The Nigerian National Petroleum Company Limited (NNPC) is set to provide the new 650,000 barrel-per-day Dangote oil refinery with up to six million barrels of crude oil in December for test runs, according to three reliable industry sources who spoke with Reuters.

This development comes as a significant relief to concerns about the refinery’s capacity to receive the necessary feedstock.

The Dangote oil refinery, funded by Africa’s richest man, Aliko Dangote, is poised to revolutionize the oil trading landscape in the Atlantic Basin. Once fully operational, it is expected to make Nigeria a net exporter of fuels, a long-cherished goal for the oil powerhouse. Currently, Nigeria heavily relies on fuel imports.

An NNPC official, who wished to remain anonymous, confirmed that six cargoes, equivalent to 200,000 barrels per day, would be supplied in December as part of a one-year deal. He added that future volumes would be supplied “based on mutual agreement and availability.”

The other sources indicated plans to supply about 4-5 cargoes, totaling at least 130,000 barrels per day. A Dangote Group official, also preferring anonymity, mentioned that “some of the agreements have confidentiality clauses” when asked about the NNPC supply deal. The NNPC holds a 20 percent stake in the refinery.

The Dangote refinery commenced the commissioning process in May this year after significant delays and cost overruns, with an estimated project cost of $19 billion, surpassing initial estimates of $12-14 billion. The commissioning phase includes testing various units responsible for producing a range of petroleum products, from gasoline to diesel.

The integrated refinery and petrochemical project is expected to create thousands of direct and indirect jobs while meeting Nigeria’s fuel demands, transforming Africa’s largest crude producer into an exporter of refined crude.

A Sales and Purchase Agreement (SPA) is currently in the final stages of preparation between the national oil company and the Dangote refinery, with formalization expected in the coming weeks. The deal is set to be on a purely commercial basis, without any discounts or rock-bottom prices.

The Petroleum Industry Act (PIA) of 2021, specifically Section 109, outlines domestic crude oil supply obligations to refineries, including the Dangote Refinery, as well as NNPC refineries in Port Harcourt, Warri, Kaduna, and the various modular refineries across the country. It stipulates that the supply of crude oil to the domestic market will be conducted on a willing buyer and willing seller basis.

Notably, shortly before the refinery’s inauguration, the NNPC had pledged to supply 300,000 barrels of crude oil to the facility. However, in September, Devakumar Edwin, the Executive Director of Dangote Group, disclosed that the national oil company would not be able to supply the refinery until November, causing concerns and raising eyebrows throughout the country.

The Dangote refinery, with a processing capacity of 650,000 barrels per day, is situated in the Free Zone in Ibeju-Lekki, Lagos, covering an expansive 2,635 hectares of land. The complex is reputed to boast one of the largest pipeline infrastructures globally, with a 1,100-kilometer gas pipeline capable of handling 3 billion standard cubic feet of gas per day and a 400MW power plant meeting the power requirements of Ibadan Distribution Company (Disco). It is also said to be more than six times the size of Victoria Island.

The Nigerian Upstream Petroleum Regulatory Commission (NUPRC), led by Gbenga Komolafe, recently emphasized the urgency of meeting domestic crude obligations to enhance refining capacity. Komolafe said “It is going to be a matter of national shame if we cannot meet our domestic crude obligations to step up our refining capacity,” and stressed the readiness of the Dangote refinery to receive crude oil.

The successful collaboration between the NNPC and the Dangote refinery not only represents a significant step forward for Nigeria’s energy sector but also aligns with the country’s ambitions of becoming a major exporter of refined crude products.

Good News for Naira: “The news that the Central Bank of Nigeria (CBN) has begun to clear some of its FX backlogs has spurred an appreciation of the naira in both the official and parallel exchange markets. The naira rose to N1,004/$1 in the parallel market and around N793.28/$1 in the official window, underscoring a notable performance compared to Wednesday, when it traded at N1,142/$1 and N799.32/$1 respectively, according to FMDQ OTC Securities Exchange.”

Nigerian banks received dollars from investors and importers some years ago, which they then invested with the CBN in a market known as the Forward Dollar Market. When contracts in that Forward market reached maturity, the CBN was unable to make the payment due to a lack of liquidity in foreign exchange.

Now, the CBN is gradually settling that dollar obligation. This development enables Nigerian banks to reimburse their investors and secure additional funds, which in turn helps stimulate trade and improve FX liquidity.

This is a welcome development. Nigeria is working on the Supply side and if that happens, the pricing equilibrium will shift, ECON 101. That said, we need to think today, tomorrow and the long-term.

Why? If you live in Lagos and borrow from loan app A to pay app B, to avoid wahala, remember that one day app B will come for its money. So, to deal with the root cause and avoid wahala, you need to find that money fast to pay B.

Nigeria, as I have noted, has tools to bring Naira down, in the short-term, as we are a resource-rich nation (gas, crude oil, lithium, etc); the challenge is maintaining the stability over the long-term. Fascinatingly, that requires productivity which goes beyond pre-selling crude oil and gas. I wish the team good luck on this. Help us make things in Nigeria and become more productive. If not, loan app B will come knocking and Naira will bleed again.

Comment on Feed

Comment 1: enator Jimoh Ibrahim Oxford economics. He recommended on Channels TV that we should borrow $100billion to clear existing debt and structure the new debt for repayment to start in 10 years. By then you would have developed infrastructure enough to drive productivity in the economy. This is not me, it’s our Senator from Ondo West.

My Response: “He recommended on Channels TV that we should borrow $100billion to clear existing debt and structure the new debt for repayment to start in 10 years.” – nothing new there. We have been doing that since 2015. The problem is that around 2019, they stopped lending us money without big collateral. That was when Emefiele pre-sold crude oil to get some cash. Maybe, we can give Goldman Sachs Ondo West (just joking) for $100b because they will not do it without something these days.

The news that the Central Bank of Nigeria (CBN) has begun to clear some of its FX backlogs has spurred an appreciation of the naira in both the official and parallel exchange markets.

The naira rose to N1,004/$1 in the parallel market and around N793.28/$1 in the official window, underscoring a notable performance compared to Wednesday, when it traded at N1,142/$1 and N799.32/$1 respectively, according to FMDQ OTC Securities Exchange.

On Thursday, the market was hit with the news that the CBN is clearing its outstanding matured FX forwards with banks, stirring the naira’s unprecedented performance.

The matured FX forwards context

Nigerian banks received dollars from investors and importers some years ago, which they then invested with the CBN in a market known as the Forward Dollar Market. When contracts in that Forward market reached maturity, the CBN was unable to make the payment due to a lack of liquidity in foreign exchange.

Now, the CBN is gradually settling that dollar obligation. This development enables Nigerian banks to reimburse their investors and secure additional funds, which in turn helps stimulate trade and improve FX liquidity.

Some banks such as Citibank, Stanbic IBTC, and Standard Chartered, have confirmed that the CBN has settled some of its FX obligations through statements.

In a statement released by its Treasury and Trade Solutions department, Citi announced, “CBN HAS DONE IT.”

The statement titled ‘Settlement of Matured FX Forwards by CBN’, said, “We have been directed to inform you that the CBN has delivered all outstanding matured forward forex.

“We thank you for your patience and cooperation and value you for your business and partnership. Please speak with your Relationship Manager or your Trade Service Professional for clarification and additional details.

“It is a gradual payment that was done secretly, CBN didn’t make a fuss about it. It started yesterday and continued all through the night.”

The bank encouraged its customers to reach out to their respective Relationship Manager or Trade Service Professional for further clarification on the matter.

Also, announcing the development, Stanbic IBTC said in a statement, “Yesterday, the apex bank began clearing the backlog of outstanding Retail SMIS obligations. The total amount cleared is yet to be ascertained.”

The development, which is said to have cost the CBN around $2.8 billion, follows several moves by the federal government to boost the nation’s FX inflow. In the past few months, the government has intensified efforts to increase dollar liquidity through borrowing. The borrowing has been executed as part of a strategy that involves securing an immediate cash loan using the expected revenues generated from a designated portion of future crude oil production.

Last month, the government moved to securitize the NLNG dividends over a period of time and use it to borrow money to curb the depreciation of the Naira against the Dollar.

The strategy has birthed the $10bn announced recently by the Minister of Finance and Coordinating Minister of the Economy, Wale Edun, at the 29th Nigerian Economic Summit.

“In addition, from the supply of foreign exchange through NNPC, increased production, reduced expenditure, from transactions such as forward sales, from our discussions with sovereign wealth funds, which are ready to invest and provide advanced alongside that investment, there is a line of sight of $10bn worth of foreign exchange in the relatively near future in weeks rather months,” he said.

Experts have reacted to the development, with a note that it will yield positive economic impacts, especially in the aviation sector. The Chief Executive Officer of Dairy Hills Limited, Kelvin Emmanuel, said that besides the appreciation of the naira, the move will help close the gap in FX rates across markets.

He added that the CBN’s action of clearing forex forwards, particularly commercial letters of credit, initially with correspondent banks and subsequently with Nigerian banks, totaling around $2.8 billion, signifies that banks can secure unencumbered credit lines for facilitating the opening of letters of credit for Nigerian corporations that depend on forwards to import goods.

“Supply from the gas forwards signed between the Ministry of Finance incorporated and international banks that are officially external asset managers to the CBN for financialising five-years of dividends from NLNG that the NNPC holds 49 percent, means that the 45 percent black market premium divergence we have seen that the official I&E rates will close ranks significantly and come back within fair value.

“This is necessary to keep the price of PMS, diesel, and Jet A1 within reasonable limits and ensure that consumer goods from durable goods import do not continue inflating, especially going into the festive season,” he said.