Despite commencing operations in January 2024 and producing diesel, the refinery has yet to start producing petrol due to inadequate crude oil feedstock. The Nigerian National Petroleum Company (NNPC) Limited is unable to meet the refinery's demand, jeopardising the country's ability to reduce fuel imports.
Nigeria's economic progress is at risk due to the crude oil supply crisis facing the Dangote Petroleum Refinery and Petrochemicals in Lagos, warns the Economist Intelligence Unit (EIU).
Despite commencing operations in January 2024 and producing diesel, the refinery has yet to start producing petrol due to inadequate crude oil feedstock. The Nigerian National Petroleum Company (NNPC) Limited is unable to meet the refinery's demand, jeopardising the country's ability to reduce fuel imports.
The EIU in its report urges the government to address this issue promptly to prevent additional pressure on the Naira and avoid stricter currency management by the Central Bank of Nigeria (CBN).
Local fuel production would significantly benefit Nigeria's economy and currency, as petroleum products account for a substantial portion of the country's import bill. The Dangote refinery, with a capacity of 650,000 barrels per day, has the potential to transform Nigeria's fuel landscape and reduce reliance on imports.
“The Dangote fuel refinery is potentially transformational for Nigeria, which has always been an oil exporter and fuel importer. This fact is often regarded as a failure and an embarrassment by politicians, businesses, and the media alike, but the new refinery has the ability to change this,” it said.
The report noted that the delay in supplying crude oil to the Dangote Refinery has severe economic consequences for Nigeria, exacerbating the strained relationship between public finances and currency management.
Despite scrapping the official petrol subsidy in June 2023, the government continues to unofficially subsidise petrol, resulting in substantial budget implications the report observed.
This practice leads to increased currency losses, contributing to a widening budget deficit that has become challenging to manage.
The EIU report warned that the situation may worsen if the government fails to address the crude oil supply crisis, potentially jeopardising Nigeria's economic stability.
“As the federal government unofficially subsidises petrol (the official subsidy was scrapped in June 2023), currency losses feed into a widening budget deficit that is becoming more challenging to finance. This provides extra incentive for the central bank to revert to stronger management of the currency, as we already expect, but the degree of market intervention could become heavier.
“Meanwhile, ongoing fuel imports would reduce the current-account surplus from the 1.9% of GDP that we currently project for 2025, potentially leading to lower foreign reserves and the return to a more rigid and unstable foreign-exchange system,” it said.