Nigeria’s Dangote Refinery May Not Sell Petrol Below $1.70 Due to Production Costs

A leading oil and gas expert, Henry Adigun, has highlighted production costs denominated in US dollars as a key factor that may prevent the $20 billion Dangote Refinery in Lagos from selling a litre of Premium Motor Spirit (PMS), also known as petrol, below the new pump price at the retail outlets of the Nigerian National Petroleum Company Limited (NNPCL).

Adigun, who was a guest on Inside Sources with Laolu Akande on Channels Television, explained that the refinery’s production costs are dollar-denominated, which makes it difficult for the company to sell petrol at a lower price. According to him, the refinery’s owner, Aliko Dangote, took a loan in dollars to finance the project and will have to pay it back in the same currency.

The expert also noted that the refinery is a single-train refinery, which means it cannot produce all products using only one type of crude oil. Therefore, it needs to blend American crude with Nigerian crude, which increases the production costs. Adigun further explained that the refinery’s operations are also affected by the fact that it only gets 40% of its crude from the NNPC, and has to buy the remaining 60% from other sources, including America.

When asked if Dangote would sell petrol at a pump price of N700, Adigun replied that it was impossible, stating that the refinery’s costs are too high to allow for such a low price. He estimated that the minimum price of petrol from the refinery would be around N850, taking into account the retail cost.

The Dangote Refinery, which began operations last December, has a production capacity of 350,000 barrels per day, and hopes to achieve its full capacity of 650,000 barrels per day by the end of the year. The refinery has already started supplying diesel and aviation fuel to marketers in the country and now petrol.

The pump price of petrol in Nigeria has more than tripled since the removal of subsidy in May 2023, from around N200 per litre to about N800 per litre. The country faces significant energy challenges, with all its state-owned refineries non-operational. The NNPC is the major importer of refined petroleum products, and fuel queues are commonplace in the country.