Nigerian billionaire Aliko Dangote plans a new 700,000-barrel-per-day oil refinery in Lamu, Kenya. This ambitious project, estimated to cost GHS 180 billion ($15 billion to $16 billion), faces substantial challenges. The primary hurdle is securing a consistent crude oil supply in Kenya, a nation without commercial oil production.
The proposed refinery aims to replicate the success of Dangote's Nigerian facility, Africa's largest. However, Kenya lacks Nigeria's abundant oil reserves, making crude sourcing complex. Discussions for the East African refinery shifted from Tanzania to Mombasa, then to Lamu, a critical deep-water port. The company hopes to complete the refinery by 2030, with a groundbreaking ceremony planned for this month.
This project fits into a broader African narrative of energy independence and industrialisation. Many African nations seek to reduce reliance on imported refined petroleum products. Ghana, for instance, has long grappled with fuel import costs and the stability of its cedi. A successful refinery in East Africa could significantly alter regional energy dynamics, potentially lowering fuel prices and boosting economic growth. However, the scale of this project and its inherent risks highlight the complexities of such ventures on the continent.
Brendon Verster, a senior economist at Oxford Economics, warned about the project's risks. He stated that if not successfully implemented, it could become a very expensive "white elephant." This highlights concerns about the project's viability despite its potential benefits. Devakumar Edwin, Vice President of Dangote Industries, however, dismissed concerns about regulatory, finance, and feedstock challenges.
The implications for regional energy security and economic development are significant. If successful, the refinery could transform Kenya into a major fuel exporter, reducing its GHS 48.7 billion ($4 billion) annual petroleum import bill. However, the financing strategy, relying on internal cash flow, bonds, and an IPO, faces scrutiny. Analysts like Kaase Gbakon, a petroleum economist, question the ability to raise GHS 480 billion ($40 billion) for multiple Dangote energy projects by 2030. Potential equity stakes from East African nations like Rwanda and Uganda could offer another funding stream, but details remain scarce.
Crude supply is another major concern. Kenyan President William Ruto's chief economic adviser suggested securing 600,000 barrels per day from East Africa, including South Sudan and Uganda. Yet, these sources are not straightforward. Kenya's own proven reserves have struggled to begin production. South Sudan's exports face insecurity, and Uganda's oil is routed through Tanzania. Maximillian Ezeude, an oil and gas lawyer, noted this leaves the refinery dependent on a volatile international seaborne market. The LAPSSET Corridor project, which includes oil storage terminals at Lamu, remains largely unbuilt, adding to infrastructure challenges.
The project also faces environmental and heritage concerns. Lamu Old Town, a World Heritage site, is just 10 km from the proposed refinery. Greenpeace Africa has called for the project's halt due to potential habitat destruction and marine degradation. These factors add layers of complexity to an already challenging undertaking. The success of this GHS 180 billion venture will depend on overcoming these significant financial, logistical, and environmental hurdles. Its progress will be closely watched by investors and governments across Africa, particularly those seeking to replicate similar industrialisation models.