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Delay In Crude Supply To Dangote Refinery Poses Risk To Nigeria’s Economy – EIU Report
The Economist Intelligence Unit (EIU) has issued a warning that further delays in crude oil feedstock to the Dangote Petroleum Refinery and Petrochemicals could jeopardise Nigeria’s economic recovery and put additional pressure on the naira.
The research and analysis division of the Economist Group said the Dangote refinery which began production in January has encountered setbacks in petrol production due to a shortage of crude oil feedstock.
It noted that the $20 billion facility has successfully exported various products, including fuel oil, naphtha, nitrogen fertilisers, gasoil, jet fuel, and diesel but has been able to ramp up petrol production due to challenges in sourcing adequate crude oil.
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According to the EIU, the delays in crude feedstock to the Dangote Refinery are expected to have significant economic repercussions for Nigeria, potentially worsening the already strained relationship between public finances and the management of the naira, the country’s currency.
The report pointed out that though the government had previously scrapped the official petrol subsidy in June 2023, the practice of unofficially subsidising petrol continues, with substantial implications for the national budget.
It further pointed out that this had led to increased currency losses, contributing to a widening budget deficit which made it increasingly difficult to manage and could force the Central Bank of Nigeria (CBN) to revert to stronger management of the currency.
“As the federal government unofficially subsidises petrol (the official subsidy was scrapped in June 2023), currency losses feed into a widening budget deficit that is becoming more challenging to finance. This provides extra incentive for the central bank to revert to stronger management of the currency, as we already expect, but the degree of market intervention could become heavier. Meanwhile, ongoing fuel imports would reduce the current-account surplus from the 1.9% of GDP that we currently project for 2025, potentially leading to lower foreign reserves and the return to a more rigid and unstable foreign-exchange system,” it said.
The delay in securing a reliable pipeline of affordable crude oil feedstock was attributed to low crude production due to oil theft and underinvestment, as well as using crude oil to repay outstanding loans.
“The refinery has encountered a range of problems, both practical and political in nature. The most publicly discussed issue is how the refinery can secure a reliable pipeline of crude oil feedstock at affordable prices. NNPC, the state oil firm, has not been able to provide enough volume. The government has promised to deliver 450,000 b/d of oil to the refinery through NNPC in a pilot scheme, sold in naira, but the state oil company is not in a position to make this a reliable arrangement. Crude production in Nigeria is stubbornly low, as a result of oil theft and underinvestment. Output was 1.31m b/d in July, against an OPEC+ target of 1.38m b/d. NNPC receives a varying minority share of this and, moreover, a sizable quantity (about 90,000 b/d) is being committed as loan collateral,” it added.
The situation, it said, has been worsened by International Oil Companies (IOCs) operating in Nigeria, which demand a premium of $3-$4 per barrel over the prices they receive elsewhere. It noted that regulators are hesitant to enforce the Domestic Crude Supply Obligation (DCSO) — which requires IOCs to sell crude to local refineries — out of concern that such enforcement might lead to divestment.
The report emphasised that producing fuel locally would significantly benefit Nigeria’s fiscal position and currency, given that petroleum products account for 15% to 20% of the country’s goods import bill.
The Dangote Refinery, hailed as a transformative development, is expected to resolve the paradox of Nigeria being a major crude oil producer yet still dependent on fuel imports. With a capacity of 650,000 barrels per day (b/d), the refinery could potentially eliminate the need for fuel imports and shield local fuel prices from exchange-rate fluctuations.
“The Dangote fuel refinery is potentially transformational for Nigeria, which has always been an oil exporter and fuel importer. This fact is often regarded as a failure and an embarrassment by politicians, businesses and the media alike, but the new refinery has the ability to change this,” it said.
Savannah Energy has shared a trading update on its Nigerian operations and other markets in Africa, including up-to-date cash collections in its Nigerian business.
According to the update, made available on Thursday in Lagos, its gross production in Nigeria averaged 23.1 Kboepd for FY 2024, broadly in line with the prior year’s 23.6 Kboepd, of which 88% was gas (FY 2023: 91%).
On the update, CEO of Savannah Energy, Andrew Knott, said, “I am pleased to provide a FY trading update which demonstrates the continued progress we have made in 2024, a year which saw the highest level of cash collections ever recorded by our Nigerian business. 2025 is expected to be an exciting year for our Company: we have a large planned operational programme in Nigeria which is anticipated to enhance both our oil and gas production levels and capacity; we intend to progress our R3 East oil development project in Niger; we continue to pursue key acquisitions in the upstream oil and gas space; and we continue to seek to build our power business.
“Fundamentally, Savannah remains unequivocally an “AND” company, seeking to deliver strong performance both for the short AND long term across multiple fronts, and pursuing growth opportunities in both the hydrocarbon AND power sectors.”
The update It also shows that it generated a Total Income of US$393.6 million in 2024, compared to FY 2023’s US$289.8 million. This consists of Total Revenues of US$258.7 million and Other operating income of US$134.9 million.
The report also shows that Savannah’s FY 2024 Total Revenues were ahead of the previously issued financial guidance of greater than US$245 million, while FY 2024 financial guidance is reiterated for Operating expenses plus administrative expenses at ‘up to US$75 million’. The company expects its FY 2024 capital expenditure to come in lower than planned (previously guided at ‘up to US$50 million’) due to the phasing of spend.
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According to the update, Savannah’s cash collections in 2024 amounted to US$248.5 million, a slight increase from the US$206 million it received in 2023. The report further shows that its cash balances as at 31 December 2024 stood at US$32.6 million, compared to the 31 December 2023 figure of US$107.0 million.
The report shows that the company’s midstream subsidiary, Accugas Limited, had as at 31 December 2024 drawn down on its NGN332 billion of the NGN Transitional Facility, with the resulting funds being converted to US$, which, along with cash held, was used to partially prepay the existing Accugas US$ Facility, leaving a balance as at 31 December 2024 of approximately US$212.3 million.
The report also provided new updates on Accugas’ US$45 million Uquo Central Processing Facility (“Uquo CPF”) compression project in Nigeria, noting that its commissioning which will enable the expansion of gas production in the medium term is well underway.
The report highlighted the progress being made in the procurement process of long lead equipment in Nigeria for a potential two-well drilling campaign on the Uquo Field in H2 2025, with an additional gas development well expected to add up to 80 MMscfpd of supplemental production capacity and a potential exploration well targeting an Unrisked Gross gas initially in place (“GIIP”) of 154 Bscf (25.7 MMboe) of incremental gas resources.
The update shows that progress is also being made in the planned Savannah acquisition of Sinopec International Petroleum Exploration and Production Company Nigeria Limited, whose principal asset is a 49% non-operated interest in the Stubb Creek oil and gas field (“Stubb Creek”), with regulatory approval and completion being targeted in Q1 2025. Following the completion of the acquisition, Savannah intends to commence an expansion programme which is anticipated to increase Stubb Creek gross production from an average of 2.7 Kbopd in 2024 to approximately 4.7 Kbopd.
In Niger, Savannah continues to seek to progress its 35 MMstb (Gross 2C Resources) R3 East oil development in South-East Niger, while it continues to push for a potential alternative transaction structure to acquire a material stake in producing oil and gas assets in South Sudan as previously announced on 20 December 2024.
On the renewable energy front, the update shows that Savannah has up to 696 MW of renewable energy projects currently in motion, including the up to 250 MW Parc Eolien de la Tarka wind farm project in Niger and the up to 95 MW Bini a Warak hybrid hydroelectric and solar project in Cameroon. A firm believer in Africa’s transition to renewable energy, Savannah continues to target a portfolio of up to 2 GW+ of power projects in motion by the end of 2026.
The Nigerian Economic Summit Group (NESG) has projected that the country has the potential to achieve a 5.5% growth in Gross Domestic Product (GDP) if critical policy reforms are sustained.
This was disclosed on Thursday during the launch of the NESG’s 2025 Macroeconomic Outlook report.
Speaking at the event, the Chief Economist and Director of Research & Development at NESG, Dr. Olusegun Omisakin, highlighted the need for more efficient policy implementation to unlock Nigeria’s economic potential.
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“We believe at the optimal level, if we embark on more efficient policy reforms, the Nigerian economy has the potential, the GDP to end up at 5.5 per cent, and we believe that this is achievable,” Omisakin stated.
More to follow……….
The Central Bank of Nigeria (CBN) has announced the release of the Nigerian Foreign Exchange (FX) Code, a set of guidelines designed to promote ethical conduct among authorized dealers in the country’s FX market.
In a statement, the apex bank disclosed that the official launch of the Code would take place on Tuesday, January 28, 2025, at the CBN Head Office Auditorium in Abuja.
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“The Central Bank of Nigeria has approved the release of the Nigerian Foreign Exchange (FX) Code as a guideline to the banking industry to promote the ethical conduct of authorised dealers in the Nigerian Foreign Exchange Market,” the statement read.
The introduction of the FX Code is expected to enhance transparency, accountability, and professionalism within Nigeria’s foreign exchange ecosystem, aligning it with global best practices.
The event is anticipated to attract key stakeholders in the financial and banking sectors, as well as representatives from authorized FX-dealing institutions across the country.
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