Dangote Refinery gets lifeline as FG, IOCs agree on local crude supply

Estimated reading time: 3 minutes

In a move that could boost domestic fuel production and potentially lower pump prices, the Nigerian government and international oil companies (IOCs) have reached an agreement to supply crude oil to the Dangote Refinery and other local refineries. This comes after a period of friction, with the Dangote Refinery chairman accusing IOCs of deliberately withholding crude, forcing them to import from the United States.

In a statement issued in Abuja on Thursday, Nigeria’s upstream regulator stated that oil producers under the umbrella of the Oil Producers Trade Section of the Lagos Chamber of Commerce and Industry, at a meeting called by NUPRC, agreed to concede to a framework that would be mutually beneficial with the aim of ensuring that local refineries are not strangulated due to off-the-curve prices.

“The focus of the meeting held at the instance of the Commission Chief Executive, Gbenga Komolafe, was on the status review of the Framework for Seamless Operationalisation of Domestic Crude Oil Supply Obligation Template.

“It was part of efforts to effectively implement key sections of the Petroleum Industry Act (PIA) 2021, especially the issue of pricing and crude supply to the domestic refineries,” the commission stated.

• CBN loosens reins on oil exporters, allows use of held FX for local spending
• Dangote Refinery levels accusations of sabotage at International Oil Companies (IOCs)
• Relief for Nigerian refineries: Local operators now permitted to pay for crude in Naira
• Dangote Refinery will create numerous jobs — Peter Obi 
• Dangote refinery takes top spot in capacity, raising competition concerns

The agreement, brokered by the Nigeria Upstream Petroleum Regulatory Commission (NUPRC), outlines a framework for market-determined pricing for crude supplied to domestic refineries. This approach aims to balance the interests of both parties: ensuring IOCs receive fair market value for their oil while guaranteeing a steady supply for local refiners.

Benefits and Challenges:

The agreement holds several potential benefits for Nigeria:

• Reduced reliance on imported fuel: Increased domestic refining capacity can lead to a significant decrease in reliance on imported petroleum products, potentially lowering pump prices and saving the country valuable foreign exchange.
• Job creation: Increased activity in the domestic refining sector can create jobs in construction, operation, and maintenance.
• Boosted economic activity: A thriving domestic refining industry can stimulate economic growth by creating a ripple effect across various sectors.

However, challenges remain:

• Refinery capacity: While the Dangote Refinery is the largest in Africa, its capacity alone may not be enough to meet Nigeria’s entire fuel needs. Continued investment in domestic refining infrastructure is crucial.
• Pipeline network: Efficient and secure pipeline infrastructure is essential to transport crude oil from production sites to refineries. Upgrading and expanding the existing network may be necessary.
• Market volatility: Global oil price fluctuations can impact the viability of domestic refining. Measures to mitigate this risk are needed.

The agreement between the FG and IOCs represents a significant step towards a more robust domestic fuel market. However, sustained efforts are required to address existing challenges and ensure the long-term success of this initiative. Monitoring and evaluating the impact of this agreement on fuel prices, job creation, and overall economic activity will be crucial. The success of the Dangote Refinery and other domestic refineries could play a significant role in Nigeria’s economic transformation and energy security.

Tags: Dangote Refinery, IOCs, Nigeria, Crude, Oil, Energy, Gas, Economy, Bola Tinubu