The Federal Government is poised to deliver up to 400,000 barrels of Nigerian crude oil daily to the Dangote Refinery under a newly launched naira-for-crude deal, Bloomberg reported on Monday. This major shift is expected to roll out over the next two months, providing up to 24 million barrels of crude between October and November 2024.
This significant increase in crude supply could reshape the local oil industry and the refinery’s operations, while also impacting both import and export markets in the region. As Nigeria grapples with rising economic challenges, it is crucial for the government to act swiftly in easing the burdens on the masses by ensuring that this new development contributes to more affordable fuel prices and a stabilized economy.
The commencement of the naira-for-crude deal was officially announced by the Federal Government, marking a new phase in Nigeria’s energy sector. According to a report by The PUNCH, the Nigerian National Petroleum Company Limited (NNPC) will begin supplying crude oil in naira to the Dangote Petroleum Refinery this week, with three additional refineries set to begin production of Premium Motor Spirit (PMS) soon after.
This shift toward local crude supply to Dangote’s refinery will disrupt Nigeria’s traditional export markets, potentially reducing the country’s crude exports by a significant margin. The refinery, which processes 650,000 barrels per day, will absorb 13 to 14 shipments from Nigeria’s usual monthly export program of around 50 cargoes. This, in turn, will tighten the West African crude market in the fourth quarter, as noted by Ronan Hodgson, an analyst at FGE.
Experts predict that this allocation could push Nigerian crude exports below 1 million barrels per day, leading to delays in scheduled shipments. Already, October’s cargo list includes two shipments delayed from September, signaling potential logistical challenges. However, the larger supply to Dangote’s refinery is a marked increase from the average of 255,000 barrels per day taken by the refinery in the first half of the year.
Currently operating at 60-70% capacity, the refinery is expected to reach full capacity within the next few months, according to Vartika Shukla, Chairman of Engineers India Ltd. As Dangote scales up, the reliance on imported U.S. crude has significantly decreased, with plans to further reduce these imports moving forward.
The agreement between the NNPC and Dangote not only ensures a steady supply of crude oil but also grants NNPC the sole distribution rights for the refinery’s gasoline production. This could be a key step toward reducing Nigeria’s dependence on costly fuel imports—a long-standing national objective.
For the Nigerian people, who have been struggling under the weight of increasing economic hardship, this development offers a glimmer of hope. The relevant authorities must work to ensure that the benefits of this deal are felt quickly and directly by the masses, with the aim of reducing the cost of fuel, stabilizing energy markets, and mitigating inflationary pressures. As the Dangote Refinery ramps up operations, it is critical for the government to implement measures that protect the people from further economic strain.
