Investors are closely examining how Dangote Refinery plans to secure affordable and reliable crude oil supplies as it prepares for a landmark Initial Public Offering (IPO) expected to raise around US$5 billion in October, potentially Africa’s largest public listing to date.
The refinery, the largest on the continent and majority-owned by Africa’s richest man, Aliko Dangote, has reported strong earnings in recent months, boosted in part by global market disruptions linked to the Iran war that increased demand for alternative fuel sources.
However, potential shareholders are questioning whether the refinery can maintain healthy profit margins while sourcing enough crude to support its ambition to double capacity within three years, a plan partly funded by proceeds from the IPO.
Rob Thummel, senior portfolio manager at U.S.-based Tortoise Capital Management, warned that over-reliance on Nigerian crude could heighten investment risk.
“If Dangote’s only supplier of oil is Nigeria, this does increase the risk of the refinery as an investment,” Thummel said.
While Dangote does not disclose its refining margins, the broader industry has enjoyed elevated profits since Middle East disruptions drove up demand for non-traditional fuel sources. Dangote, with its new and efficient facility, has been well-positioned to meet demand across Africa and beyond.
The refinery reached its initial maximum capacity of 650,000 barrels per day (bpd) in February, just before U.S.-Israeli attacks triggered the war on Iran, and has already tested production at 700,000 bpd.
To support its expansion plans, Dangote is working to diversify its crude sources. Ideally, the refinery would rely more heavily on domestic oil, especially given that Nigeria, with output of 1.6 million bpd, is Africa’s largest producer.
In practice, however, much of the Nigerian National Petroleum Company Limited’s (NNPCL) joint-venture crude is tied to oil-backed loans and pre-export deals, limiting the volume available for local refiners like Dangote.
Although the NNPCL does not disclose its full obligations, David Bird, chief executive of the Dangote refinery, told Reuters that imports account for about 30 to 40 per cent of the refinery’s crude intake.
The challenge is both economic and logistical.
“Challenges in accessing feedstock at competitive prices would increase costs and compress margins and utilization rates, impacting the refinery’s commercial performance and therefore its valuation,” said Mikolaj Judson, analyst at risk consultancy Control Risks.
Crude purchased from other African countries, as well as from more distant producers such as the United States and Guyana, is priced in dollars. While some domestic Nigerian crude is priced in naira, Dangote says it remains expensive because the NNPCL prices it against international benchmarks like Brent, which include freight and logistics costs that domestic refiners do not incur.
Edwin Devakumar, Group Vice President of Dangote Industries Limited, told Reuters that certain Nigerian cargoes were more expensive than comparable imports, though he did not provide precise figures.
Among the grades Dangote has imported is U.S. WTI Midland crude, which has generally traded above Nigerian grade Bonny Light in 2026, according to S&P Global Energy Platts data.
Nigerian authorities say they are exploring measures to improve the flow of local crude to domestic refiners. Oritsemeyiwa Eyesan, chief executive of the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), said regulators are considering a crude swap system that would match refiners with local producers to reduce delivery times and ease logistics.
Dangote’s coastal location in Lagos gives it flexibility to import supplies when needed, but analysts say the key issue remains cost.
“The main risk is the cost of importing these barrels,” said Wood Mackenzie analyst Alan Gelder.
As the IPO date approaches, how Dangote manages its feedstock strategy, balancing domestic supply constraints with the economics of imports, will likely be a decisive factor in investor confidence and the refinery’s eventual market valuation.