Dangote and Crude Are Twins — No Worry At AllBy Billy MijunguWe may have missed the bigger picture by a wide margin.Did you know that when the Dangote Refinery was starting out in Nigeria, the refinery initially depended on imported crude?
Even without having all its crude locally available from day one, the refinery disrupted the market and fundamentally changed the economics of petroleum refining in Nigeria
. Today, Aliko Dangote is not merely participating in the market; he is one of its most important players.That experience should give us perspective when discussing Kenya’s proposed refinery.The Kenyan refinery is, in many ways, ahead of its time
First, the landing cost advantage changes significantly when crude can move directly into a regional refinery rather than relying entirely on finished petroleum products arriving from distant markets. Refining closer to the source of regional demand creates an entirely different logistics equation.Second, East Africa’s crude production is expected to become substantially larger over the next five years.
South Sudan is already producing crude, Uganda is moving toward commercial production, and Kenya is developing its own production.
By the time a major Kenyan refinery is fully operational, regional crude supply should be considerably stronger.
Until then, imported crude can complement regional supply.Using current and planned production levels as an illustration, South Sudan at roughly 175,000 barrels per day, Uganda reaching its planned 230,000 barrels per day, and Kenya reaching about 20,000 barrels per day would together represent approximately 425,000 barrels per day
A refinery with a capacity of around 700,000 barrels per day would therefore have a substantial regional supply base while retaining the flexibility to supplement the balance with imported crude.This is not necessarily a short-term transaction. It is a long game
Third, why should we assume that one of Africa’s most successful businessmen does not understand the crude-supply equation? Why would we immediately conclude that an investment of this magnitude has not considered where the crude will come from? Serious investors build around long-term supply chains, not only today’s circumstances
Fourth, patriotism sometimes means putting aside short-term fears and looking at what strategic infrastructure can mean for the country over decades. Kenya should not casually oppose what could become one of the largest foreign direct investments in its modern economic history. Such an investment deserves serious national consideration, scrutiny and strategic engagement.
Fifth, the confidence effect could extend far beyond the refinery itself. When a global investor commits substantial capital to Kenya, other investors take notice. It can strengthen perceptions of Kenya as a regional base for manufacturing, logistics, energy, finance and trade.
Sixth, this could become one of the biggest boosts to the LAPSSET Corridor. A major refinery and petroleum hub at the coast would create additional demand for transport, storage, port services, pipelines, manufacturing and associated logistics.
Seventh, strategic petroleum infrastructure can alter the economic geography of the region. Kenya should be thinking beyond simply supplying its own market. A regional energy hub can create interdependence and make neighbouring economies part of a larger Kenyan-centred supply chain.
Eighth, the financial markets stand to benefit from long-term positioning of Kenya as a regional economic base. Energy infrastructure of this scale can stimulate financing, insurance, logistics, construction, manufacturing, warehousing and other supporting industries.
And ninth, perhaps most importantly, the crude supply equation is not restricted to one country.The refinery can potentially draw crude from South Sudan, Uganda and Kenya, complemented by international imports whenever regional supply falls short.
If regional production reaches approximately 425,000 barrels per day while refinery capacity is around 700,000 barrels per day, the remaining 275,000 barrels per day could be supplied through imports. That is not necessarily a weakness.
It is diversification.The real question should therefore not be whether East Africa has 700,000 barrels of crude today.The question should be whether East Africa is moving toward having enough crude, infrastructure and demand to support a major regional refinery over the long term
That is the bigger picture.Dangote understood that refineries are not built merely for today’s crude supply.
They are built around tomorrow’s market.
Dangote and crude are twins.
No worry at all.Kenya should think long term.
