Dangote's $16 billion Lamu refinery needs neighbors' crude that Uganda wants to refine at home

Sixteen billion dollars for 700,000 barrels a day comes to about $22,900 per barrel of daily capacity ^[18]. Run flat out for a year, the plant would process about 255.5 million barrels ^[19], so the build cost is roughly $63 for each barrel of one year's throughput ^[20]. Those figures assume the plant runs at capacity. According to Fortune, it will rely on oil from neighboring countries ^[6].

One of those neighbors was at the ceremony. Uganda's President Yoweri Museveni joined Kenya's William Ruto in shoveling soil at the site ^[1], and said, "For Ugandan crude, I didn't want to export any crude, I wanted to refine it locally" ^[13]. He also said the region needs "more than one or two refineries" ^[12]. Semafor reported that Lamu already faces competition from upcoming projects in Tanzania and Uganda ^[11].

Dangote made his case on demand ^[7], for a region that Semafor says has historically relied on fuel imported from the Middle East ^[14]. "Africa must industrialize Africa," he said ^[5]. That answers who buys the refined products. Museveni was talking about the crude going in ^[13], and the reports do not include Uganda's expected output or the capacity of its planned plant.

Dangote Group, which will build Lamu and holds a stake in it ^[4], plans to list shares of its Nigerian refinery on the Nairobi Securities Exchange in December, following a Lagos IPO two weeks ago ^[15]. Kenyan investors will be able to buy into that plant, which Semafor credits with making Nigeria a fuel-producing powerhouse ^[17], years before their own refinery is due in 2030 ^[3].

Three outcomes follow from here. In one, Museveni's refinery stays small and most Ugandan barrels still go to the coast ^[12]. In another, the Ugandan and Tanzanian projects both get built and compete with Lamu for the same crude ^[11], and the plant runs below its 700,000 barrels a day ^[2]. In the third, the build slips before crude matters at all ^[10]. Residents who claim the land have sued, dozens protested for more compensation on Tuesday ^[9], and environmental activists say the project threatens the coast's marine ecosystem ^[16].

I expect the second outcome to be the main risk to the $16 billion ^[1]. The demand half of Dangote's argument is the stronger half; the feedstock half is where it can fail. The counter-thesis rests on Museveni's own word, "small" ^[12]. A small plant would take only a slice of Ugandan output, and his presence at the groundbreaking suggests he expects both plants to run ^[1]. A published supply agreement naming volumes near 700,000 barrels a day would prove this view wrong ^[2].