Nigeria’s oil industry has experienced a turbulent year. In January, Shell announced its withdrawal from the country’s onshore oil sector, ending nearly a century of operations. The decision comes as a result of challenging operational conditions. Shell is not alone in its exit; the Nigerian oil sector has seen a decline as other Western companies also pull out. However, amid this downturn, Nigeria is preparing to launch one of the world’s largest oil refineries, positioning itself as a potential global oil powerhouse.
Nigeria’s oil sector has been troubled for years, leading major oil companies to reconsider their positions in the region. Shell’s $2.4 billion sale of its Nigerian subsidiary is linked to years of operational difficulties, including numerous oil spills caused by theft, sabotage, and other issues, according to U.S. News & World Report. This decision follows similar moves by other Western oil giants such as Exxon Mobil, Eni, and Equinor, all of whom have exited the Nigerian market.
The retreat of Western oil firms has left Nigeria’s oil industry in a state of flux. Despite holding the 11th largest proven oil reserves in the world, the country has struggled with poor governance, weak institutions, and deteriorating security conditions, according to the Center for Strategic & International Studies.
As Nigeria’s oil production capacity weakens, the country is preparing to bring the Dangote refinery online. This massive plant, which will process 650,000 barrels of crude oil daily, could compete with the largest refineries in the United States and surpass Europe’s biggest refinery by over 50%.
However, the refinery faces a key challenge: securing sufficient feedstock. The original plan was to use domestically produced crude to fuel the refinery, which would boost Nigeria’s troubled economy. Shell’s exit complicates this goal, making it difficult for the country to reverse declining oil production rates. For now, Dangote has looked abroad for crude supplies, but securing enough for the refinery’s vast capacity has proven difficult.
Despite these challenges, the Dangote refinery is expected to have a significant impact on the global oil market. Even before becoming fully operational, its actions have influenced market prices. Bloomberg recently reported that purchases of U.S. barrels by the refinery briefly pushed up crude futures before a subsequent decision to sell sent prices plummeting.
Aliko Dangote, the Nigerian billionaire behind the refinery, has stated that gasoline production will begin soon. While experts suggest September as a more realistic timeframe, the refinery’s operation is expected to shake up fuel markets in the region. It will disrupt established trade flows, particularly in Europe, where Nigeria currently sources much of its fuel. As Nigeria ramps up production, it will compete with Europe for crude oil on an already tight global market, further disrupting the industry.
The Nigerian oil sector may be in decline, but the launch of the Dangote refinery signals a significant shift. The country’s role in global oil markets is poised to grow, even as it grapples with the challenges of maintaining domestic production.