The Federal Government of Nigeria is poised to deliver up to 400,000 barrels of crude oil daily to the Dangote Petroleum Refinery under its recently initiated naira-for-crude deal. This development, confirmed in a Bloomberg report, is expected to unfold over the next two months, with 24 million barrels of Nigerian crude oil slated for delivery between October and November 2024.
The Nigerian National Petroleum Company Limited (NNPCL) is gearing up to commence supply this week, a move that marks a significant milestone in the country’s energy sector. The increase in supply is projected to transform the operations of Dangote’s 650,000-barrel-per-day refinery, the largest in Africa and Europe, while disrupting the region’s import-export oil market.
With three more refineries expected to come online for the production of Premium Motor Spirit (PMS), the naira-for-crude deal is seen as a strategic move to reduce Nigeria’s reliance on foreign oil products. According to Bloomberg, this arrangement is likely to reduce the country’s crude oil exports to the Atlantic market, as the Dangote Refinery absorbs a larger share of local feedstock. Current allocations indicate that Dangote will draw 13 to 14 shipments from Nigeria’s typical monthly export of 50 cargoes, a shift that could bring the country’s oil exports below 1 million barrels a day.
“The West African crude market will be substantially tighter in the fourth quarter due to the supply to Dangote,” said Ronan Hodgson, an analyst at FGE. This tightening could have ripple effects across the global market, with delays in shipments already noted for October, following two cargoes delayed from September.
Despite the disruptions, Dangote’s processing capacity continues to increase steadily. Data from Bloomberg reveals that the refinery processed an average of 255,000 barrels a day in the first half of 2024. Now operating at 60-70 percent capacity, the plant is on track to achieve full capacity within months, according to Vartika Shukla, Chairman of Engineers India Ltd., the project management firm for the refinery.
In an effort to strengthen Nigeria’s position in the downstream sector, the NNPCL reached a deal with Dangote to become the sole distributor of gasoline produced at the refinery. This partnership is expected to help Nigeria curb costly oil product imports and potentially transform the country into a self-sufficient energy producer.
“If the refinery operates at higher rates, we could see a rapid decline in the need for gasoline and diesel imports in West Africa,” Hodgson added.
The coming months will be pivotal for Nigeria’s oil industry as the Dangote Refinery’s increasing reliance on local crude could reshape the country’s oil export strategy and the broader regional market dynamics.
