Amid ongoing challenges in securing feedstock, the Dangote Group is set to venture into crude oil exploration, bolstering its operations for the Dangote Refinery, one of Africa’s largest. Reports from S&P Global Commodity Insights indicate that the company plans to initiate production at its two oil assets located in Nigeria’s Niger Delta by the fourth quarter of 2024. The production will start at approximately 20,000 barrels per day (b/d) and is scheduled to increase further by the first quarter of 2025. This move comes as the Dangote Group has faced significant difficulties related to crude supply, compelling the company to explore alternative avenues to meet the demands of its extensive refinery operations.
The upstream projects in question are situated in Oil Mining Leases (OMLs) 71 and 72, known for their previously successful oil discoveries. The Dangote Group holds an 85 percent stake in West African E&P Venture, which has a 45 percent working interest in OMLs 71 and 72, while the state-owned Nigerian National Petroleum Company (NNPC) maintains a 55 percent stake. The fields contain the Kalaekule and Koronama oilfields, located in shallow waters about 22 km from the Bonny terminal. Historical production at these fields dates back to the 1960s, with Shell spearheading operations in the late 1980s, peaking at 21,000 b/d in 1999 before experiencing a decline. Despite these challenges, the fields are estimated to have significant recoverable resources, including nearly 300 million barrels of oil and 2.3 trillion cubic feet of natural gas, highlighting the potential benefits of the upcoming production.
The Dangote Refinery, which commenced operations in January 2023, is designed to drastically reduce Nigeria’s long-standing dependence on imported refined products. It has begun to produce gasoline, diesel, gasoil, jet fuel, and naphtha for both domestic consumption and export. However, the refinery has faced substantial hurdles in obtaining sufficient Nigerian crude oil supply. Early operational phases necessitated significant imports of WTI Midland crude from the United States, leading to conflicts involving the NNPC, international oil companies, and Nigerian upstream regulators. This situation underscores the pressing need for the Dangote Group to address its crude supply challenges through upstream production.
As the company seeks to enhance its self-sufficiency in feedstock, it is also actively pursuing a floating production, storage, and offloading (FPSO) vessel with a capacity of 650,000 barrels of crude. This strategic move indicates a commitment to mitigating past supply issues and achieving sustainable production levels that can adequately support the refinery’s operations. Effective exploration and production at OMLs 71 and 72 will not only provide a dependable source of crude oil but also foster a more resilient supply chain for the Dangote Refinery.
Recent data suggests that, despite Dangote’s ongoing challenges with rural crude supply, it has shown improvement in sourcing Nigerian crude, taking just under 200,000 b/d in September, while no U.S. crude imports have occurred since mid-July. Nevertheless, the company is exploring potential crude supply from other producers, including Libya, Senegal, and Brazil. Company insiders have cautioned that despite these efforts, the NNPC may be able to fulfill only 60 percent of Dangote’s crude oil requirements. This adds another layer of urgency to the Dangote Group’s decision to enter the upstream sector, as it seeks to secure a reliable and consistent supply of crude oil.
The prospective production from OMLs 71 and 72 represents a significant chapter in the Dangote Group’s upstream strategy. By aligning crude oil production with refinery operations, the company is not only poised to alleviate its current feedstock challenges but is also set to contribute to Nigeria’s overall oil sector growth. As the refinery ramps up its operations and production capabilities, the successful implementation of its upstream activities will be crucial in solidifying the Dangote Group’s position within the competitive oil and refining landscape and enhancing Nigeria’s energy independence.
