Dangote pursues supply assurance abroad amidst fluctuating delivery from NNPC Ltd.

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On Tuesday this week, a 400-level student of Petroleum Engineering at the University of Uyo asked me why the Dangote refinery is sourcing crude oil from far away the US when it has NNPC Ltd. as its equity shareholder.


And I gave him an honest response that went thus: 

“Dangote doesn’t seem to trust NNPC Ltd much when it comes to crude delivery. NNPC Ltd has failed before, so it (Dangote) is taking an extra layer of supply assurance.”


Manufacturers with large production output worry when their supply base can't deliver on their promise. It makes them vulnerable to demand disruptions and volatility, which, of course, are undesirable for businesses.  


To avert this, they often depend on a list of external suppliers to cut lead times and achieve assurance of supply. This is exactly what Dangote is beginning to do to sustain its refinery operations since NNPC Limited, its equity shareholder, couldn't deliver as when due.


I don't think Dangote broke any agreement with NNPC Ltd. by negotiating oil shipments from IOCs and even going further abroad but, the latter may have defaulted when it failed to supply agreed or nominated volumes.


For a refinery project of that scale, Dangote needs no dent when it comes to consumer trust hence why it is sacrificing extra cost in shipping freight to enrich its crude inventory.
 

Of course, until NNPC dominate Dangote’s crude oil supply chain, Nigerians may never get to witness fuel selling below the current price at the pump. More so because Dangote wants early positive cash flows to offset existential cost overruns. 

Written by Victor Bassey, Energy Columnist at Bavijas Review.

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