Federal Government Reportedly Considers Cutting Crude Supply to Dangote Refinery Amid Rising Domestic Competition
The Federal Government is considering reducing the crude oil allocation to the Dangote Petroleum Refinery, currently set at 300,000 barrels per day, as part of efforts to adjust the naira-for-crude initiative. This move follows the recent revival of the Warri and Port Harcourt refineries, which have added a combined refining capacity of 135,000 barrels per day. Managed by the Nigerian National Petroleum Company Limited, these refineries have resumed operations after years of neglect, signaling a shift towards optimizing local refining and reducing reliance on imports.
Sources familiar with the development revealed that the planned reduction in crude allocation is aimed at ensuring an equitable distribution of crude among all operational refineries. The government’s goal is to boost competition in the downstream sector by allocating resources across multiple facilities, including the state-owned refineries that are gradually being rehabilitated.
The government’s decision to cease selling crude on credit has also influenced this development. Local refiners are now required to pay upfront for crude oil, a move intended to enhance revenue collection. While this policy could strain operations at the Dangote refinery, which requires 650,000 barrels per day to operate at full capacity, it aligns with the government’s push for financial sustainability.
Industry stakeholders, including the Crude Oil Refinery Owners Association of Nigeria, have voiced concerns over the potential reduction in allocations. The association highlighted the importance of ramping up crude production to meet the demands of all local refiners, emphasizing that the naira-for-crude initiative was originally designed to stabilize the foreign exchange market and make fuel prices more affordable. The initiative has already had a positive impact, with petrol prices dropping in recent months.
The Dangote refinery, which currently processes crude under the naira-for-crude scheme, may face challenges sourcing crude if allocations are reduced. The refinery could resort to importing crude oil at international prices, a scenario that could affect its profitability. Meanwhile, the government is working to boost crude oil production, with the NNPCL securing a $2 billion syndicated loan under “Project Leopard” to invest in oil infrastructure. This is part of broader efforts to increase output and meet the growing demands of local refiners.
Nigeria’s daily crude production, currently averaging 1.8 million barrels, is under pressure to support the combined refining capacity of 770,500 barrels per day across the country’s operational refineries. With additional facilities like the Kaduna refinery and the BUA refinery expected to come online soon, the competition for crude supply is set to intensify. The government’s ability to balance resource allocation, increase production, and sustain revenue will be crucial in navigating this evolving landscape.
