The Economist Intelligence Unit (EIU) has raised concerns that ongoing delays in crude oil supply to the Dangote Petroleum Refinery and Petrochemicals could undermine Nigeria’s economic recovery and exacerbate pressure on the naira.
According to the EIU, the $20 billion refinery, which commenced production in January, has faced significant setbacks in petrol production due to insufficient crude oil feedstock. Although the facility has successfully exported various products such as fuel oil and diesel, it has struggled to increase petrol output because of challenges in sourcing adequate crude.
The report highlights that these delays may have severe economic implications for Nigeria, potentially worsening the already strained relationship between public finances and the management of the naira. Despite the official removal of the petrol subsidy in June 2023, unofficial subsidies persist, impacting the national budget and contributing to a growing budget deficit.
The EIU notes that ongoing fuel imports are likely to diminish the current-account surplus and could lead to lower foreign reserves and a more unstable foreign-exchange system. The report also attributes the delays to issues such as oil theft, underinvestment, and the use of crude oil for repaying loans. Additionally, international oil companies’ premium pricing and regulatory hesitance in enforcing the Domestic Crude Supply Obligation (DCSO) further complicate the situation.
The Dangote refinery, with a capacity of 650,000 barrels per day, is seen as a potential game-changer for Nigeria by reducing the need for fuel imports and mitigating local fuel price fluctuations. However, achieving this potential requires overcoming current supply chain and operational challenges.
