Fuel Imports Continues

Image Credit: Axxela Group

October 30, 2024/CSL Research

According to a Punch news report, Aliko Dangote, Chairman of the Dangote Group has urged Nigerian petroleum marketers, including the Nigerian National Petroleum Company Limited (NNPC), to source petrol directly from his refinery to meet the country’s fuel demands. Dangote confirmed that his Lekki-based refinery is ready to supply the market, capable of producing over 30 million liters of fuel daily at full capacity. Additionally, the refinery currently holds a reserve of 500 million liters, enough to supply Nigeria’s fuel needs for over 12 days without imports. The US$20 billion Dangote Refinery began distributing Premium Motor Spirit (PMS), or petrol, to the Nigerian market on 15 September 2024. However, despite this available local supply, petroleum marketers have continued to import large volumes of petrol since the Federal Government fully deregulated the downstream oil sector, allowing marketers to source fuel independently.

Oil marketers have defended their stance, noting that the market is now deregulated, allowing marketers to source independently if they can achieve a lower landing cost. The recent distribution of refined petroleum from the Dangote Refinery by NNPC Limited marks a significant step towards Nigeria’s goal of fuel self-sufficiency. The Dangote Refinery, with a capacity of 650,000 barrels per day, plays a pivotal role in Nigeria’s long-term ambition for self-sufficiency in local refining. Although it has sparked controversy, the refinery project has the potential to drive transformative change for the nation. Benefits include economic growth, enhanced energy security, job creation, foreign exchange savings, and the elimination of fuel imports. By reducing Nigeria’s reliance on imported refined products, the Dangote Refinery can strengthen local industries and position Nigeria as a regional leader in refining and petrochemicals.

The disputes between Dangote Refinery and NNPC Limited have revolved around ownership stakes, crude oil supply agreements, and pricing. These tensions highlight the challenges of aligning private commercial interests with state priorities in Nigeria’s oil and gas sector. One of the most critical issues has been the terms of the crude oil supply to Dangote Refinery. As the largest single-train refinery in the world, it is expected to process 650,000 barrels of crude oil per day, making consistent supply a crucial factor. NNPC Limited, as Nigeria’s state-owned oil company, is the custodian of the country’s crude oil resources. The dispute has revolved around whether NNPC Limited will prioritize domestic crude supply to the Dangote Refinery and the pricing mechanisms involved.

From October 2024, NNPC Limited was expected to commence the sale of crude oil to domestic refineries in Naira. Selling crude oil in Naira will reduce the demand for U.S. dollars for local transactions in the oil sector. This can help ease the pressure on Nigeria’s foreign exchange reserves and reduce demand for dollars in the forex market. As a result, it could stabilize or strengthen the Naira, leading to a more favourable exchange rate. Additionally, downstream marketers in Nigeria will no longer need to source foreign currency to pay for petrol. By purchasing crude in Naira, domestic refineries can reduce currency conversion risks and transaction costs, potentially lowering operational expenses. This could lead ultimately lead to reduced pump price of petrol.

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