The Dangote Refinery has raised concerns over the Nigerian National Petroleum Corporation Limited’s (NNPCL) failure to fulfill its crude oil supply obligations under the naira-for-crude agreement.
This agreement was widely touted as a strategic move to address Nigeria’s foreign exchange (forex) crisis by reducing demand for dollars in crude oil transactions and stabilizing the naira.
In a statement reported by Reuters, Edwin Devakumar, Vice President of the Dangote Group, stated that under the naira-for-crude arrangement, NNPCL had agreed to supply a minimum of 385,000 barrels per day (bpd) to the refinery. However, NNPCL has reportedly failed to meet this quota.
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“We need 650,000 barrels per day, and NNPC Ltd agreed to supply a minimum of 385,000 bpd, but they are not even delivering that,” Devakumar said, describing the current supply levels as “peanuts.”
The refinery, which is designed to process 650,000 bpd, is now forced to source crude oil from international markets, undermining the goals of the naira-for-crude policy.
The Backstory of The Naira-for-Crude Agreement
In July 2024, the Federal Executive Council approved a policy shift aimed at ending the sale of crude oil to local refineries in foreign currency. President Bola Tinubu’s administration positioned this move as part of efforts to tame the forex crisis, hoping it would alleviate pressure on the naira by reducing demand for dollars in domestic crude transactions.
Under this arrangement, NNPCL was tasked with supplying 450,000 bpd of crude oil for domestic consumption, including 385,000 bpd to Dangote Refinery. The agreement was supposed to go into effect in October. However, delays in the implementation of the agreement, coupled with NNPCL’s alleged inability to meet its supply commitments, have raised doubts about the effectiveness of the policy.
Due to the shortfall in crude oil supply, the $20 billion Dangote Refinery has resumed crude oil imports from the United States. Reports indicate that the refinery has purchased approximately two million barrels of WTI Midland crude from Chevron Corporation, with delivery expected in December 2024. Shipping records show that Chevron contracted the supertanker Azure Nova to transport the crude from the U.S. Gulf Coast to Lagos.
However, energy analysts have noted that while sourcing U.S. crude might provide a temporary solution, it contradicts the government’s original intent for the naira-for-crude arrangement. Moreover, importing crude from international markets introduces logistical and financial challenges that could affect the refinery’s operations and profitability.
The naira-for-crude policy was intended to stabilize fuel pump prices and boost the naira’s performance in the FX market. The plan was to increase foreign reserves which have been under pressure due to high demand and limited FX inflows.
However, NNPCL’s inability to supply adequate crude to the Dangote Refinery undermines these objectives. The refinery’s reliance on dollar-denominated crude imports means that pressure on forex reserves will persist, while the naira remains vulnerable to depreciation.
This development reflects broader issues in Nigeria’s oil and gas sector, including inefficiencies in crude oil allocation, policy implementation delays, and the financial strain on state-owned enterprises like NNPCL. This is not the first time the state-owned oil outlet has failed to fulfill its supply obligation with Dangote Refinery. Earlier this year, Dangote announced that the NNPC’s stake in the refinery had been reduced from 20 percent to 7.2 percent due to the company’s inability to meet its crude oil supply obligation. Under the deal, the NNPC was required to the refinery with 35,000 barrels of crude oil per day (bpd).
This backdrop has created concerns about the government’s capacity to implement critical economic reforms effectively. Energy experts have warned that if these issues are not addressed, they could jeopardize the government’s efforts to achieve energy self-sufficiency and economic stability.