In addition, shipments to Asia/Pacific, largely on VLCCs, boost tonne/mile demand, Gibson Research said in its latest report
Despite being a major crude oil exporter, Nigeria imports around 80% of its products consumption, as its four existing refineries operate significantly below their operational capacity, with throughput at just 5%, due to poor maintenance and mismanagement.
To satisfy domestic demand, the country sources most of its products from Europe, although imports from US are also on a rise. Product shipments into Nigeria are largely carried on MR tonnage, although over the past couple of years there has been a growing involvement of LR1s.
This picture could change dramatically in the medium term, Gibson said. The Dangote group, a Nigerian multinational industrial conglomerate, aims to build a 650,000 barrels per day refinery, which is expected to cost around $14 bill and will include a fertiliser unit.
It will be located along the Atlantic coast within the Lekki Free Trade Zone, in close proximity to Lagos. The latest plans call for commercial operations to begin in 2019, although initially the start date was planned for 2018.
The refinery’s geographical location offers several advantages, such as ability to source crude from offshore, as opposed to relying on vulnerable onshore pipelines. Being on the coastline also means that the refinery could have an independent crude supply, with Lekki Deep Sea port also slated for completion in 2019.
The project will be funded through loans from local and international banks, export agencies, as well as Dangote Group equity. A number of institutions have already confirmed their involvement; while the Central Bank of Nigeria said earlier this year that it will help the Dagnote Group to access the foreign exchange it needs to facilitate the project.
Some doubt remains whether the refinery will be built, not least due to Nigeria’s record with its existing refineries. However, some progress has already been made.
For example,last year, the US Trade and Development Agency signed a grant worth nearly $1 mill to develop and train human resources for the refinery. More importantly, CNN video coverage produced last month shows that the construction at the site has already started. Pipes have been laid and a massive dredging operation has started, although specific plans of the refinery are yet to emerge.
Finally, Aliko Dangote, the man behind Dangote Group, has an impressive record of achieving his goals, completing several major projects in Africa, including the world’s largest sugar refinery and cement factory.
Construction of the refinery appears to be in the very early stages and a lot of challenges lie ahead, not least the instability in Nigeria, devaluation of Nigerian currency and low oil prices.
However, if the refinery is successfully built, it will have a double negative impact for the tanker market.
First, it will reduce crude exports out of the country, both short haul and long haul and second, as Nigeria becomes increasingly self-sufficient in terms of products, the country’s imports will dry up, with a knock on effect on MR and LR1 demand.
The only upside is that following the completion of the refinery, Nigeria could become a products exporter, supplying gasoline and other products to several countries in the region, Gibson concluded.