SINCE the onset of Nigeria’s self-inflicted economic crisis, the survival of the 650,000 barrels-per-day Dangote Refinery has been under intense scrutiny, particularly by the Nigerian National Petroleum Corporation (NNPC). The promoter of this multi-billion-dollar investment aims to rescue the country’s oil and gas industry from its current predicament.
A significant conflict between Dangote Refinery and NNPC is the supply of crude oil necessary for the refinery’s optimal function, in addition its bridging of supply gap of petroleum products for the domestic market. Without a steady supply of crude oil, the refinery risks becoming a white elephant project, dead on arrival. Once operational, the refinery will halt the importation of refined petroleum products, effectively eliminating the subsidy scam and closing other lucrative loopholes in the oil industry that benefit the powerful.
However, there is a strategic opportunity for Dangote Refinery to secure its crude oil supply through backward integration. The Kolmani Oil Well in Bauchi State presents such an opportunity. This well is estimated to hold over 1 billion barrels of oil and over 500 billion cubic feet of gas, with significant hydrocarbon deposits discovered at Oil Prospecting Licenses (OPLs) 809 and 810.
The OPLs 809 and 810 were acquired by the Northern Nigeria Development Company (NNDC) in 2005 during a federal government-led oil block bid round. NNDC entered into a production sharing contract with NNPC in 2021. Under this agreement, NNDC holds a 49% stake, while NNPC, through its subsidiary NNPC Exploration and Production Company, holds 51%. Consequently, financial and technical services partner for the integrated development for OPLs 809 and 810 were appointed. They are Sterling Oil Exploration and Energy Production Company Ltd (SEEPCO) and Africa Oilfield Movers Ltd (AOML)
Given the complexities of the oil and gas sector, it would be prudent for Dangote Refinery to secure a guaranteed and uninterrupted source of crude oil. Engaging reputable investment advisory services like Alpine Invest to conduct a comprehensive feasibility study for acquiring the Kolmani Oil Well from NNDC could be a sound risk mitigation strategy. Alpine Invest’s familiarity with NNDC’s operations will add value in its negotiations with the company.
NNDC’s mission is to pioneer, promote, and facilitate the rapid industrialization of Northern Nigeria. Sourcing raw materials for Dangote Refinery from the North would boost the region’s economic activities and position it among the oil-producing states entitled to a 13% derivation from the federation’s revenue-sharing formula.
In addition to sourcing crude oil from Bauchi, Dangote Refinery could develop gas processing and fertilizer production facilities in the area, further enhancing its operations.
It is also strategic for Dangote to expand and entrench its participation in the petroleum industry by actively competing in the downstream sector, challenging NNPC’s monopoly. NNPC currently sells PMS and AGO in its retail outlets at lower rates than independent marketers, stifling competition and creating an undue advantage for higher turnover.
The recent revelation of a refinery in Malta supplying refined petroleum products to Nigeria, allegedly connected with Oando oil marketer, should energize Dangote to enter the downstream sector. This will enable Nigerians to get value for their money.
The ability of consumers to choose from a variety of products strengthens the market forces in a free market economy, where availability, accessibility, and quality determine the price among other factors.
Dangote has become a strong brand, and its market penetration strategy in the downstream sector would benefit from this brand value. It will help propel the growth of the business in the market. It is also crucial for Dangote to become an active player in the petroleum industry, similar to its presence in the cement and food sectors of the Nigerian economy.
It is anticipated that Dangote Refinery will soon be listed for trading on the floor of the Nigerian Exchange, further boosting its market capitalization. Subsequently, it may also be quoted on the New York Stock Exchange.
Undoubtedly, Dangote Refinery holds great potential for profitability and sustained growth. Backward and forward integration will enable it to achieve market leadership and operational excellence in the industry worldwide.
- Ringim is of HALIM Consulting Ltd and can be reached on mahmudshuaibu44@gmail.com.