Dangote to set up Oil Trading Firm for Refinery Crude Supply

Dangote to set up oil trading firm for refinery crude supply

Aliko Dangote, the well-known Nigerian businessman, is reportedly in the process of establishing an oil trading division, possibly with a base in London, in a calculated move that could fundamentally alter the oil trading industry’s landscape. Speaking to Reuters, people with knowledge of the situation disclosed that this division is intended to supervise the management of the crude and product supply chain for Dangote’s ambitious refinery project in Nigeria.

The establishment of this oil trading company marks a significant shift in the dynamics of the global oil market, as it aims to reduce the dominance of major trading conglomerates. These industry giants have been engaged in protracted negotiations with Dangote, exploring avenues to provide financing for the refinery and supply crude oil in exchange for the rights to export its refined products.

At the heart of this development is the construction of a colossal refinery with a projected capacity of 650,000 barrels per day. The sheer scale of this facility is poised to bring about substantial changes in the distribution patterns of oil and fuel worldwide, garnering considerable attention from industry stakeholders and traders alike.

Prominent entities such as BP, Trafigura, and Vitol have reportedly entered into discussions with Dangote, both in Lagos and London, offering financial assistance to cover the estimated $3 billion in working capital required for the refinery to procure significant quantities of crude oil. These trading firms have proposed that the refinery could utilize its fuel exports as a means of repaying the loans extended to it.

Despite these discussions, no definitive agreements have been reached thus far, with Dangote expressing reservations about potential arrangements that could compromise his authority over the project and, consequently, his profitability. In his quest for funding and a stable supply of crude oil, Dangote has also explored engagements with state-backed enterprises.

The Dangote refinery, boasting a refining capacity of 650,000 barrels, was inaugurated in May of the previous year but encountered delays before commencing operations. However, in a positive development, the refinery initiated the receipt of crude oil in December 2023 from domestic oil producers. Nevertheless, challenges such as oil production shortfalls and local supply disruptions have prompted the refinery to seek crude oil from international sources.

Reports indicate that the refinery has initiated the procurement of crude oil from overseas producers, primarily in the United States, to mitigate the impact of local supply constraints. The Nigeria Upstream Petroleum Regulatory Commission had earlier mandated oil companies operating in Nigeria to allocate approximately 325,000 barrels of oil daily for supply to the refinery.

As Dangote navigates the complexities of financing and securing a reliable crude oil supply for his refinery project, the industry remains abuzz with anticipation over the potential implications of this venture on the global oil and fuel markets. The establishment of an oil trading company under Dangote’s purview signifies a notable development in his quest to revolutionize the energy sector and underscores the intricate interplay between key industry players in shaping the future of oil trading and refining.