Friday, 19 April 2024 04:44

Dangote Refinery announced disruptive price of N1,000 per litre of diesel. Here’s what made that possible

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S&P Global has revealed that the Dangote refinery's relaxed quality standards for diesel have resulted in a significant reduction in domestic prices, marking a notable shift in Nigeria's fuel landscape. The decision to lower domestic prices by 37 percent was attributed to the production of high-sulphur diesel at the refinery.

In its report released on Thursday, S&P Global detailed how the high-sulphur diesel produced by the Dangote refinery led to the strategic move to decrease domestic prices. Unlike low-sulphur diesel, which is considered cleaner for the environment with sulphur levels below 500 ppm, high-sulphur diesel is primarily used for off-road purposes due to its potential to cause engine damage.

The reduction in prices was announced by the Dangote refinery on April 16, with the automotive gas oil (diesel) now priced at N1,000 per litre. This move has been facilitated by the relaxation of quality controls for diesel supply, enabling the refinery to gain a competitive edge over imports.

According to S&P Global, three market sources confirmed that the initial diesel supplies from the refinery had a sulphur content of around 650 parts per million (ppm), exceeding the 200 ppm cap enforced by the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) on imported products since March. This deviation from the regulatory cap has allowed the refinery to swiftly penetrate the market and mitigate fuel import costs, particularly amidst the depreciation of the naira.

Despite the refinery's intention to produce diesel conforming to Euro 5 specifications (10 ppm), its current production remains contingent on the full operationalization of its distillate hydrocracker unit. The report also highlighted the uncertainty surrounding the future sulphur content of Dangote's diesel supplies, as well as the response of importers to rapidly evolving specifications.

As the market adapts to these changes, the flow of diesel into West Africa faces growing uncertainty, with traders grappling with shifting specifications and supply dynamics. The production of high-sulphur diesel during refinery ramp-up stages is deemed characteristic, reflecting operational challenges and potential outage risks.

In light of these developments, stakeholders await further clarity on the trajectory of Dangote's diesel production and its implications for Nigeria's fuel market.

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