Dangote Refinery’s planned $5 billion stock market debut could become Africa’s biggest initial public offering, but beneath the refinery’s record capacity and strong refining earnings lies a critical investment risk: securing enough affordable crude oil to keep the 650,000-barrel-per-day plant running profitably and fund its planned expansion.
With the refinery seeking to double capacity within three years, investors are likely to look beyond its impressive production numbers to a more fundamental question whether Nigeria can supply enough crude at competitive prices, or whether Dangote will increasingly have to rely on expensive dollar-priced imports to feed its operations.
The planned October listing comes after months of strong refining margins, supported by disruptions in the Middle East that have increased demand for alternative sources of fuel.
For investors, however, the refinery’s long-term profitability could depend less on its refining capacity and more on its ability to secure competitively priced crude.
“If Dangote’s only supplier of oil is Nigeria … this does increase the risk of the refinery as an investment,” Rob Thummel, senior portfolio manager at US-based Tortoise Capital Management, told Reuters.
