Starting October 1, Nigeria will begin selling crude oil to the Dangote refinery in naira, according to a statement released by the finance ministry. This strategic move is designed to alleviate the strain on the country’s primary oil refinery caused by foreign exchange challenges.
The Dangote refinery, a $20 billion facility poised to become Africa’s largest once fully operational, has struggled to secure enough crude to meet its 650,000-barrel-per-day capacity since it commenced production in January.
Previously, Dangote was forced to purchase oil on the international market and had criticized Nigeria’s oil regulator for failing to enforce a law that mandates producers to supply domestic refineries.
Last month, the government authorized the Nigerian National Petroleum Corporation (NNPC) to sell crude oil to the Dangote refinery in the local currency, marking a significant shift in the country’s oil sales policy.
Foreign Exchange Shortages
Nigeria has been grappling with ongoing dollar shortages, which led the government to devalue the naira twice within the past year as part of efforts to stabilize the currency and attract foreign investment.
Despite these constraints, Nigerian refineries, including Dangote, have increased their demand for domestic crude to 597,700 barrels per day (bpd) in the second half of 2024, compared to 483,000 bpd in the first half, as reported by the regulator.
However, members of the Independent Petroleum Producers Group (IPPG) have expressed concerns about the policy that would require oil sales to local refineries in naira.
“This could reduce their foreign exchange earnings, and since most of their expenses are dollar-denominated, it might affect their revenue. Nonetheless, the impact would be minimal if transactions are conducted at market rates,” noted Ayodele Oni, an energy lawyer with Lagos-based law firm Bloomfield.
IPPG Chairperson Abdulrazak Isa proposed that the NNPC’s dedicated 445,000 bpd be allocated to all domestic refineries under a price hedge arrangement, with any production above this level reserved strictly for export.