July 15, 2024/CSL Research
A recent Punch news report indicates that the Federal Government (FG) and crude oil producers in Nigeria are committed to ensuring a sustainable supply of crude oil to local
refineries using a market-determined pricing system. Both parties emphasized that this commitment aims to allow operators (crude oil producers) to conduct business optimally while ensuring that refineries receive adequate feedstock supply.
To support this goal, the Nigeria Upstream Petroleum Regulatory Commission (NUPRC) has instructed oil refiners in the country to provide monthly price quotes for crude supply.
This directive follows reports that the Dangote Refinery has been increasing its importation of crude oil from the USA due to a shortage of feedstock from the Nigerian National Petroleum Corporation (NNPC) and frustrations with International Oil Companies (IOCs).
These challenges have delayed the refinery’s petrol supply operations, which were initially scheduled to begin in the first quarter of the year.
In a related report, Alhaji Aliko Dangote revealed that the Nigerian National Petroleum Corporation’s (NNPC) stake in the Dangote Refinery has decreased from 20% to 7.2%. This reduction is due to the NNPC’s failure to pay the balance of their share, which was due in June. Aliko Dangote, Chairman of the Dangote Group recently announced that Petroleum Motor Spirit (PMS) from the refinery would be available in the Nigerian market by August. Petroleum marketers are however concerned that the product’s price may be higher than expected. This worry stems from the refinery’s reliance on imported crude oil due to its inability to secure local feedstock from international oil companies (IOCs). The Dangote Refinery, with a capacity of 650,000 barrels per day, has been importing crude oil from the United States and other countries at a higher cost.
Marketers fear that the high cost of importing crude oil will impact production costs and subsequently increase the ex-depot price of Dangote’s PMS.
The Dangote Petroleum Refinery has the capacity to meet 100% of Nigeria’s demand for refined products, including gasoline, diesel, kerosene, and aviation jet fuel, with additional surplus available for export. There are high hopes regarding the refinery’s positive impact on the economy, from eliminating intermittent fuel shortages and reducing the price of PMS to potentially alleviating foreign exchange shortages.
Nigerians remain optimistic that the commencement of operations at the refinery will significantly benefit the economy. However, while the prospects of achieving local refining capacity are promising, the availability of feedstock (crude oil) may pose a
significant challenge. Nigeria’s average crude oil production was 1.21 million barrels per day (mbpd) in 2023, and it has averaged 1.3 mbpd (without condensates) in the first half of 2024.
