Dangote vs. IPMAN: The need for a more competitive oil industry, By Lekan Lemsworth

Dangote refinery

The key to understanding and thriving in the energy industry is to understand that everyone is a price taker. No one, not even with a 650,000 bpd refinery, is big enough to affect global prices. If you adopt a strategy that distorts prices, not only will you face resistance, but it will also lead your potential clients to seeking more affordable suppliers.

There is a common saying that truth might be absent for a decade, but it would sure show up some day and dispel all the prevalent misinformation. The average Nigerian is beginning to see through all the elaborate propaganda spun around the Dangote Refinery and the purported claims and accusations of regulators and other actors in the Nigerian oil industry.

Interestingly, NNPC Ltd did not have to react or fight back any of the wrangling as the Dangote people seemed to have missed the point in recognising the huge economic potential and reach of an industry that could accommodate all players and which has sustained Nigeria’s economic growth for five decades.

A complex relationship is established between the International Oil Companies (IOC), NNPC Ltd, local Joint Venture partners, transportation agents and companies, downstream companies, and petrol stations, which is based on trust, mutual understanding, business relationships, and market understanding. In an industry where the consumer is truly king, you will have to add value to be valuable.

It remains for Dangote to attain a wholesome comprehension of the web of intricate relationships that connect the crude oil wells across the world to the dispensing pumps at the various filling stations, with his large-scale involvement in a segment of a vast international supply value-chain.

In a manner similar to his strategy for the other industries in which he has dominated in Nigeria, Dangote needs better stakeholder management that trying to overwhelm others, while expecting that everyone will naturally yield space for only him to flourish. This is the oil industry, and relationships are as valuable as money in the treasury.

Not being forthright about the availability of your products, while pushing for NNPCL to become your exclusive vendor is not being very smart, in my reckoning. If Dangote has an amount comparable to the 500 million litres in storage which he claims, what stops him from just selling it to the international market? Given that his refinery is already situated in a FZE, it would at least generate the necessary foreign exchange for Nigeria. Except he was worried about the forex loss resulting from the naira crude oil pricing, which demands sales in the same currency.

In a press release from 3rd November, Dangote Refinery alleged that an international trading company had recently hired a depot facility next to it with the intention of blending substandard products to compete with its own higher quality products. Although the Dangote Group had previously made erroneous statements about its rivals, its recent spate of press releases, media appearances and complaints about everyone in the industry appears concerning.

From its accusations of NNPCL and marketers, to everyone in between, many worry that Dangote Refinery appears to want to be the only industry player, in a manner that disregards the open market policies of the 2021 Petroleum Industry Act, whilst not even being transparent about its product prices.

In its press release rebuttal, Pinnacle Oil, the neighbour to Dangote Refinery who is unfairly purported to have intentions of blending substandard products, succinctly stated that: “Deregulated commodity markets work best with an open system of multiple sellers and multiple buyers bidding to establish the market price.” Nigeria should have access to a range of supply options, such as local refineries or imports, in order to determine the most competitive and sustainable prices.

Regulating a free market also guarantees that all products adhere to the nation’s standards and all participants act responsibly. Between the Dangote press release maligning competitors to the response of Pinnacle Oil and Gas, there’s a lot to unpack and chew on.

The key to understanding and thriving in the energy industry is to understand that everyone is a price taker. No one, not even with a 650,000 bpd refinery, is big enough to affect global prices. If you adopt a strategy that distorts prices, not only will you face resistance, but it will also lead your potential clients to seeking more affordable suppliers.

For example, Pinnacle Oil is currently the largest private depot in the Lekki axis, capable of loading over 100 trucks daily. If Dangote Refinery establishes a mutually beneficial pipeline connection with Pinnacle, it will discover that a positive approach yields more benefits than a negative one. It can use the same method to reach out to NNPCL and connect his product to both Mosimi and Atlas Cove.

However, Dangote Refinery must be prepared to consider lower margins and beneficial long-term relationships instead of the acrimonious approach it has been engaged in. If its prices are competitive, importation will certainly not be any marketer’s first choice.

Lekan Lemsworth, a market research analyst, writes in from Lagos.