Dangote Refinery to Establish Oil Trading Unit to Cut Costs

Dangote Refinery will establish an oil trading unit that will help source feedstock for its 650,000 barrels per day plant on the outskirts of Lagos, Reuters reported on Tuesday, citing sources.

The oil trading arm, likely to be situated in London, takes away the need to hire commodity traders for crude supply and related services, which could help scale back costs.

While it could soften spending pressure for a refinery just starting to find its feet in crude oil processing, it is a blow to big names like Vitol and Trafigura which, according to the sources, have had transactions with the refinery.

Vitol has prepaid some crude deliveries for Dangote Refinery and Trafigura has done some swaps which will help the refinery fuel cargoes in return in future, the sources said.

The $19 billion refinery issued tenders to export two cargoes of fuel last month: the first was for 65,000 metric tons of low-sulphur straight-run fuel oil, the second for approximately 60,000 tons of naphtha.

Reuters reported that the likes of Vitol, BP and Trafigura held talks recently with Aliko Dangote, Africa’s richest man who owns the plant, with a view to granting $3 billion in working capital credit required to fund the crude purchase.

The three wanted fuel exports as repayment but no progress has been made beyond that because Mr Dangote fears the implications of the repayment terms for the business’s profit, according to sources.

“He is going to try and do it himself,” Reuters quoted a source with knowledge of the matter as saying.

Radha Mohan, the director of international supply & trading for the Dangote Group, is in pole position to head the firm.

Mr Dangote has said the refinery, which started production this January after a series of setbacks stood in its way, is starting refining activities at a little above half its nameplate capacity and will achieve full production later this year.