...official commissioning scheduled for May

..as greenfield refinery ramp-up pushed back to Q4, 2023 

Oil giant Saudi Arabia is in advanced talks to acquire a stake in the Dangote Refinery and Petrochemicals plant, being built in Nigeria by Africa’s richest man, Aliko Dangote, people familiar with the matter told MoneyCentral.

The deal would be done either through the Saudi Sovereign Wealth Fund (SWF) or Saudi Aramco, sources said.

The startup of the much-delayed 650,000bl/d Dangote refinery is critical to Nigeria’s energy and economic fortunes.

“The Saudis are interested and a team was in Lagos recently, to meet with the Dangote people and finalise terms. They are just being careful and doing thorough due diligence as they were burnt by Credit Suisse. We expect an agreement to be reached and a deal to be announced soon,” people privy to the deal told MoneyCentral.

Saudi National Bank was the largest shareholder in troubled bank Credit Suisse, before it was taken over by UBS in a rescue deal in March, resulting in losses of more than $1 billion for the Saudi banking giant.

The refinery project is a future cash cow for Dangote Industries Limited (DIL), and once operational, Fitch expects the project to contribute around $1 billion to EBITDA annually when ramped up from 2024.

The Dangote Group has in the past, done deals with state controlled entities from the Middle East.

Investment Corp of Dubai (ICD), the state fund which holds stakes in some of the Emirate’s top firms, bought a $300 million stake in top African cement producer, Dangote Cement, in 2014.

In 2019 Dangote held a meeting with Saudi Aramco, on investment opportunities in Africa, and a possible collaboration between Dangote Refinery and the Saudi Arabia oil ministry.

However, despite some bullish statements from the Nigerian government, most industry analysts are relatively pessimistic about when the refinery might begin operations and how long it might take to ramp up to full capacity.

Sources tell MoneyCentral that an official commissioning event is still scheduled for the 3^rd week of May this year, however the ramp-up of the crude unit will not happen until some seven months later in December.

“The giant greenfield refinery still has a way to go. It is expected to come on-stream only after the fourth quarter of 2023 and not reach full capacity before the end of 2024,” according to information provider S&P Global. 

Construction is very well-advanced, and some flaring has already taken place, says Mukesh Sahdev, head of downstream research at consultancy Rystad Energy.

But starting production will be a “struggle”, he continues, adding that perhaps 150,000–200,000bl/d of capacity could be online by end of this year, but that full capacity in 2023 is “unlikely”.

Dangote also needs to secure regulatory approvals and to reach commercial terms with state-owned Nigerian National Petroleum Company (NNPC), which owns a 20% equity stake in the project.

Sources say the outgoing Buhari administration is likely keen to expedite the operating licence award but that the commercial agreement with NNPC “is proving to be a sticking point”.

The cash strapped (NNPC) has yet to pay the sum of $1.76 billion (N746.433 billion) to Dangote Refinery due in part for the 20% stake it purchased in the refinery, perhaps necessitating the need for Dangote to woo other investors.

In Dangote Industries Limited Full Year 2021 financial statements seen by MoneyCentral the firm reported under other receivables: “the sum of $1.760 Billion (N746.433 billion) (2020: nil) receivable from NNPC on the purchase of 20% Dangote Oil Refining Company (DORC) shares in Dangote Petroleum Refinery and Petrochemical (DPRP) FZE.”

Nigeria’s Nigerian National Petroleum Corporation is expected to supply 300,000 b/d of crude to the 650,000 b/d Dangote oil refinery.

This swap deal is intended to displace the current direct sale, direct purchase mechanism with European refiners and trading companies and break Nigeria’s costly dependence on imported products.

But negotiations continue over the pricing terms for the crude-for-products swap, as well as issues of credit, freight and potential access to storage at the Dangote site, Price reporting agency Argus says.

Dangote will have “an annual refining capacity of 10.4mn t of gasoline and other petrochemicals,” according to the African Energy Chamber, citing an assessment from consultancy Hawilti that the project “could finally start rebalancing Nigeria’s trade deficit”.

The refinery could potentially displace 300,000bl/d of gasoline imports, mostly from Europe, according to Argus data, which notes the Dangote company’s plans for gasoline to account for 52% of the facility’s yield and for a surplus 25,000bl/d to be available for export.

Argus also cites the company’s stated intention to cover Nigeria’s 50,000bl/d of domestic diesel demand and to export an additional 100,000bl/d in surplus diesel production, as well as to export surplus jet fuel and kerosene volumes of 45,000bl/d and 10,000bl/d respectively.

The Saudis may also view the Dangote Refinery as a means to alleviate gasoline market tightness, with supplies seen as constrained well into 2024.

Analysts say that the Middle East does not have that much spare export capacity, although the planned startups of the Al-Zour and Karbala refineries will change that to a degree.

Additionally, domestic seasonality is forecast to put a lid on potential gasoline flows from Indian refiners this summer.

Saudi Arabia may also be looking for other refining investment opportunities after Reliance Industries Ltd, of India. scrapped a plan to sell a stake in its oil-to-chemicals (O2C) unit to Saudi Aramco in late 2021.

Aramco, the world’s top oil exporter, signed a non-binding agreement to buy a 20% stake in Reliance’s O2C business for $15 billion in 2019.

Talks broke down over how much Reliance’s oil-to-chemicals (O2C) business should be valued as the world seeks to move away from fossil fuels and reduce emissions.