Business & Strategy

Dangote: Forex Shortage Delays Crude Supplies

Written by Jerry Alomatu on April 26, 2024

News Views: 116

PetroChina, a Chinese state energy major, has been awaiting unloading a cargo of United States crude at Nigeria’s giant new refinery for nearly a month due to payment issues, as reported by Reuters on Thursday. This delay underscores the challenges faced by the $20 billion plant, funded by Africa’s richest man, Aliko Dangote, in its ambition to become the largest refinery on the continent and in Europe upon reaching full capacity this or next year. Dangote aims to counter the trend of Nigeria exporting its crude while heavily relying on imports of fuel and other refined products.

The two million barrels of West Texas Intermediate crude shipped by PetroChina aboard the supertanker Maran Mira has been floating off Nigeria since March 28, according to shipping data on LSEG and Kpler.

The completion of the oil sale from PetroChina to Dangote has been delayed due to the refinery’s failure to issue a letter of credit to the Chinese trader, according to a source familiar with the matter. The refinery’s difficulty in accessing dollars through the Nigerian government, coupled with the naira’s depreciation against the US dollar amidst rising global oil prices, has strained Nigeria’s finances.

PetroChina has another two million barrels of WTI crude onboard the supertanker Kondor en route to Nigeria. However, potential sellers of US WTI crude to Dangote have faced challenging payment terms, either a 60 to 90-day credit or an exchange of refined products for the crude oil.

Dangote Group Executive, Edwin Devakumar, emphasized that seeking favourable sale prices and credit terms are standard business practices. He indicated that if delayed, it reflects an unfavourable deal.

The Dangote refinery, which commenced operations in January, has reached half its capacity in recent weeks. However, its further expansion is hindered by the need to borrow billions of dollars in working capital to purchase large volumes of crude.

The facility is currently importing around 10 crude oil cargoes a month, about half of its intended capacity of 650,000 barrels per day, which would make it the largest refinery in Africa and Europe.

Additionally, Nigeria’s oil regulator clarified recent changes to fuel sulphur content standards for diesel, stating they are part of a regional harmonization effort. The move aligns with global environmental efforts and ensures a level playing field for regional refiners.