Dangote refinery has dismissed claims that a Chinese vessel with an unloaded cargoof crude oil off shore Lagos has been waiting for nearly a month to discharge due to payment issues.
A reuters report said the 2-million-barrel West Texas Intermediate (WTI) crude cargo shipped by PetroChina onboard supertanker Maran Mira has been floating off Nigeria since March 28 quoting shipping data on LSEG and Kpler.
According to the report by Reuters, the completion of the oil sale from PetroChina to Dangote has been delayed as the refinery has yet to issue a letter of credit to the Chinese trader.
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However, Dangote group executive Edwin Devakumar dismissed the claims, saying the refinery was not responsible for the delay because seeking favourable sale prices and credit terms were normal business practices.
“If someone gives me one year credit, I’ll grab it and if not, I’ll negotiate the best possible deal,” he said. “When you go to a shop to buy something … You’ll try the best possible deal and I do the same”.
The Dangote group executive added, “we are not delayed. If someone’s business is delayed, he is not giving us a good deal,” Devakumar said, without specifically addressing the issue with PetroChina.
Reuters says the impasse highlights difficulties the $20 billion plant funded by Africa’s richest man Aliko Dangote faces in its aim to be the biggest refinery on the continent and in Europe when it reaches full capacity this or next year.
Dangote aims to reverse the trend by which the oil-rich country exports its crude but almost totally relies on imports of fuel and other refined products.
A letter of credit is the most common form of trade finance. A buyer’s bank sends a letter to the seller’s bank guaranteeing payment to the seller once goods arrive.
PetroChina was also not keen to receive oil products as payment, one of the ways that Dangote has been paying for its crude, the source told Reuters.
Two of the sources also told Reuters that the refinery has had difficulty accessing dollars through the Nigerian government, with the naira’s slide against the U.S. dollar as global oil prices have risen straining Nigeria’s finances.
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There is also the challenge of how to navigatge the situation in which the refinery buys crude in dollars and is expected by Nigerians to sell its refined products into the Nigerian market in Naira.
The Nigerian government did not immediately respond to a Reuters request for comment and a Dangote executive did not directly address the issue in comments to Reuters.
PetroChina has another 2 million barrels of WTI crude onboard supertanker Kondor that is making its way to Nigeria, according to another source and LSEG shiptracking data.
Potential sellers of U.S. WTI crude to Dangote have been confronted with difficult payment terms: either a 60 to 90 day credit or an exchange of refined products for the crude oil, three of the sources said. Credit terms for oil deals are typically 30 days. PetroChina did not respond to a Reuters request for comment.
A shipbroker estimated that the ship is incurring demurrage costs of around $65,000 a day.
The Dangote refinery started operations in January and has reached half its capacity in recent weeks but a further increase is being slowed by its need to borrow billions of dollars in working capital to be able to buy large volumes of crude, trading sources said.
Devakumar declined to comment on the current run rates at the refinery.
The facility is importing around 10 crude oil cargoes a month, two traders said, roughly half the capacity of 650,000 barrels per day (bpd) it seeks to reach this year or next, which would make it the largest refinery in Africa and Europe.
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The amount of Nigerian and U.S. crude discharged at Dangote totalled 8.4 million barrels in March and 5.4 million barrels so far in April, Kpler data showed. Another 1 million barrels of Nigerian crude is expected to arrive at the refinery on April 27.
Trafigura, Mercuria, Vitol, Shell and NNPC were among Dangote’s suppliers of crude last month, according to Kpler.
