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Musk as World’s Richest is Bad News for OPEC to Dangote

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The emergence of Elon Musk the entrepreneur behind Tesla Inc. and SpaceX, as the richest person on the planet, while a testament to ingenuity and innovation should complicate things in OPEC+ oil capitals of Riyadh, Moscow and Abuja, as well as for Africa’s richest man Aliko Dangote.

Musk, a South Africa-born engineer’s net worth was $188.5 billion at 10:15 a.m. in New York, eclipsing Amazon’s Jeff Bezos, who had held the top spot since October 2017.

Fueling the rise was an unprecedented rally in Tesla’s share price, which surged 743 percent last year on the back of consistent profits, inclusion in the S&P 500 Index and enthusiasm from Wall Street and retail investors alike.

Tesla’s extraordinary stock rally is the markets way of signaling the tectonic shifts already taking place in the global energy space and the upcoming winners and losers.

The International Energy Agency (IEA) in its 2020 World Energy Outlook, published in October acknowledged that the petroleum industry is facing an historic change.

“The era of global oil demand growth will come to an end in the next decade,” said Fatih Birol, the executive director of the IEA.

Even oil giants like BP Plc say consumption may never again reach the heights seen in 2019.

It’s a tough call to swallow for oil producers like Nigeria, which has undergone two recessions in the past 5 years, largely as a result of a collapse in oil prices which is responsible for up to 60 percent of the country’s budget and 90 percent of export earnings.

While Nigeria’s oil riches have brought some good (its shiny new capital Abuja) and lots of pain (overvalued currency, collapse in manufacturing, Dutch disease, corruption etc.), at least Africa’s largest economy has been trying to wean itself off oil for the past four decades, albeit to no avail.

For Africa’s richest man Aliko Dangote however, the pivot into oil and its refined derivatives has been more recent, a worrying proposition, given that it would mean the normally shrewd businessman may have bought into the sector if not at the top, at least close to it.

The rise of Tesla and its implication for global oil demand could therefore at the minimum complicate plans for Africa’s richest man Aliko Dangote, who is spending about $15 billion to construct a 650,000 barrel-per-day oil refinery and petrochemical plant in Lagos, Nigeria’s commercial capital.

The facility with capacity to produce 55.2 million liters of gasoline daily was originally scheduled to be completed in 2018 but has now been pushed back to early 2022.

European refiners had traditionally sent gasoline and diesel to Nigeria, due to the inability of state oil monopoly NNPC to refine petroleum products locally.

Dangote’s plan is to replace some (if not all) of that foreign supply with fuels produced locally at his new Refinery and also export any excess to the rest of Africa.

Dangote also plans to export its diesel to Europe and gasoline to Latin America, Western and Central African markets.

The electrification of Europe’s and the rest of the globes road transport however poses a big threat to gasoline, diesel demand as well as to European refiners.

The UK for instance has announced plans to ban all new sales of gasoline, diesel and hybrid vehicles by 2035.

This is five years earlier than a previous 2040 date, while Electric Vehicle’s have a current UK market share of 2 percent, it is seen rising steeply as a result of this proposed ban.

A fallout of this could be much lower margins for European refiners who in turn could seek to flood the African and other markets with cheap gasoline.

“We believe the introduction of autonomous vehicles, coupled with Mobility as a service, will combine with additional societal and technology trends to drive a more precipitous disruption than typically expected – one which is likely to pull electric vehicles into the market and shift the composition of the fleet much quicker than currently anticipated,” consulting firm KPMG said in a 2018 report on the sector.

Dangote which is financing the Refinery project with about 70 percent debt and 30 percent of his own equity was hoping on the continued growth in demand for refined petroleum products in Nigeria and the rest of Africa.

The problem though is that refiners already operate under very thin margins today and a collapse in demand could erode margins in the future.

Another issue that could complicate Dangote’s Refinery operations is the fixed retail prices and opaque foreign exchange market in what would presumably be its largest market Nigeria.

The petrol price control regime in Nigeria currently means it is a little bit unclear if Dangote refinery can sell its products at a market rate.

“If the government operates the subsidy regime, we can sell it to the government at the subsidized price,” Devakumar Edwin, a group executive director at Dangote Industries Ltd. said in an interview.

“If there is no subsidy regime, we’ll sell it directly to the distributors. So practically it is not going to affect our operations.”

This may be easier said than done especially with the current situation where Nigeria’s National oil company NNPC is racking up losses from its inability to pass on the full market price of imported petrol that it sells to retailers and other marketers, amid government delays in settling subsidy claims.

Also the opaque FX system in Nigeria will surely challenge Dangote’s Refinery which will be buying inputs such as crude oil in dollars, but selling the output like Gasoline, Diesel, and Aviation fuel in Naira.

“We are going to buy the crude just at the export price and will sell our products at the import price,” Edwin said in a recent interview.

Dangote Industries Ltd. said in 2018 the Refinery complex plans to produce about 50 million liters (13.2 million gallons) a day of gasoline and 15 million liters of diesel.

IEA Executive Director Birol expects the biggest victim from the move to electric cars to be refiners, noting that the changes in fuel-demand growth over the next 25 years will have “major implications” for the industry.

Telsa’s stock run-up and Musk’s world’s richest man status may be the markets signaling that the first steps into that future is beginning to take place, with inevitable disruptions to the current global order, reminiscent of Apple Inc’s takedown of Research in Motion (RIMM) makers of Blackberry, and Googles eclipsing of once dominant internet startups like Yahoo that was slow to innovate, as well as the relentless rise of the FAANGs (Facebook, Apple, Amazon, Nvidia, and Google).

The biggest problem for OPEC, Dangote and big oil is the confluence between Wall street and the next American President Joe Biden’s green agenda.

Electric-vehicle makers gained this week as Joe Biden’s formal recognition by Congress as the next U.S. president was seen as a positive for the industry.

Wall street firms meanwhile continue to lift their target price for Tesla.

Morgan Stanley analyst Adam Jonas this week boosted its price target on Tesla by 50 percent to $810, after the carmaker posted better-than-expected fourth-quarter deliveries.

Tesla rose as much as 4.9 percent to a fresh intraday record of $792.93 a share and traded up 4 percent at 9:52 a.m. in New York.

The relentless rise in Tesla’s stock gives it the ability to use its equity as a currency, taking advantage of its stock price to raise capital and fund growth or acquisitions.

In the end OPEC or old economy billionaires like Dangote may be no match for American capitalism and animal spirits.

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