Greenfield of dreams

Author James Gooder, Vice-President, Crude Oil

“How can we expect others to invest in Africa if we don’t do it ourselves?” Thus asks Africa’s richest man, Aliko Dangote, via his executive director Mansur Ahmed.

“How can we expect others to invest in Africa if we don’t do it ourselves?” Thus asks Africa’s richest man, Aliko Dangote, via his executive director Mansur Ahmed.

Speaking to the African Refiners Association’s annual gathering in Cape Town, Ahmed said that the Dangote Group’s ambitious 500,000 b/d refinery project was about to break ground in Lagos, Africa’s most populous city, to be completed in the third quarter of 2017. Dangote is confident that, if they build it, investment will come. “When the refinery is operating profitably and well, we may float it in the stock market. But, initially, equity gives you the strongest opportunity to establish early profitability,” Ahmed says.

Scepticism about the project appears to be waning, with former Vitol chief economist Steve Terry conceding that the plans meet many of the criteria for a commercially successful African refining project, including access to abundant fob crude supplies and a large market for refined products, as well as world class scale and complexity.

But many observers say the $9bn that Dangote has raised to build his refinery would be better spent on improving and maintaining storage and distribution infrastructure, to ensure that imported products can reach Nigerian consumers. This would be helped by the complete removal of fuel subsidies on gasoline and kerosine, to reduce the incentive to smuggle cheap products out of Nigeria to neighbouring west African countries.

African oil products demand is forecast by consultancy Citac Africa to continue to grow strongly — by 3.2pc/yr to 250mn t/yr in 2025, leading to a clean products deficit of 110mn t/yr. Ahmed asked why, given this, foreign investors and state-run local refiners have been unwilling to commit to the upgrading and refinery building required to keep the African refining sector competitive and meet more of this demand. Others say that if the Dangote project succeeds it will in fact sound the death knell for other protracted large scale refining projects, such as Angola’s Lobito and South Africa’s Mthombo.

In recent years, the only new sub-Saharan African refining projects have been small 20,000 b/d plants feeding on otherwise stranded crude streams, funded by Chinese investors in Niger and Chad, while a 30,000 b/d plant is being developed in Uganda with Russian backing.

Nigeria is gearing up for already delayed elections on 28 March, and fuel shortages and prices are high on the agenda (see Petroleum Argus, 13 February, p3). Incumbent president Goodluck Jonathan has already cut fuel subsidies while reducing the regulated price of gasoline, although subsidies remain unpaid to many importers, leading to shortages in several areas.

Whatever the outcome of the hotly contested election, the medium-term hope is that Dangote’s refinery will help to alleviate Nigeria’s chronic products shortage, while providing a buyer for Nigerian crude that is now less in demand in world markets. But, crucially if he is to attract foreign investment, Dangote needs to prove its commercial viability.

“We do not intend to run the refinery as a public institution,” Ahmed says. The appetite of investors to buy into the project will hang on the truth of those words.

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