Nigeria is considering reforms to its crude allocation and pricing policies to improve feedstock access for the 650,000 barrel per day Dangote Refinery, Africa’s largest refinery. According to Reuters and CNBC Africa, the proposed changes are aimed at addressing supply and pricing bottlenecks that have made it difficult for domestic refiners to secure sufficient Nigerian crude at competitive prices. The review comes as authorities seek to strengthen domestic refining and reduce reliance on imported petroleum products.
Two proposals are under consideration. The first would allow producers associated with international oil companies to supply crude directly to nearby domestic refineries, while the second would provide discounts for refiners lifting crude directly from production sites to reflect savings in transportation and handling costs. The Crude Oil Refinery Owners Association of Nigeria said the existing structure can add $3 to $4 per barrel to refining costs because of intermediary involvement. Meanwhile, the Nigerian Upstream Regulatory Commission said compliance with domestic crude supply obligations has improved to more than 90%, from below 43% previously.
The reforms could have significant implications for Nigeria’s energy security, foreign exchange position and downstream petroleum industry. Reliable access to locally produced crude would improve the economics of domestic refining, potentially allowing the Dangote facility and other refineries to operate more consistently while reducing the need to import crude from international markets. The issue is particularly important given the Dangote refinery’s scale and its potential to transform Nigeria from a major importer of refined petroleum products into a regional supplier. The IMF has previously estimated that the refinery’s full scale operation could substantially reduce Nigeria’s need for imported gasoline.
The next step will be resolving outstanding disagreements over crude quality, pricing and implementation of the proposed changes. If the government can establish a more efficient connection between Nigeria’s crude producers and domestic refiners, the reforms could improve refinery utilisation, reduce supply costs and strengthen the country’s broader petroleum value chain.
