The Nigerian Federal Government is poised to supply the Dangote refinery with up to 400,000 barrels of crude oil daily under a new naira-for-crude agreement, as reported by Bloomberg. This strategic partnership will unfold over the next two months, with an impressive total of 24 million barrels of Nigerian crude expected to be delivered between October and November 2024. This initiative is set to have a transformative impact not only on the refinery’s operations but also on the broader local oil industry, reshaping import and export dynamics in the region. The announcement of this agreement marks a significant milestone for Nigeria’s energy sector and highlights the government’s commitment to increasing domestic crude oil utilization.
Bloomberg News has further clarified that the Nigerian National Petroleum Company Limited (NNPC) is set to initiate crude oil supplies to the Dangote Petroleum Refinery imminently, with additional refineries on the verge of commencing the production of Premium Motor Spirit (PMS). The allocation of cargoes indicates that Dangote’s growing dependence on local crude will notably disrupt the Atlantic oil market by reducing Nigeria’s crude exports substantially. The Dangote refinery, which boasts an impressive processing capacity of 650,000 barrels daily, is expected to take a significant portion of Nigeria’s typical monthly crude shipment load, with estimates suggesting that it will require around 13 to 14 shipments from a standard monthly program of roughly 50 cargoes.
Industry analysts, including Ronan Hodgson from FGE in London, predict that the West African crude market will become “substantially tighter” during the fourth quarter of 2024 due to this arrangement. Notably, it is expected that Nigerian exports could dip below 1 million barrels a day as a result of the increased supply needs for the Dangote refinery. Despite the possibility of some shipments not being delivered as planned—particularly two cargoes already delayed from September—the anticipated volume is a significant increase from the average of 255,000 barrels a day that Dangote sourced during the first half of 2024 as it gradually ramped up its operations.
The Dangote facility is currently operating at 60-70% capacity and anticipates reaching full operational capacity within a few months, according to Vartika Shukla, Chairman of Engineers India Ltd. This increase in local processing capacity is crucial for Nigeria, as it aligns with the country’s broader strategy to decrease reliance on imported petroleum products. The latest allocations suggest a shift in strategy at the refinery, with indications that it is reducing its purchases of U.S. crude oil. Earlier in 2024, the refinery imported substantial volumes of WTI Midland crude but has reportedly altered its approach, selling off some of this oil and scrapping future plans to acquire more from the U.S. market.
The agreement between the NNPC and Dangote Refinery allows the state-owned oil firm to supply crude oil while retaining the exclusive rights to distribute the refinery’s gasoline output. This arrangement is significant, as it effectively positions Dangote to contribute to Nigeria’s goal of minimizing oil product imports, a long-standing objective. Analysts from FGE anticipate that if Dangote sustains its ramp-up and operational rates, the West African gasoline and diesel imports market will experience rapid contraction, thereby enhancing Nigeria’s energy independence.
Ultimately, the initiation of the naira-for-crude agreement reflects not only an important collaboration between the Federal Government and Dangote but also signifies a strategic pivot for the Nigerian oil sector. Should Dangote’s output continue to rise, Nigeria may well realize significant savings previously spent on importing refined oil products, while at the same time bolstering its local economy and contributing to a healthier regional crude oil market. This development underscores the shifting dynamics in global oil trade and presents an opportunity for Nigeria to redefine its role as a supplier within the international oil arena.
