Africa is facing more severe climate change than most other parts of the world, despite bearing the least responsibility for the problem. With nearly one-fifth of the world’s population today, Africa accounts for less than 3% of the world’s energy-related carbon dioxide (CO2) emissions to date and has the lowest emissions per capita of any region. In total, more than 150 countries have put forward new or updated emissions targets, with several African countries, including Botswana, the Democratic Republic of the Congo, Egypt, Ghana, Kenya, Morocco, Nigeria, and South Africa, making various commitments to restrict methane emissions, halt and reverse forest loss, phase out coal, and end international financing for fossil fuels. Nigeria also joined some of the world’s largest energy exporters, including Saudi Arabia, in committing to net zero by 2060.
Moreover, in Nigeria, the region’s largest economy, growth softened to an estimated 2.9 percent in 2023, according to the World Bank. The decline in service growth was partly driven by a disruptive currency demonetization policy, which involved replacing old high-denomination naira notes with redesigned ones from December 2022 onward but was reversed in November 2023. Annual oil production rose after previous declines. South Africa experienced a further slowdown in growth to an estimated 0.7 percent in 2023, attributed to monetary policy tightening, the impact of the energy crisis, and transport bottlenecks. Growth in Angola weakened to an estimated 0.5 percent, with maturing oil fields contributing to lower oil production, leading to revenue shortfalls and triggering public expenditure cuts.
In an economy, the decision-makers are households, firms, and central authorities. These are the dramatis personae of economic theory, and the stage on which they play is enacted is the market. The decision-taking units in economic theory are households for demand, firms for supply, and central authorities for government regulation and control. Given the resources at their command, each household is assumed to act consistently to maximize its satisfaction, and each firm is assumed to act consistently to maximize profit (see Microeconomics by Karimu Adebayo Ishola, p. 21 & 22). Thus, the above-stated theory will be represented in the subsequent paragraphs indicating the decision-makers in the Nigerian and Sub-Saharan oil and gas sectors, such as the general oil and gas consumers (households), Dangote Refinery (firms), the Nigerian Federal Government and her agencies (central authorities), and other market forces and their interactions in this critical domain in recent times.
The Dangote refinery is a game-changer in Africa’s energy landscape, analysts say. According to them, it provides a practical solution to reduce the continent’s dependence on imported petroleum products, estimated at $60 billion annually, thus minimizing the risks of price fluctuations and supply disruptions and breaking the cycle of energy poverty that has haunted the continent since independence. This refinery not only meets domestic demand but also caters to neighboring countries, fostering a more stable and self-reliant energy system. Correspondingly, Nigeria is one of Africa’s largest oil producers, yet the country has lacked the capability to refine its oil, forcing it to rely on imported fuel. In Q1 2023, Nigeria imported 383,400 b/d of gasoline and diesel, according to data from S&P Global Commodities at Sea. Imports fell to 193,000 b/d in Q2 after the subsidy removal. With the opening of this refinery, Dangote Industries Ltd., a massive conglomerate that also operates cement plants, a fertilizer plant, and a sugar refinery, says it aims to process enough oil to not only make Nigeria self-sufficient but supply petrol, diesel, and jet fuel to other African countries. Owned by Africa’s richest man, Aliko Dangote, the $20bn refinery received its first crude shipment in December 2023.
During the inauguration of the refinery in 2023, Dangote disclosed that the huge investment of over $18.5 billion in the industry was prompted by the company’s desire to support and contribute its quota to the federal government’s sustained effort to transform the economy and reposition Nigeria as the leading nation in Africa and a respected member of the world’s emerging economies. However, S&P Global analysts predict the refinery will not hit full operating capacity until mid-2025, according to a recent note, with further delays still possible. Still, forecasts from S&P Global suggest Nigerian gasoline production will exceed imports until the 2040s as a result of the refinery. Dangote further stated that the country’s coastal location and offshore loading and offloading (SPM) facilities had the capacity to receive all of its crude oil supplies and evacuate up to 75 percent of liquid products, which offer the facility direct access to the rest of Africa and the global market for exports.
Impact on Economy
The $19 billion facility has been off to a slow start despite opening more than a year ago. It has had to source crude oil from other countries after failing to secure supplies in Nigeria, whose capacity as one of Africa’s biggest oil producers has been impeded by oil theft and chronic corruption. However, experts such as Nnaemeka Vincent Emodi, a research fellow at the University of Queensland, in The Conversation mentioned a few areas where the Dangote refinery is expected to make an impact:
- Reduced oil import dependence: The country has faced several fuel shortages in the past, which have caused prices to surge for transport and basic commodities. Recent fuel shortages have been blamed on the Russia-Ukraine war. The price of imported fuel rose more than 100%. Importers operated at a loss due to price ceilings set by the government. Besides eliminating import dependency, the Dangote refinery can potentially reduce Nigeria’s crude oil export dependency as more crude oil will be refined domestically.
- Support for allied industries: The refinery could also create an environment for allied industries to emerge in and around it. For instance, businesses in transport, housing, and telecommunications will benefit from the construction and operations of the refinery. And the refinery should create jobs and entrepreneurship opportunities. While under construction, the refinery employed about 40,000 workers—29,000 Nigerians and 11,000 foreigners. The jobs were in engineering, construction, manufacturing, and operations, among other areas. In full operation, the refinery, according to media reports, is expected to create over 250,000 direct and indirect jobs.
- Possible increase in carbon footprint: The operation of Dangote refinery raises concerns about its potential impact on Nigeria’s net zero emission goals. Net zero is an ideal state where the amount of greenhouse gas emissions produced and greenhouse gas emissions taken out of the atmosphere is balanced. The Dangote refinery complies with World Bank, US, European, and Nigerian norms for emissions and effluents.
Nigerian Factors
Before the Petroleum Industry Act (PIA) was signed into law in August 2021 by ex-president Muhammadu Buhari, the bill originally sought to allow only refinery owners to be the importers of fuel into the country. The part granting that privilege to refiners was removed from the legislation after backlash from stakeholders before the PIA was approved. Meanwhile, Mr. Dangote has also had a faceoff with regulators, IOCs, and Nigerian National Petroleum Company (NNPC Ltd.), the state oil firm, over issues ranging from alleged sabotage of oil supply, which has constrained the smooth operation of the refinery that only started this year. Recently, a senior executive of the refinery has also accused international oil companies in Nigeria of plotting the refinery’s failure. “Either they are deliberately asking for a ridiculous premium or they simply state that crude is not available,” Devakumar Edwin, a vice president of Dangote Industries, said of the companies. He said the IOCs are deliberately frustrating the refinery’s efforts to buy local crude by jerking up the high premium price above the market price, thereby forcing it to import crude from countries as far as the United States, with its attendant high costs.
Mr. Edwin also lamented the activity of the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) in granting licenses indiscriminately to marketers to import dirty refined products into the country. Responding to the claim at the time, the NMDPRA said there is no dirty fuel being imported into the country, noting that it takes seriously its statutory mandate to ensure that only quality petroleum products are supplied and consumed in Nigeria. The NMDPRA explained that the Economic Community of West African States (ECOWAS) heads of state in 2020 endorsed a declaration adopting the Afri-5 fuel roadmap that requires that certain products have a minimum of 50 parts per million (ppm) liters of sulfur.
However, analysts say such a dispute could send the wrong signal at a time when the country is seeking to ramp up foreign investments and stabilize its ailing economy. Recently, the House of Representatives resolved to set up an ad hoc committee to investigate the alleged conspiracy by IOCs against the refinery. Following the crisis, Mr. Dangote halted plans to invest in Nigeria’s steel industry. Similarly, Nigeria’s Minister for State, Petroleum Resources (Oil), Heineken Lokpobiri, convened a high-level meeting with Dangote, NNPC, and others to address the ongoing issues surrounding the Dangote Refinery.
The Road Ahead
As Dangote expands his business empire, the Nigerian government concurrently has the opportunity to enhance the development of the nation, making it the primary beneficiary of the Dangote refinery. In order to benefit from an initiative such as this, countries in West and East Africa with significant gas reserves could consider developing cross-border gas pipeline infrastructure to connect to regions where gas will be in significant demand, including countries in North Africa and southern Africa. Alternatively, African countries with significant natural gas demand could invest in coastal LNG regasification plants to allow gas to be imported from other African countries with LNG export capabilities.
Furthermore, the Dangote refinery’s journey is emblematic of the challenges and triumphs that define the African oil sector. Its success will serve as an inspiration, highlighting the potential for industrial transformation on the continent. Finally, as the Dangote refinery ramps up its output, it promises to reduce Nigeria’s dependency on imported refined products, bolstering the country’s self-sufficiency. This achievement will undoubtedly have far-reaching implications for the African oil industry, paving the way for economic growth and energy security.
Writer and researcher at Alafarika for Studies and Consultancy.