A win-win strategy for Nigeria’s petroleum downstream sector (part one)

This two-part article seeks to propose a collaborative strategy that will be a win-win for all players in the petroleum downstream sector in Nigeria, against the background of major recent and emerging competitive developments that may not be in the overall interests of the larger economy.

The coming on stream in late 2024 of the 650,000 barrels per day Dangote Refinery and Petrochemicals was a source of joy and national pride and was described as a game changer in its potential to achieve fuel security for Nigeria, save Nigeria billions of dollars hitherto used for fuel imports, reduce pressure on the naira exchange rates and have far-reaching salutary across-the-board effects on the entire economy. But long-established downstream operators, including petroleum marketers, fuel importers and fuel depot owners, watched with bated breath and subdued concern, trying to figure out what the entry of such a massive operator with huge potential monopoly power meant for their businesses, which for decades had been based on the storage, distribution and sale of imported fuel. If some alleged ‘oil mafia’ have been buffeted by Mr Aliko Dangote’s determined effort to redress the status quo, his plan to deploy 4000 CNG-powered trucks to supply petroleum products directly to retail outlets and industrial consumers across the country has sounded the alarm bell of monopolistic midstream-downstream forward integration with the intent of displacing longstanding operators and putting their huge capital investments at risk.

For Dangote Industry Limited (DIL), owners of Dangote Refinery, this is a daring competitive move to capture a huge slice of the Nigerian downstream oil and gas market. DIL has always sought to be the dominant player in any market in which it operates. It controls about 60 percent of the Nigerian cement market and 70 percent of the Nigerian sugar market and is also the dominant player in the Nigerian salt market. Dangote Refinery, with its huge size, is a local refining monopoly by default because of the objective failure of the four refineries of the Nigerian National Petroleum Corporation Limited (NNPCL).

“On the other hand, as a new entrant into a well-established industry with major players that have been in the business for decades, there was a need, and indeed there is a need, for a more conciliatory and collaborative approach by DIL.”

According to Dangote Industry Limited, the deployment of 4000 CNG trucks for direct distribution of fuel nationwide will cut fuel distribution costs by 40 percent, saving Nigerians over N1.7 trillion annually; create over 15,000 jobs; boost the operations of Nigeria’s millions of micro, small and medium-sized enterprises (MSMEs) by significantly lowering their energy costs; reduce carbon emissions and minimise fuel smuggling because of the GPS tracking devices to be installed in the trucks; and offer direct access to fuel supply to rural filling stations, among other benefits.

One of the critical groups of stakeholders in the petroleum downstream, the Petroleum Products Retail Outlets Owners Association of Nigeria (PETROAN), has raised serious concerns about the impact of the direct supply of fuel products to filling stations and industrial consumers by Dangote Refinery. These include loss of patronage by current petrol truck owners and loss of thousands of jobs by truck drivers; loss of market share and business continuity by modular refineries and petroleum products suppliers. Fuel depots will be made completely irrelevant, with owners and operators sustaining hundreds of billions of losses to both their investments and livelihoods, among other concerns.

In a strategic response to this competitive development from Dangote Refinery, there has been a spike in petroleum product imports by marketers since May and June, when the plan to mobilise 4000 CNG-powered trucks was announced. According to a report by Punch Newspapers quoting data obtained from the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), 71.38 percent of the daily fuel consumed in Nigeria in May and June was imported, which was an astronomical increase compared to April 2025. Only 28.62 percent was sourced locally from the Dangote Refinery. According to an informed industry source, “Looking at the price trajectory in July, 80 percent of importers and private depots in Lagos priced petrol cheaper than Dangote’s ex-depot rate because importation allows them to get a cheaper landing cost against Dangote’s coastal price. This has brought about a complete decline in sales at the refinery, while importers experienced a sharp rise in sales. The private depots have been responding swiftly to Dangote’s pricing strategy lately, and this clearly shows that importers are strategically positioning themselves for the August 15 roll-out by Dangote.” The rollout has not yet materialised due to logistical challenges. However, this competitive scenario is to be expected in a dynamic deregulated market, as we currently have. But it is at a huge cost to a foreign-exchange-strapped economy like Nigeria. According to Mr Aliko Dangote, fuel imports are serving as a disincentive to local investment in the downstream oil and gas sector in Nigeria and discouraging additional investment flows from both local and foreign investors. He alleged unfair competition from foreign refineries and urged the government to take steps to protect local investments like his in local refining, which indeed was out of a courageous and patriotic favour.

It could be argued on the one hand that the alleged elements of the ‘oil mafia’ may be unrelenting in trying to frustrate local refining to maintain the status quo of an import-dependent downstream business model, with quick turnaround, huge profits and little capital investment in plant and equipment. On the other hand, as a new entrant into a well-established industry with major players that have been in the business for decades, there was a need, and indeed there is a need, for a more conciliatory and collaborative approach by DIL.

Without being a spokesman for Dangote Refinery, it needs to be repeated that it did not start with the intention of being a monopoly fuel refiner in Nigeria. The disappointing failure of the refineries of the state-owned NNPCL made Dangote Refinery a local monopoly refiner and supplier of fuel. Having found itself in such a precarious situation, combined with the opacity and entrenched interests of the sector, Mr Dangote and his managers needed to be a bit more circumspect, more deliberate and more strategic, both in their market entry strategy and in their engagement with the players they met in the market, including NNPCL executives and the regulators at NMDPRA, apart from petroleum marketers, fuel depot owners and logistics providers, among others.

The current competitive challenges and positioning of major players in the Nigerian petroleum downstream, in a sense, are like a fight for the soul of the Nigerian economy. The way it is resolved will have a far-reaching impact across the entire economy. It is a fight that the government and the regulatory agencies, including the Central Bank of Nigeria, cannot stand aloof from. All hands must be on deck to resolve it in the larger interest of the Nigerian economy.

Mr. Igbinoba is Team Lead/CEO at ProServe Options Consulting, Lagos