The Tussle Between Dangote Refinery and NNPCL: Can It Overcome the Oil Cartel?

Introduction

Aliko Dangote, Africa's richest man, made headlines when he remarked that he had underestimated the power of the oil cartel, comparing it to being even stronger than the infamous drug cartels. His ambitious $19 billion Dangote Refinery, located in Lagos, Nigeria, aims to refine 650,000 barrels of crude oil per day, potentially reducing Nigeria's reliance on imported petroleum products. However, since its commissioning in 2023, the refinery has faced significant challenges in its journey toward full operations, with one of the biggest hurdles being the entrenched interests of players in Nigeria’s oil industry, including the Nigerian National Petroleum Company Limited (NNPCL).

The Power of the Oil Cartel

Nigeria has long struggled with its oil sector, despite being Africa’s largest oil producer. The country paradoxically imports the vast majority of its refined petroleum products due to the dysfunction of its state-owned refineries and heavy dependence on imports. This situation has allowed for the rise of a well-established oil cartel, made up of powerful oil marketers, importers, and key government figures, benefiting from the status quo.
Dangote’s refinery, if fully operational, threatens to disrupt this long standing arrangement. It promises self-sufficiency in Nigeria’s refining capacity and could make Nigeria a net exporter of petroleum products. This would destabilize the influence of importers and oil marketers, whose profits depend on maintaining the gap between Nigeria’s crude oil production and refining capabilities. This fear of disruption, some speculate, is at the root of the push back Dangote is facing.

Challenges Facing Dangote’s Refinery

The refinery has encountered a series of operational challenges that have delayed its take off. First, securing a steady supply of crude oil has proven difficult. The NNPCL, which controls Nigeria's oil reserves, has not always appeared cooperative. While there have been agreements to supply crude to the refinery, the implementation has been slow, exacerbating tensions. This hesitation could be interpreted as a tactic to prevent the refinery from undermining established interests.
Moreover, operational bottlenecks, such as logistics and bureaucratic delays, have also plagued the refinery's progress. Getting necessary approvals, securing favorable contracts, and navigating regulatory hurdles has been slower than expected. These challenges, compounded by the invisible hand of the oil cartel, make the process even more daunting for Dangote, even though as i write the NNPCL has started supplying crude to the refinery.

Can the Refinery Overcome the Cartel?

Despite these challenges, Dangote’s refinery still has a fighting chance to break the grip of the oil cartel. First, the scale of the refinery's operations, once fully realized, is too significant to ignore. The Nigerian government, under pressure to reduce its costly reliance on imported petroleum products, would benefit immensely from the refinery's success. The federal government’s decision to remove fuel subsidies, a major factor in sustaining the cartel's dominance, may also create an environment conducive to Dangote's goals.

Additionally, Dangote's influence extends beyond the oil sector. As a leading figure in African business, he commands significant political and economic clout, which could help navigate regulatory challenges. Global energy partners, eager to see Africa reduce its dependency on imports, are likely to support the project.
However, for the refinery to overcome the power of the cartel, there must be stronger government intervention, transparency in the crude supply arrangement, and significant political will to prioritize the refinery’s operations over entrenched interests.

Conclusion

The Dangote Refinery's success in Nigeria could herald a new era for the country’s oil industry, breaking the stronghold of the entrenched oil cartel. However, it will require more than just technical capability, it will need sustained support from both the Nigerian government and international partners, as well as the dismantling of long-standing interests that profit from the current import-dependent system. If these barriers are overcome, the refinery has the potential to transform not only Nigeria’s energy landscape but also Africa's position in the global oil market.

References:

• Akowe, M. (2023). "Dangote Refinery’s Delayed Operations: Navigating the Complexities of Nigeria’s Oil Industry." Business Day.
• Nwokeoma, A. (2023). "NNPCL and Dangote: The Power Struggle in Nigeria’s Oil Sector." The Guardian Nigeria.
• Yusuf, F. (2023). "Breaking the Oil Cartel: Can Dangote Succeed?" Punch Nigeria.