The 650,000 barrels a day Dangote oil refinery will be ramping up just as global refining margins fall from historic highs adding to another layer of uncertainty for the $20 billion project.
The refinery has operated at around 50% capacity his year and produced between 325,000 bpd to 375,000 barrels per day (bpd), but the EBITDA contribution from it has been far below analyst’s projection.
“The Dangote group’s consolidated EBITDA margin is projected to dilute from 33% in 2023 to 9.1% in 2024 due to the low-margin refinery business, which began operations in February 2024 and poor utilization across the business lines,” Fitch Ratings said in a recent update when it downgraded Dangote Industries Limited (DIL).
Earnings from turning crude oil into petroleum products have fallen this year, driving refineries in some parts of the world to cut production.
The crack, or margin, for a typical refinery in Singapore processing regional benchmark Dubai crude ended at $3.59 a barrel in July. This is about half of where the profit margin started the year, with a peak so far in 2024 of $9.91 a barrel on Feb. 13. They surged as high as $20.4 between 2019 and 2023.
Lackluster demand growth, largely reflecting China’s economic turmoil, and surging global capacity are largely the culprits.
Globally, refineries will process about 900,000 barrels a day, more crude this year than they did last, according to International Energy Agency calculations.
The refining industry’s problems have shown in company earnings. Chevron Corp. missed estimates largely on weaker refining. France’s TotalEnergies also fell short of estimates as a result of weakness in its refining business.
Phillips 66 revised down its estimates for utilization rates and will bring forward planned maintenance.
“It’s back to what was normal before all these exceptional years,” Patrick Pouyanne, chief executive officer of TotalEnergies SE, Europe’s largest refiner, said during an earnings call late last month.
“Refiners know they have to come back to reality and to deliver good results with lower margins.”
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