Lanre Idris Mustapha
The Federal Government plans to supply up to 400,000 barrels of Nigerian crude oil daily to the Dangote refinery under a naira-for-crude agreement, according to a Bloomberg report released on Monday.
This arrangement will begin within the next two months and will rise to 24 million barrels of crude in total from October to November 2024.
This increase in supply is expected to significantly impact the operations of the Dangote refinery and the local oil industry, altering import and export dynamics in the region. The Federal Government recently confirmed that the naira-for-crude deal has started.
The Nigerian National Petroleum Company Limited (NNPC) will begin supplying crude oil to the Dangote Petroleum Refinery this week, with three additional refineries also set to produce Premium Motor Spirit.
Cargo allocations reviewed by Bloomberg indicate that Dangote’s increased use of local crude will likely reduce Nigeria’s crude oil exports. The Dangote refinery, which can process 650,000 barrels a day more than any other refinery in Africa or Europe will take 13 to 14 shipments from Nigeria’s usual monthly total of about 50 cargoes.
Analyst Ronan Hodgson from FGE noted that the West African crude market will be “substantially tighter” in the fourth quarter due to the supply to Dangote, potentially causing Nigerian exports to drop below 1 million barrels a day.
While some shipments may face delays—October’s list includes two cargoes that were postponed from September—the planned delivery volume is still much higher than the average of 255,000 barrels a day that Dangote imported during the first half of the year.
Dangote is currently operating at 60-70 percent capacity and is expected to reach full capacity soon, according to Engineers India Ltd. Chairman Vartika Shukla. The latest allocations also show that Dangote is cutting back on imports of U.S. crude oil after previously purchasing millions of barrels of WTI Midland, which it later resold.
Last month, the NNPC and Dangote agreed that the state-owned company would supply crude in exchange for being the exclusive distributor of the refinery’s gasoline. If Dangote continues to increase production, Nigeria may achieve its goal of reducing expensive oil product imports.
Hodgson stated, “If the refinery operates at higher rates, the West African market for gasoline and diesel imports will shrink very quickly.”
