigerian economy. Given its abundant oil resources, fuel should not be a scarce commodity, or subject to major price hikes, and the government should not have to spend $861 million a month on subsidies to keep pump prices down.

Consumers are unlikely to notice any immediate benefits. The Dangote refinery is expected to buy Nigeria’s crude oil for the same price that it would be sold overseas. Olaniyi Ogunleye of Carbon Limits Nigeria, a Lagos-based energy consulting company, said the difference this makes at the pump might be negligible.

There are also structural problems to overcome. The government, which owns a 20% stake in the Dangote refinery, owns four other refineries, all of which are in disuse. And problems start well before the refinery stage. 

“The oil and gas industry is suffering from business climate hostilities,” said Zakka Bala, an oil and gas expert.

Just getting oil out of the ground is hard. Production is below one million barrels a day. The Nigerian Upstream Petroleum Regulatory Commission says that’s less than half of what the country could produce. And conservative estimates are that 200 000 barrels of oil a day are lost in theft, broken pipelines, vandalism and corruption.

Despite this reality, the Nigerian National Petroleum Corporation has promised Dangote’s new refinery 300 000 barrels a day.

Osato Guobadia, founder of Enej Insights, said that getting that oil to the refinery is the “biggest challenge” and that failure to do so “can kill the entire project and would be horrible for Nigeria”.

The optimistic and perhaps neoliberal bet is that private business will fare a lot better than the parastatals. “Hopefully, with the entry of Dangote, we will be setting a new pace,” said Guobadia.

At climate negotiations in 2021, Buhari committed Nigeria to zero overall carbon emissions by 2060, and to reduce emissions by at least 20% by 2030.

A major part of this would be in building wind, solar and gas generation across the country, which has not happened. Instead, projects such the Dangote refinery would increase carbon emissions, as well as local air pollution.

And Nigeria is already 1.6°C hotter and is heating faster than the global average, with flooding and heatwaves linked to that heating.

Nonetheless, on the global scale, Nigeria’s current emissions are negligible. Research by nonprofit publication Carbon Brief found that a fridge in a home in the United States uses up to five times more electricity than the per person electricity use in Nigeria — including use by industry. 

Nigeria and its nearly 200 million people are responsible for less than 1% of global carbon emissions. 
This article first appeared in The Continent, the pan-African weekly newspaper produced in partnership with the Mail & Guardian. It’s designed to be read and shared on WhatsApp. Download your free copy here.