Aliko Dangote to Self-Fund Crude Purchases for Refinery, Bypassing Major Traders

Dangote Refinery is set to establish an oil trading unit to help source feedstock for its 650,000 barrels per day plant on the outskirts of Lagos, according to Reuters sources. This move, which may see the unit located in London, aims to eliminate the need to hire commodity traders for crude supply and related services, potentially reducing costs.

While this decision could alleviate spending pressures for the refinery, which is just beginning to process crude oil, it poses a challenge to major players like Vitol and Trafigura, who have had transactions with the refinery. Vitol, for instance, has prepaid some crude deliveries for Dangote Refinery, while Trafigura has conducted swaps that will enable the refinery to fuel cargoes in the future.

The $19 billion refinery recently issued tenders to export two cargoes of fuel: one for 65,000 metric tons of low-sulphur straight-run fuel oil and the other for approximately 60,000 tons of naphtha. This move signals the refinery’s entry into the international oil trading market.

Despite talks with Vitol, BP, and Trafigura regarding a $3 billion working capital credit to fund crude purchases, no progress has been made. Aliko Dangote, the owner of the refinery, is reportedly hesitant about the repayment terms, fearing their implications for the business’s profit. As a result, he is considering handling the financing himself.

Radha Mohan, the director of international supply & trading for the Dangote Group, is likely to head the new oil trading arm. Mr Dangote has expressed confidence that the refinery, which began production in January, will achieve full production later this year, despite facing several setbacks.

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