Marketers Await Commercial Terms for Lifting Products from 650,000bpd Dangote Refinery

*Say refinery will change business dynamics in downstream sector

Peter Uzoho

With production reportedly ongoing at the 650,000 barrel- per- day capacity Dangote Refinery and marketable products expected any time from this month, the marketers of petroleum products were eagerly awaiting the release its pricing template to enable them negotiate the commercial terms for the lifting of products from the facility, THISDAY has learnt.

Some of the marketers, who spoke to THISDAY exclusively, said they were also eager to know the mode of sale of the products to the offtakers – whether the marketers will pay in naira or dollar and whether the refinery will supply the marketers through its equity partner, the Nigerian National Petroleum Company Limited (NNPCL), or through direct delivery to the open market.
They, however, postulated that the entry of the products from the facility into the market would potentially trigger a change in the downstream business dynamics in the country.

 They also predicted that with the refinery located in Nigeria where marketers can easily lift products with their trucks and within a short period of making orders, ownership of tank farms and storage facilities may no longer be a viable venture.
The downstream players further predicted that the refinery would further shape the petroleum products marketing business in the country this year and beyond, particularly in the area of pricing, if it consistently makes sufficient volumes available in the market with the right quality.
Dangote Refinery, according to the promoters, started operation penultimate Friday with production of diesel and aviation fuel, saying sellable products from the facility would hit the market this January.

Speaking to THISDAY, the Managing Director of 11Plc, Mr. Tunji Oyebanji; who said he was aware that some marketers were being registered with the Dangote Refinery as offtakers, added that discussion on commercial terms, including whether the refiner would sell to marketers in naira or dollar, has not happened yet.
He said marketers were currently waiting for the refinery to release its pricing template so that discussion around that could commence.
Oyebanji explained: “I’m not aware that the discussion has reached the stage of whether he will be selling products to marketers in naira or dollars. I think people are just taking the first step to register. Now that they said the product is being made, I guess the next stage will be for them to say ‘this is how we would like to sell – this is the terms’.

“So, it is when we see that that we will know and then we would then have further discussion. This transition too is a bit dicey because, don’t forget, some people may have existing inventory of those products in their tanks.  Maybe, you have bought a product in your tank at N500, then Dangote is going to sell it at N200, you know you will be in trouble with that product you have in your tank.”

He said another thing to be considered by marketers would be whether Dangote would produce enough quantity to meet market demand or it would be producing small quantities that would necessitate secondary supply to augment, which he said, will become a problem to the marketers and the market.
“So, all these things are market details that you have to work out to know how much quantity. For instance, if they tell me to come and register as a company and they tell me their terms and I say the terms are acceptable to me, but I want 50,000 metric tonnes and then, they said they can only supply me 3000 metric tonnes.

“If you are a customer and marketer that normally sells 15,000 metric tonnes in a month, you know you are in trouble because you will still need the difference to meet up. So, a lot of that needs to be sorted out. But all we know for now is what we read in newspapers that production of AGO (diesel) and ATK has started. But what quantity, what price, nobody knows”, he said.

He further argued that with the refinery located in Nigeria where marketers can easily go and pick products with their trucks and within a short period of making orders, ownership of tank farms and storage facilities may no longer be a viable venture.
 Terminal operators in Nigeria – whether companies under MOMAN or Depot and Petroleum Products Marketers Association of Nigeria (DAPPMAN) charge extra cost known as storage fees, aside the actual cost of product, when selling to their business-to-business customers, and this extra cost is passed on to the last-mile customers at the filling stations.

However, with Dangote now set to start supplying products directly to every marketer through their trucks and vessels, the 11Plc boss contended that marketers whose only business is tank farm operation would soon shut down due to lack of patronage.
“But now that the product is made locally, there may be no need for keeping all that storage because if you don’t have the product from the refinery this week, you can get it next week.

“So, why go and pay N5 extra to the tank farm owner? If you just order from Dangote and you get your order this week or next week. You don’t need to pay any extra fee for storage. You will just go there with your 50 trucks and lift your product.
‘So, it’s going to change the dynamics in the industry a lot”, Oyebanji added.

On his projection for the downstream sector for this year, the ex-MOMAN chairman said the Dangote Refinery would be a game changer.
Continuing, he said the aviation fuel being produced by the refinery must be produced consistently and in sufficient quantity, saying when that happens, it would significantly affect the market this year in terms of product availability, pricing and requirement for large storage facilities.
 Oyebanji noted that the artificial pricing arrangement which marketers have with NNPC may change and become more reflective of the dictates of the market.
“Since the product is now available locally and everybody can get it, then obviously, the competition may be tougher than what it used to be. But a lot of things depend on if the refineries work consistently and with good quality and the right quantity that can meet the demand, then that will bring about a lot of changes in the market”, he added.

Also speaking on the long-awaited commercial terms, the Executive Secretary of the Major Oil Marketers Association of Nigeria (MOMAN), Mr. Clement Isong, said the discussions were still ongoing, stressing that the current discussions were around logistics and administration.
He corroborated Oyebanji’s position that they “haven’t arrived at commercial terms yet. We are still in the process of talking about logistics and administrative things like registration. It is only when they have the products that we can begin discussion on commercial terms.”
He also said that the refinery would impact tankage and tank farms as it comes with its own storage and loading arms, positing that many of the storage tanks in the country may become redundant as optimisation and efficiencies set in.

According to him, “only those people who own 100; 200; 500 filling stations will be able to keep their own storage so that they can control their own supply lines to their stations. But those other people can pick their products directly from the refinery, they do not need additional cost of secondary storage.”
On his part, the immediate-past National President of the Independent Petroleum Marketers Association of Nigeria (IPMAN), Mr. Chinedu Okoronkwo, said one of the things that was yet to be made public by Dangote Refinery was the mode of offtaking the products.

“Nobody knows whether the company will want to supply products to the market through its equity partner, the Nigerian National Petroleum Company Limited (NNPCL) that is supplying the crude or through an open market.
“For now, let us know the modus operandi – how Dangote wants to operate. If it will be for the open market or they will produce for NNPC. You know, the crude it’s getting is from NNPC. We don’t know what will happen. So, let us not pre-empt the situation. Whatever happens is going to be a win-win situation for everybody in the sector”, Okoronkwo said.

On his part, the National President of Petroleum Retail Outlets Owners Association of Nigeria (PETROAN), Dr Billy Grillis-Harry, also confirmed that his members had been engaging with Dangote but were yet to discuss a very serious business model with them.
He said aviation fuel and diesel coming out from the facility will be cheaper, insisting that his association will certainly close ranks and do business with the local refiner in a mutually-beneficial term.