Dangote refinery, others may import $1.4bn crude monthly

The Dangote Petroleum Refinery, along with several modular refineries in Nigeria, is projected to invest approximately $8.56 billion to import around 122,400,000 barrels of crude oil in order to reach full operational capacity within six months.

This indicates that the refiners could incur costs of about $1.43 billion each month for crude oil imports into Nigeria.

Such expenditures are occurring amidst uncertainties regarding the viability of the naira-for-crude policy between the Nigerian National Petroleum Company Limited and the Dangote refinery, as well as concerns regarding the Domestic Crude Supply Obligation imposed by the Federal Government.

Additionally, it has been reported that a meeting originally scheduled for Monday involving the Technical Sub-Committee on the Naira-for-Crude Policy, the Dangote refinery, and other government representatives did not take place as intended.

Sources familiar with the committee's operations indicated that the meeting has been postponed and is expected to occur before the Sallah holiday.

"The NUPRC (Nigerian Petroleum Upstream Regulatory Commission) has not yet completed the tasks assigned to it by the committee, which is why the meeting could not proceed today. They are requesting additional time. We hope the committee can reconvene prior to the Sallah break," a senior government official associated with the committee disclosed to our correspondent, speaking on the condition of anonymity due to a lack of authorization to comment publicly.

The Dangote refinery boasts a capacity of 650,000 barrels per day and has consistently stated its intention to import crude oil. Given the current uncertainties surrounding the naira-for-crude agreement, the refinery will increasingly depend on imported crude.

Another domestic refinery, the Edo Refinery, which has a capacity of 30,000 barrels per day, is also making strides to import crude from the United States. Reports from modular refiners on Monday indicate that the plant has sought product offtake from a US-based crude supplier.

It has been reported that while other modular refineries are exploring alternative strategies to procure crude oil, both the Dangote and Edo refineries will require approximately 680,000 barrels per day.

This amounts to around 20.4 million barrels over a month and 122.4 million barrels over a six-month period. At an average price of $70 per barrel for Brent crude, the total expenditure for importing this commodity over six months could reach about $8.56 billion.

In an exclusive interview on Monday, Eche Idoko, the National Publicity Secretary of the Crude Oil Refinery-owners Association of Nigeria, indicated that finding alternative suppliers for raw materials is currently the only feasible option for refiners.

He noted that domestic refiners are effectively in a difficult position due to the government's inability to ensure product offtake in accordance with the domestic supply obligation or the naira-based agreement.

Idoko disclosed that this predicament has led the Edo refinery, which is aiming to expand its capacity to 30,000 barrels per day, to engage in negotiations with a crude supplier from the United States to secure an offtake agreement.

He mentioned that other refineries lacking sufficient financial resources have ceased operations.

Idoko stated, “The Edo refinery, which is working to increase its capacity to 30,000 barrels per day, is in discussions with crude suppliers from the United States. Other refineries, aside from Walter Smith and Aradel, which are temporarily relying on crude from their own fields, are largely immobilized. Many modular refineries have not processed a single liter in the past six to eight months.”

Currently, the modular refineries operating in Nigeria include the Walter Smith modular refinery, Aradel, the Omsa Pillar Astex Company refinery, the Edo refinery, and the Duport modular refinery. Clairgold and Azikel refineries are nearing completion of their construction.

Idoko stressed that the government's failure to provide adequate feedstock is a significant obstacle to stabilizing the sector and has serious political implications.

The national officer emphasized, “It is important to understand that reports of Dangote or any local refinery sourcing crude from abroad due to an inability to procure it locally significantly undermines the government's efforts to stabilize the sector.

“Anyone obstructing the supply of crude to local refineries is acting against this government and providing ammunition to the opposition in anticipation of the 2027 elections. The treatment of investors in local refining, including the Dangote refinery, will undoubtedly influence the upcoming elections.”

Local refiners expressed their concerns regarding the challenging circumstances they have faced since last week, following the sudden alleged cancellation of the initial phase of the naira-for-crude arrangement.

They indicated that they had expected to be part of the second phase of the naira-for-crude initiative after a successful pilot phase involving the Dangote refinery, which has a capacity of 650,000 barrels per day.

Sources, who requested anonymity due to a lack of authorization to speak on the issue, disclosed that negotiations collapsed due to challenges related to crude availability from the Nigerian National Petroleum Company Limited.

Insiders familiar with the situation indicated that the national oil company had allocated significant quantities of crude to its foreign creditors to address loans taken by the firm, complicating the continuation of the naira-for-crude agreement between NNPCL and the Dangote refinery.

Reports analyzed from the Nigeria Extractive Industries Transparency Initiative and the 2023 NNPC financial statements revealed that the national oil company had committed 8.17 million barrels of crude monthly for various loan agreements, along with an additional $9.5 billion forward oil sales deal in progress.

In light of the unsuccessful negotiations, the Dangote Petroleum Refinery announced a temporary suspension of petroleum product sales in naira, citing a disparity between its sales revenue and crude oil purchase obligations, which are in US dollars.

The company stated that its sales in naira have surpassed the value of the naira-priced crude oil it has received to date. Consequently, it has opted to temporarily synchronize its sales currency with its obligations for crude procurement.

"Dear esteemed customers, we would like to inform you that the Dangote Petroleum Refinery has temporarily suspended the sale of petroleum products in naira. This measure is essential to prevent a discrepancy between our sales revenue and our crude oil purchasing commitments, which are currently in US dollars.

"To date, our naira sales of petroleum products have exceeded the value of the naira-denominated crude we have received. Therefore, we must temporarily modify our sales currency to match our crude procurement currency," the company announced last week.

This situation implies that domestic refiners will need to resort to importing crude oil as an alternative strategy to maintain their operations. Following the announcement, Dangote refinery imported 654,766 metric tonnes of crude oil within three days.

The development has sparked significant criticism and concern among stakeholders and the public due to the potential for a rise in petrol prices, leading to serious business repercussions and a notable increase in production costs.

Further dampening hopes for a reassessment of the naira-for-crude arrangement, the anticipated meeting between the involved parties did not take place on Monday.

A source familiar with the committee's proceedings indicated that the meeting was canceled because the Nigerian Upstream Petroleum Regulatory Commission had not provided the necessary options for the committee's review.

The committee had tasked the NUPRC with developing potential options for evaluation by the panel.

"The meeting did not occur as planned today because the NUPRC has not finalized its findings as instructed," disclosed the official, who requested anonymity.

The official did not provide a specific date for the next meeting but indicated that the committee would convene in the near future.

In light of recent developments, private depot operators in Lagos State have persistently raised the loading costs for petrol and other refined petroleum products at their facilities.

Additionally, retail petrol stations in the Federal Capital Territory increased their pump prices by N42, or 4.67 percent, bringing the cost to N940 per litre on Monday.

An investigation by our correspondent at various stations found that Conoil, situated along Airport Road, has raised its price to N940.

AYM Shafa increased its price by N20 to N920, while Matrix also adjusted its price to N920. Salbas, located on the same route, raised its price to N930 per litre.

In contrast, NNPCL and MRS filling stations continued to sell their products at N880 per litre, resulting in long queues.

Furthermore, an analysis of data collected by our correspondent on petrol price fluctuations at loading depots on Monday indicated that Rainoil Depot raised its price from N860 to N870 per litre, and WOSBAB depot also increased its price to N870 per litre.

Pinnacle Depot made a similar adjustment, raising its price from