Dangote refinery’s decision to relax quality controls for diesel resulted in a 37 percent reduction in domestic prices, S&P Global findings revealed. According to the report, this decision was primarily driven by the availability of high-sulphur diesel from the refinery, contrasting with the environmentally preferable low-sulphur diesel.
Dangote refinery recently announced a price reduction of automotive gas oil (diesel) to N1,000 per litre, a move attributed to more lenient quality controls.
The report highlighted that the refinery’s diesel supplies have 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 on imported products since March..
“By permitting Dangote to sell diesel above the 200 ppm sulfur cap, the regulator has provided a route to market for early supplies from the refinery ahead of secondary unit start-ups for gasoline and low-sulfur diesel, deflating local fuel prices and clawing back revenue for the project,” the report said..
According to the analysts quoted in the report, the “refiner announced intentions to supply products conforming to Euro 5 specifications (10ppm diesel), but its low sulfur diesel production remains contingent on the start-up of its key distillate hydrocracker unit”.
S&P Global said the refiner has been pressured to alleviate surging fuel import costs amid the rapid depreciation of the naira, “which has seen diesel prices nearly double year on year”.
“While the price of gasoline has remained comparatively stable thanks to suspected government subsidies, concerns of a rising debt burden have added pressure to accelerate supplies from the refinery,” the report said.
According to the publication, neither Dangote nor the NMDPRA could be reached for comment regarding the quality of supply from the refinery or the permitted sulphur cap.
S&P Global noted that the increased availability of cheap Dangote diesel has heightened uncertainty surrounding diesel flows into West Africa, as traders grapple with rapid specification changes.
“Last month, high sulfur gasoil flows were dramatically reshaped by new Nigerian import requirements reducing sulfur limits from 0.3 percent (3,000 ppm) to 200 ppm, while officials have hinted at further reductions,” S&P Global said.
“Meanwhile, it remains unclear whether Dangote will reduce the sulfur content of its domestic diesel supplies, or if imports will consistently be held to higher quality standards.”
According to the report, a diesel trader said the market is currently distorted due to Dangote’s volumes, noting the emerging mismatch.
S&P Global said early diesel specs from Dangote, described as “inconsistent” by one trader, highlight aggressive timeframes by the refiner and considerable outage risks.