The Dangote Refinery, Africa’s largest single-train petrochemical plant, has resumed importing crude oil from the United States after a three-month hiatus. This marks a fresh move to maintain production levels amid ongoing challenges in securing adequate domestic crude supply.

The Lagos-based refinery recently purchased approximately two million barrels of WTI Midland crude from Chevron Corp., with the shipment expected to arrive at its 650,000 barrels-per-day (bpd) facility in December.

The decision to resume U.S. imports comes despite a prior agreement with the Nigerian National Petroleum Corporation (NNPC) Limited for local crude supply.

Background: Earlier Reliance on Imported Crude

Earlier this year, Dangote Refinery regularly imported one or two shipments of crude oil monthly from the U.S. and Brazil to sustain operations. This practice became necessary as the NNPC struggled to meet its commitments for local crude oil delivery.

In a bid to resolve this, the NNPC and Dangote Refinery entered into an agreement around mid-2024 to supply up to 400,000 barrels of Nigerian crude per day, with payments made in naira instead of dollars. This arrangement was designed to ease foreign exchange (FX) pressures and support the refinery’s operations using domestic resources.

However, NNPC’s ability to fulfill its obligations was hampered by existing forward sales agreements and crude swap deals with international traders. These contractual obligations limited the availability of crude for local refineries, forcing Dangote to resume sourcing from international markets.

Implications of Sourcing Crude from the U.S. for the Naira

The refinery’s return to importing U.S. crude raises concerns about its potential to ease FX pressures on the naira. Importation of petroleum products gulps more than 40 percent of Nigeria’s foreign exchange. When the refinery was first announced, it was touted as a game-changer for Nigeria’s economy, expected to reduce the country’s dependence on imported fuel and, by extension, its FX needs for petroleum products.

However, sourcing crude oil from the U.S. and other foreign suppliers undermines this hope. Instead of alleviating FX demand, the need to pay for imported crude may contribute to the country’s already significant dollar outflows.

While the refinery has begun addressing Nigeria’s heavy dependence on imported refined products, its own reliance on imported crude raises concerns about the broader benefits it can deliver to the domestic economy.

According to Sparta Commodities, recent reductions in shipping costs may have made U.S. crude more competitive in Europe and West Africa, prompting Dangote Refinery to choose this option.

Dangote Refinery’s management has frequently highlighted issues with sourcing crude oil from Nigeria. Edwin Devakumar, the refinery’s vice president, once accused international oil companies (IOCs) of artificially inflating crude prices.

Despite the naira-based supply agreement with NNPC, the refinery has continued to face supply gaps. NNPC’s longstanding crude-for-cash and swap agreements have left little room for flexibility in meeting the demands of new local refineries like Dangote’s.

In response to these challenges, the refinery has diversified its sourcing options, importing crude from Brazil, and the U.S., and even considering Libya as a future supplier.

However, it is believed that paying for U.S. crude in dollars may offset the potential benefits of the refinery, keeping FX pressures on the naira high.

Although the $20 billion investment boasts of 650,000 barrels per day production capacity, capable of serving Nigeria, West Africa, and beyond, the crude oil supply deficiency has become a threat to its potential to position Nigeria as a regional energy hub.

Energy experts have noted that addressing the limitations in local crude supply and ensuring that agreements like the one between NNPC and Dangote Refinery are fully implemented will be crucial for the facility to achieve its full potential. They note that without significant improvements in the local oil production and distribution framework, the refinery’s impact on the naira and the broader economy may remain limited.

In the meantime, the refinery has already achieved milestones, including exporting refined products to neighboring African countries like Togo and Ghana. These developments demonstrate its potential to transform the regional fuel market, even as it continues to grapple with sourcing and operational challenges.

The Dangote Refinery, Africa’s largest refinery project, has begun to supply petroleum products across West Africa, according to reports.

The tanker CL Jane Austen, spotted off Togo waters, transported over 300,000 barrels of petrol from the Lagos-based refinery, signaling the facility’s increasing production capacity and ambition to reshape regional fuel markets.

The refinery, with a processing capacity of 650,000 barrels per day (bpd), has been touted to disrupt the petroleum supply market in Africa and Europe, significantly curtailing Nigeria’s dependence on fuel importation.

The refinery has also made strides in overcoming domestic market challenges. The Independent Petroleum Marketers Association of Nigeria (IPMAN), a key player in Nigeria’s downstream petroleum sector, recently reached an agreement with the refinery to purchase 60 million liters of Premium Motor Spirit (PMS) per week.

This agreement puts an end to the perceived apathy shown earlier by local marketers, who Dangote accused of choosing to import dirty petroleum products from Malta instead of buying from the refinery. The deal with IPMAN is expected to help stabilize Nigeria’s fuel supply chain, which has long been plagued by inefficiencies.

The shipment off Togo represents just the beginning of what could become a robust export strategy. Lomé’s waters, a hub for ship-to-ship (STS) transfers, suggest the petrol could be redistributed to other African or even international markets. Although the shipment is small by global standards, it marks a significant step in the refinery’s operational timeline. Analysts view this as a precursor to larger export volumes that could disrupt regional fuel markets.

Neighboring countries eager to reduce their reliance on distant suppliers are poised to benefit from Dangote’s offerings.

Eight African countries, including Ghana, Benin, Togo, and South Africa, have expressed interest in sourcing petroleum products from Dangote. Ghana, in particular, has been vocal about the economic benefits of importing from Nigeria rather than Europe. According to Ghana’s chief oil regulator, Mustapha Abdul-Hamid, this shift could lower freight costs, stabilize the market, and ease foreign exchange pressures.

“If the refinery reaches 650,000 bpd capacity, all that volume cannot be consumed by Nigeria alone,” Abdul-Hamid noted. “Instead of importing from Rotterdam, it will be much easier for us to import from Nigeria, which I believe will bring down our prices.”

The refinery has already made headlines with its earlier seaborne shipment to Lagos, highlighting its dual focus on serving both domestic and international markets.

Overcoming Domestic Monopolies

Until recently, the Nigerian National Petroleum Company Limited (NNPCL) monopolized the purchase of refined products for domestic use. However, with this monopoly lifted, the refinery has a clearer path to supply both local and regional markets.

The IPMAN agreement to purchase 60 million liters of PMS weekly pinpoints this newfound market openness.

Despite being Africa’s leading oil producer, Nigeria has long imported nearly all its fuel due to inadequate refining capacity. The $20 billion Dangote Refinery aims to close this gap, offering a sustainable solution to one of Nigeria’s most persistent economic challenges. As it scales up production, the refinery is expected, among other things, to save the country billions in foreign exchange and stabilize domestic prices.

Pricing and Export Concerns

While the refinery’s products are expected to be more cost-effective than imports, there are concerns about pricing. Local marketers claimed it’s cheaper to import fuel from Europe than to buy from Dangote Refinery.

However, there is concern that, while the refinery is yet to attain full production capacity, exporting to other countries now will scuttle its ability to meet domestic demands. But many believe that the IPMAN agreement is crucial for ensuring that a significant portion of the refinery’s output remains in Nigeria to meet local demand.

However, energy analysts said balancing domestic needs with lucrative export opportunities will be key to the refinery’s long-term success.