The Dangote Refinery and Petrochemical Company has ramped up its sourcing of crude oil from international suppliers, even as the Nigerian National Petroleum Company Ltd. (NNPCL) says it is in talks with the company to renew the Naira-for-Crude deal.
According to Bloomberg, the refinery, which is Africa’s largest, has recently secured crude shipments from the United States, Angola, and Algeria, signaling a shift in its crude sourcing strategy.
Since the beginning of March, the refinery has reportedly received over three million barrels of American crude, alongside additional shipments from Angola and Algeria. Analysts at Energy Aspects Ltd. estimate that crude deliveries to Dangote Refinery have averaged 450,000 barrels per day (bpd) in the past two weeks, compared to 380,000 bpd in January and February.
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The increased reliance on foreign crude is seen by industry observers as an indication that the refinery is not counting on the renewal of the Naira-for-Crude deal, despite the NNPCL’s ongoing discussions. The deal, which was introduced to allow local refineries to pay for crude oil in naira instead of dollars, was expected to support local refining operations while reducing pressure on Nigeria’s forex reserves. However, implementation challenges and pricing concerns appear to have affected its sustainability.
Although the refinery remains heavily dependent on Nigerian crude, its sourcing diversification suggests a strategic shift. Data compiled by Bloomberg shows that in February alone, Dangote Refinery took in over ten million barrels of local crude. Since the signing of the crude supply agreement in October 2024, the NNPCL said it has supplied a total of 48 million barrels to the refinery.
With the first phase of the Naira-for-Crude now concluded, the move to secure more international crude also raises questions about whether the refinery, besides the concern of insufficiency, still finds the Naira-for-Crude deal favorable.
Industry analysts believe that price competitiveness is at the core of Dangote’s crude sourcing decisions.
“WTI will continue to be an attractive grade for the refinery because of its light-sweet nature and price competitiveness with local West African grades,” said Ronan Hodgson, an analyst at FGE.
With access to multiple crude streams, the refinery could also consider imports from Libya, the North Sea, and the Mediterranean, depending on market conditions.
Concerns Over Fuel Prices in Nigeria
The potential jettisoning of the Naira-for-Crude deal has raised concerns among energy analysts, who warn that increased reliance on dollar-denominated crude imports could drive up product prices for Nigerian consumers. The refinery’s ability to purchase local crude in naira had been expected to stabilize fuel prices, but if Dangote Refinery shifts more towards foreign crude purchases, the cost of refining could increase.
It is believed that the refinery’s move towards more dollar-denominated crude purchases could erase the price reduction that consumers have recently enjoyed.
Since beginning operations, the refinery has helped lower Nigeria’s reliance on imported petroleum products, which had long been a major source of forex demand and price volatility. Local refining has also contributed to stabilizing fuel prices, providing some relief to consumers in an economy where inflation and devaluation have significantly eroded purchasing power.
The challenge is largely tied to the NNPCL’s inability to sufficiently supply Dangote refinery with crude. The naira-for-crude initiative was launched on October 1, 2024, to reduce Nigeria’s dependence on costly petroleum product imports, conserve foreign exchange (FX), and bring down petrol prices. The initiative allowed local refineries to buy crude oil in naira instead of dollars, a measure aimed at stabilizing the local currency and ensuring consistent supply to domestic refiners.
Under the scheme, the Federal Executive Council (FEC) allocated 450,000 barrels of crude per day for domestic consumption, with the Dangote Refinery as the pilot project. The NNPC was to supply at least 385,000 barrels per day (bpd) to the refinery, which has a capacity of 650,000 bpd. However, the national oil company has failed significantly.
However, the NNPCL has reportedly warned local refineries about its inability to sufficiently supply them with crude, noting that most of its products are now forward-sold until 2030. This means that instead of feeding local refineries and stabilizing the domestic market, Nigeria’s increased output will primarily support export commitments.
Against this backdrop, it remains uncertain whether Dangote Refinery can secure a favorable extension of the Naira-for-Crude deal. Analysts note that if the talks with NNPCL do not lead to a competitive pricing structure, Dangote may decide to source all its crude beyond Nigerian shores, a move that could have ripple effects on fuel prices and Nigeria’s energy market.