Economic Analysis of the Potential benefits to Nigeria of the new Dangote Oil refinery

Abstract

Nigeria is among the largest oil producers and consumers in the world. The lack of sufficient domestic refining capacity necessitated the country to rely on the import of petroleum products. Adequate domestic refining capacity can substitute the import, improve its deficit balance of payment (BOP), add value to GDP, strengthen Naira, etc. Fortunately, a Dangote refinery with a projected refining capacity of 650,000 barrels per day is under construction in the country and is expected to begin operation in 2023. This study sourced time series data from the period 1995 to 2020 on Nigeria’s total balance of trade (proxy of BOP), Oil import, and GDP to forecast their future values until the year 2040 without the refinery’s contribution using the conventional Econometric Methodologies. Furthermore, Sensitivity Analysis along with the Monte Carlo Simulation was used in forecasting the refinery’s output, input, output price, and input price values between 2020 to 2040, those values were used in estimating the refinery’s contribution to Nigerian BOP and GDP. Findings reveal that without the refinery, Nigeria’s BOP deficit will escalate. Conversely, the refinery’s output will satisfy local demand and export surplus, and GDP will be enhanced by the refinery’s value added. However, the colossal refinery might abuse the dominant market position if the government failed to create an enabling environment for competition.