(Bloomberg) -- Nigeria’s giant new refinery is being priced out of local crude, forcing the plant to rely on supplies from abroad, according to its operator.
The 650,000-barrel-a-day refinery, which is still in the process of ramping up to full capacity, was billed as key to ending Nigeria’s dependence on foreign fuel. But it has imported millions of barrels of US crude since starting production in January, and last week purchased Brazilian feedstock for the first time.
“Aside from Nigerian National Petroleum Corp., to date we have only purchased crude directly from one other local producer,” Devakumar Edwin, head of oil and gas at operator Dangote Industries Ltd., said in a statement. “All other producers refer us to their international trading arms.”
International oil companies and trading houses regularly sell their Nigerian barrels weeks ahead of their loading date to overseas destinations such as India and Indonesia.
There, refiners are often willing to pay a premium above the official selling prices for feedstock varieties such as Nigeria’s Bonga grade, which can produce more high-value fuels. Earlier this year, Dangote paid a $1-a-barrel premium above Bonga’s listed price to secure a cargo, according to the statement.
The local industry regulator this month ordered crude suppliers and refiners to disclose monthly price quotes to improve transparency. That followed complaints from refiners, including Dangote, that they were unable to buy Nigerian crude from international suppliers operating in the West African nation.
Such suppliers have “consistently frustrated the company’s requests for locally produced crude,” Edwin said. When cargoes are offered by the trading arms, they can be at a $2 to $4-a-barrel premium to the official price, he said.
“These international trading arms are non-value-adding middlemen who sit abroad and earn margin from crude being produced and consumed in Nigeria,” he said. “They are not bound by Nigerian laws and do not pay tax in Nigeria on the unjustifiable margin they earn.”
New measures introduced by the regulator may see Dangote get more of its crude locally. The watchdog will act as an intermediary between local refiners and producers where a deal can’t be reached on crude supply, and aim to facilitate an agreement on a “willing-buyer, willing-seller” basis.
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