Two months ago, Nigeria took a big step toward fixing its troubled energy sector. For the first time in decades, Africa’s largest oil producer is refining its own crude oil at home. This was made possible by the Dangote Oil Refinery, a massive $20 billion facility owned by Aliko Dangote, Africa’s second-richest man.

Although the refinery officially launched in January 2024, it started producing gasoline only in September. By November, it is expected to reach full capacity, refining 650,000 barrels of crude oil per day—far more than Nigeria needs. Even better, the refinery is buying crude and selling fuel domestically in Nigeria’s local currency, the naira. This move helps save precious foreign exchange reserves, particularly U.S. dollars.

While this sounds like great news for Nigeria, Dangote’s bold venture hasn’t been without challenges.

Taking on the “Oil Mafia”

At an investment conference in June, Dangote revealed just how much opposition he faced.
“I knew there would be a fight. But I didn’t know that the mafia in oil, they are stronger than the mafia in drugs,” he said.

For decades, Nigeria’s oil sector has been riddled with corruption. The Nigerian National Petroleum Company (NNPC), the state-owned oil firm, has been accused of shady dealings and lacked transparency. Until five years ago, it didn’t even publish its accounts. This is shocking, considering oil generates nearly 90% of Nigeria’s export earnings.

Instead of refining its crude oil at home, Nigeria exported it to other countries for processing and then imported the refined fuel back. This inefficient system, known as “oil swaps,” involved billions of dollars with little accountability. Experts say Dangote’s refinery threatens the interests of those who have benefited from this broken system for years.

“They don’t want the trade to stop. It’s a cartel,” said Emmanuel, a Nigerian oil expert.

The Perfect Storm: Subsidy Removal and a Struggling Economy

As promising as the Dangote Refinery is, its launch comes at a tough time for Nigeria. The country recently scrapped its long-standing fuel subsidies, a move that made gasoline significantly more expensive for ordinary Nigerians.

For decades, the NNPC kept fuel prices artificially low by subsidizing costs, which drained the government’s finances. In 2023, the subsidies cost Nigeria $10 billion—more than 40% of its total tax revenue. The new president, Bola Tinubu, decided the country could no longer afford this.

On top of that, Nigeria stopped propping up its currency, the naira, letting market forces decide its value. These changes have hit Nigerians hard, with gasoline prices tripling to about $2.30 per gallon—a significant increase for a country where many live on less than $2 a day.

Oil Theft and Declining Production

Another challenge for the refinery is oil theft, a long-standing problem in Nigeria. Large-scale theft has made it difficult for the NNPC to supply enough crude oil to Dangote’s refinery.

“NNPC can’t supply more than 300,000 barrels per day to Dangote, even though the refinery needs much more,” said Mr. Akinosho, a Nigerian oil expert.

This issue is made worse by years of vandalism on Nigeria’s pipelines. For example, some pipelines haven’t been operational for over a decade because thieves siphon off oil. In one tragic case, a fire caused by oil theft killed many people, forcing the shutdown of a major pipeline.

Hope for the Future?

Despite these challenges, the Dangote Refinery represents a major opportunity for Nigeria. It could reduce the country’s dependence on expensive imports, create jobs, and boost the economy. The refinery is perfectly suited to process Nigeria’s Bonny Light crude, a high-quality oil prized for its ability to produce excellent gasoline yields.

However, the road ahead won’t be easy. Nigeria’s oil production has been declining, dropping from 2.1 million barrels per day in 2018 to just 1.3 million today. Global oil companies are also pulling out of the Nigerian market, citing concerns over theft, insecurity, and regulatory challenges.

Still, Dangote’s bold move to refine oil locally could be the start of a new era for Nigeria. Whether his refinery can overcome these obstacles remains to be seen. What’s clear is that the fight against Nigeria’s powerful oil cartels is far from over.

One thing is certain: Dangote’s refinery has disrupted the status quo, and all eyes are on whether it will succeed in reshaping Nigeria’s energy future.