New Refineries: NNPCL May Cut Crude Supply To Dangote Plant
The Federal Government may cut its crude oil supply to the Dangote Petroleum Refinery, reducing it from the current allocation of 300,000 barrels per day, except if there is a surge in Nigeria’s oil output.
This reduction is expected to take place as part of adjustments under the government’s naira-for-crude initiative following the coming onstream of the Warri and Port Harcourt refineries.
Both refineries currently operate at a combined capacity of about 135,000 barrels per day. The plants, managed by the Nigerian National Petroleum Company Limited, commenced operations recently after years of neglect by successive governments, preferring fuel imports.
It was gathered that the planned reduction of crude to the Dangote refinery was also predicated on the necessity to ensure a sufficient supply of crude to all refineries.
This is aimed at boosting competition in the downstream sector, with the government facilitating this through the naira-for-crude initiative. Before the initiative, the government used to allocate about 445,000 barrels per day of crude to domestic refineries operated by NNPCL.
Impeccable sources knowledgeable about the development disclosed the planned slash in crude supply to the Dangote refinery during a chat with our correspondent on Wednesday.
One of the sources who did not want to be mentioned because he was not permitted to speak with the press, confirmed to The PUNCH that, “It is clear that crude allocation to Dangote refinery and other local refineries will be reduced because all our refineries are coming back. Old Port Harcourt is working. New Port Harcourt is almost done. Warri just joined last week. “
Last year, the Federal Executive Council adopted a proposal by President Bola Tinubu to sell crude to the Dangote refinery and other upcoming refineries in the local currency.
FEC approved that the 450,000 barrels meant for domestic consumption be offered in naira to Nigerian refineries, using the Dangote refinery as a pilot.
Similarly, other refineries with lower capacity were scheduled to receive allocations.
Findings showed that the $20bn Lekki-based plant was allocated about 300,000 barrels per day out of the 450,000bpd approveby the government.
The agreement was designed to last six months in the first instance, pending further review by the Technical Sub-Committee on Domestic Sales of Crude Oil in Local Currency.
However, this agreement will undergo slight adjustments following the commencement of refining operations at the 210,000PortHarcourt refinery and the 125,000 Warri refinery.
The source stressed that the only solution to the impending crude supply cut was for oil production to improve.
The official added, “Warri is now onstream, too, and Kaduna is coming. So the current share of those 450,000 barrels will now be shared between all of them. Remember also that the BUA refinery is coming.
“So, it is very likely that the 300,000 barrels the Dangote refinery is getting currently will be reduced. The formula for how it would be shared is still sketchy, but it is almost certain that it would be reduced. NNPCL won’t deprive itself of crude oil.
“At least, if Port Harcourt will get 50,000 barrels. Other refineries’ share will be reduced to 250,000. New Port Harcourt will come. Warri, too, is still there. So the only solution to this thing is to increase production, which the government is working hard on.”
The government had redirected crude allocation of 445,000 barrels formerly disbursed to the Warri, Kaduna, and Port Harcourt refineries following their shutdown to the Dangote refinery.
The official also stated that the government has stopped selling its crude on credit to local refineries for improved revenue collection.
“Another issue now is that the government will no longer sell its crude on a credit basis. You would have to pay before you can pick up crude products. The refiners are not happy about it, but revenue to the government is also important.”
The Dangote refinery may fall back on crude oil import, which is subject to international pricing.
Commenting on the latest development, the Crude Oil Refinery Owners Association of Nigeria stated that the initiative was an intervention designed to address the foreign exchange market volatility and drive down the retail price of petrol, which has been achieved.
The CORAN Publicity Secretary, Eche Idoko, however, argued that the coming onstream of the Warri and Port Harcourt refineries is not expected to cut down allocation to local refineries.
He said, “The naira for the crude agreement was purely an intervention at the time to boost local production and then provide some cushion from the volatility of the foreign exchange market. It wasn’t so much about the crude but the FX.
“While I don’t know the mind of the government and regulators if one would infer from the solution to address the volatility, the coming onstream of the Warri and Port Harcourt refinery is to make sure the price of petrol remains affordable for Nigerians. You would agree with me that against all norms, the petrol price has dropped in the last month. We still expect that the price will drop further.
“If we go by this analogy, I don’t think it would change the announcement by the government concerning the naira for crude. However, the agreement signed for this deal stated that it was for refineries producing PMS, which only Dangote and Port Harcourt are currently doing. The one in Warri is not producing because it’s undergoing rehabilitation.”
Idoko pointed out that “this also indicates that there is a serious need for the upstream segment to ramp up production and produce more crude.”
Meanwhile, the national oil company may encounter new challenges in meeting local crude demands, with fresh indications that the oil firm is seeking an additional $2bn to stabilise its finances and invest in new oil infrastructure to boost crude oil production.
A report by Africa Intelligence recently stated the NNPC should announce in the next few days that it has finalised the new syndicated crude oil-backed loan.
Christened Project Leopard, the operation, it said, will enable the company to raise $2bn in total in exchange for crude oil.
This will push the volume of loans for crude to $8bn within four years. The country is still repaying these loans.
A few months ago, Oando loaned the NNPC $500m as part of another syndicated loan operation called Project Gazelle. Swiss group, Gunvor International and Nigeria’s Sahara Energy Resources, also took part in the $3.175bn operation, which was arranged by Afreximbank.
These deals have continued despite complaints from domestic refineries that the national oil firm is not meeting its quota.
The country’s average daily production stood at 1.8m barrels per day as of November 2024.
Last year, the Vice President of the Dangote Group, Edwin Devakumar, accused NNPCL of failing to meet its crude oil supply obligations under the naira-for-crude agreement.
Devakumar explained that the national oil company had committed to supplying the refinery with a minimum of 385,000 bpd under the crude-for-naira deal.
“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 stated.
The CORAN official also lamented the same issue, stating, “We trust that the government will listen to us for the naira for crude and address the issue of the non-availability of crude to local refineries. CORAN, as a body representing local refineries, is willing to work with the government in any way to increase the quota. Private refineries should also be allowed to own marginal fields.” 123m barrels crude
