To develop a national refinery project in Nigeria, one of the world’s largest exporters and producers of oil, means to face multiple challenges
In the first half of 2025, Nigeria, despite being a large oil producer, recorded a sharp increase in crude oil imports: by 26.5%, to almost 5.7 million metric tons. This jump has widely been attributed to the operations of the Dangote Petroleum Refinery, the largest refinery in Africa, which imports crude oil from many countries, including the US, Brazil, Angola and Equatorial Guinea.
This ambitious project, which is still overcoming sustained opposition and pressure from the big market players, has been attempting from the very start to play a role in strengthening the country’s sovereignty – by refining oil so that Nigeria does not have to import refined products.
Where the Nigerian crude is refined
It’s ironic that Nigeria, a major oil-producing and exporting nation and a member of OPEC and OPEC+, has been dependent on importing refined petroleum products at a rate of approximately 500,000 barrels per day.
Exploration for crude oil commenced in Nigeria in 1937 when Shell D’Arcy (a joint venture between the Royal Dutch Shell Group and British Petroleum) was granted the sole concessionary rights over the whole country. Crude oil was first discovered in commercial quantities in Oloibiri in present-day Bayelsa State in 1956 when Shell D’Arcy drilled the first successful well. That same year, Shell D’Arcy changed its name to Shell-BP Petroleum Development Company of Nigeria Limited. It continued development activities in 1957, and the first shipment of crude oil from Nigeria took place in 1958.
As the economy of the nation grew, demand for petroleum products was met with imports. Shortly after Nigeria gained independence from Britain in 1960, the Shell-BP Petroleum Development Company found an opportunity to meet the product needs of the country. It embarked on a project to build the nation’s first refinery, near Port Harcourt.
The Shell-BP Refinery (38,000 barrels per day), a simple hydro-skimming plant, was completed and commissioned in 1965. The Nigerian government acquired a 50% shareholding under a participatory agreement with Shell-BP. It was registered in 1972 when the government of Nigeria increased its shareholding to 60%, but it remained a joint venture under private sector control and management.
Later, in the 1970-1980s, two more refineries were built, in Warri and Kaduna, and both ran at full capacity utilization.
The decline of the refinery project
The decline in the performance of local refineries seems to have started in the early 1990s, after the military government of Ibrahim Babangida ordered the national oil and gas company NNPC (Nigerian National Petroleum Corporation) to close its accounts in commercial banks and transfer them to the Central Bank. NNPC lost its autonomy and became increasingly subject to politicians’ interference and directives.
Nigeria has had a fair share of failure in building a refinery to guarantee its energy security. Some sources claim that Nigeria spent upwards of $18 billion over the last 25 years on turnaround maintenance to get the three refineries back to work, but to no avail, according to the opposition party, the African Democratic Congress (ADC).
A Nigeria-based non-governmental organization, the Socio-Economic Rights and Accountability Project (SERAP), has sued the NNPC over its failure to account for the missing 825 billion naira ($570 million); $2.5 billion had been earmarked for refinery repairs. The general corruption scandals marred Nigeria’s NNPC for decades; despite huge investments, it remained unable to maintain a single, functional refinery.
The situation led to Nigeria importing 100% of its refined petroleum under a corrupt subsidy regime (in accordance with the structural adjustment program approved by the IMF and World Bank) that served mostly the interest of the elite few, rather than the general public it was supposed to support. Since 1986, Nigeria had been subsidizing gasoline (Premium Motor Spirit, or PMS) to keep prices artificially low for consumers.
International oil companies were in full support of the measure, which led Nigeria to export crude oil to foreign-owned refineries, and then, in turn, import refined petroleum products, creating massive job opportunities and tax revenues for the foreign players.
The fuel subsidy, which was literally the difference between the high cost of importation and the low official selling price, was in fact a populist policy that became a fiscal nightmare for the economy, until its removal two years ago by the administration of President Bola Tinubu. While the removal of the gasoline subsidy was economically necessary, the transition remains very painful for citizens and businesses, as it had been in place for almost 40 years.
Game changer?
The Dangote Refinery, a colossal petroleum and petrochemical complex, was initially proposed in 2013. Construction commenced in 2016, and after several years of development, the refinery was officially opened in 2023. The project is indeed impressive: the Dangote Refinery accounts for about 0.5% of the world’s oil refining capacity and over a quarter of all refining in Africa.
The refinery’s significance has been noted by the Economic Community of West African States (ECOWAS), which has referred to it as a “beacon of hope” for the struggling regional market. Nigerian President Bola Tinubu called it “a great phenomenon of our time.”
Situated in Lekki, Lagos, it is the world’s largest single-train refinery, with a capacity of 650,000 barrels of crude oil per day. The refinery cost $19 billion, more than double the initial estimate; it promises to help wean Africa’s biggest oil producer off its reliance on fuel from overseas, and save up 30 percent of the total foreign exchange spent on importing goods.
Aliko Dangote himself has admitted how difficult it was, and still is, to develop a national refinery project for Nigeria, one of the largest exporters and producers of oil, which until recently had been forced to import refined petroleum products.
The president and founder of Dangote Refinery and Africa’s richest man, who has been aiming to tackle the fuel shortage in his home country, last year expressed a deep frustration after facing sustained opposition from entrenched industry players. He revealed he had been forewarned about challenging the powerful interests benefiting from the dysfunctional system – including international oil companies operating in Nigeria – but proceeded with the project despite these cautions.
“Four years ago, one of my very wealthy friends began to invest his money abroad. I disagreed with him and urged him to rethink his actions in the interest of his country.”
“He blamed his action on policy inconsistencies and the shenanigans of interest groups. That friend has been taunting me in the past few days, saying he warned me and that he has been proven right.”
“We have been facing a fuel crisis since the 1970s. This refinery can help in resolving the problem, but it does appear some people are uncomfortable that I am in the picture. So I am ready to let go, let the NNPC buy me out, run the refinery. At least the country will have high-quality products and create jobs.”
However, despite facing setbacks – such as relocation challenges and delays caused by the Covid-19 pandemic – Aliko Dangote seems to have weathered the storm, and the refinery is fully operational today.
Dangote recently announced it was investing in the procurement of 4,000 Compressed Natural Gas (CNG)-powered tankers to aid in the nationwide distribution of its petroleum products to the final consumers at filling stations. They’re also planning to start direct supplies of fuel to retail stations, manufacturers, telecoms firms, and other large users, a move that could enhance supply but puts it in direct competition with local fuel traders.
“Local businesses, possessing a deeper understanding of African market dynamics, have the potential to drive growth in regional trade and industry,” argues Vsevolod Sviridov, an expert from the Center for African Studies at Moscow’s Higher School of Economics. By building the largest petroleum refinery in Africa, Aliko Dangote, Africa’s richest man and Nigeria’s foremost industrialist, plans to capitalize on this opportunity.
The success (or otherwise) of the Dangote Refinery and other private refiners will determine if Nigeria, a growing economy with a population of over 200 million, can finally break its dependence on imports and subsidies, and take a step toward energy sovereignty.
