The Nigerian National Petroleum Company Limited (NNPC) has directed oil marketers to halt petrol imports, counting on the Dangote Refinery to meet the country’s fuel demands.

According to BusinessDay, this mandate was disclosed at a high-level meeting in Abuja, attended by NNPC Group CEO Mele Kyari, representatives of the Major Oil Marketers Association of Nigeria (MOMAN), Depot and Petroleum Products Marketers Association of Nigeria (DAPPMAN), and other key stakeholders.

NNPC declared that all petrol supplies would now hinge on clearance from the Dangote Refinery, which reportedly has the capacity to cater to Nigeria’s fuel needs. This refinery, operational since January 2024, has produced diesel, jet fuel, and other products mainly for international markets.

Recently, it began supplying petrol domestically, adhering to premium quality standards of 10ppm sulfur content, a significant improvement over the 50ppm standard previously dominant in Nigeria.

While the refinery’s capacity is significant, oil marketers have questioned its ability to handle Nigeria’s fluctuating fuel demand reliably. Additionally, marketers raised concerns about the refinery’s payment structure, which requires advance payment—unlike the traditional post-delivery settlement model. This shift could strain the liquidity of smaller players in the downstream sector.

BusinessDay quoted one marketer as saying, “Paying upfront significantly increases financial pressure, especially for businesses with limited capital.”

The quality of Dangote’s fuel has introduced a price differential compared to imported alternatives, which typically have a higher sulfur content (50 ppm). While Dangote’s product aligns with global standards, some marketers have reportedly undercut its prices by sourcing cheaper, lower-quality imports, exacerbating market challenges. Dangote Refinery has accused these activities of distorting the market and even threatened legal action against NNPC for continued fuel imports.

Mele Kyari recently stated that the NNPC had ceased fuel imports and was sourcing products exclusively from domestic refineries. However, this claim faced scrutiny as documents revealed significant fuel importation volumes between October and November 2024.

The NNPC clarified that Kyari’s statement was taken out of context, explaining that while it prioritizes local refineries, importation remains an option when economically viable.

However, the Independent Petroleum Marketers Association of Nigeria (IPMAN), announced earlier this week that it has reached an agreement with Dangote Refinery for fuel supply.

As part of this significant agreement, the refinery will supply 60 million liters of petrol each week to IPMAN. This partnership could see the association receiving up to 240 million liters of petrol monthly.

The Challenge of Crude Oil Supply

While the directive underscores the government’s reliance on the Dangote Refinery to stabilize Nigeria’s fuel supply, a giant obstacle stands in the way. Challenges surrounding crude oil supply to the refinery have cast doubt on the viability of this initiative.

The success of this policy hinges on uninterrupted crude oil supply to the Dangote Refinery. However, The NNPC has struggled to meet its obligations under its stock agreement with the refinery. Dangote Refinery recently disclosed that the NNPC is failing to fulfill its crude oil supply commitments, especially under the much-publicized naira-for-crude agreement.

This arrangement was designed to ensure that the NNPC supplies crude oil to the refinery in exchange for naira payments, a system projected to save Nigeria up to $8 trillion annually. Unfortunately, these supply disruptions have forced the Dangote Refinery to procure crude oil from international markets, including the United States, paying in dollars—a practice that undermines the purpose of the agreement.

The decision to prioritize Dangote Refinery is expected to bolster the naira in the foreign exchange market by reducing the demand for dollars typically needed by importers.

Curbing the dollar demand associated with petrol importation was touted as a way the naira’s performance in the FX market could stabilize. Analysts project that this directive could significantly lower Nigeria’s annual dollar outflows, allowing more resources to be channeled toward other economic priorities.

Stakeholders are expressing concern about the sustainability of the directive, given the refinery’s operational challenges. Market experts worry that inconsistent crude oil supply and the refinery’s financial pressures could disrupt the envisioned stability in Nigeria’s fuel market.

The failure of the naira-for-crude agreement not only threatens Nigeria’s FX goals but also risks destabilizing the refinery’s pricing and distribution plans. If crude oil procurement costs remain high, it may lead to higher petrol prices, further straining consumers already grappling with economic hardship.