The Nigerian oil refining sector is grappling with a critical challenge: access to crude oil. Despite Nigeria’s oil production exceeding 1.4 million barrels per day, domestic refineries, including smaller modular refineries, are receiving virtually no crude oil allocations. This stark reality has forced refinery owners to appeal to the Federal Government for intervention, urging them to prioritize domestic supply over exports. The lack of access to domestically produced crude has severely hampered the operational capacity of local refineries, limiting their contribution to the national energy sector and forcing them to rely on costly imports to sustain operations.
The Crude Oil Refinery Owners Association of Nigeria (CORAN) has confirmed this dire situation, highlighting that for several months, no crude oil has been allocated to domestic refineries under the Domestic Crude Supply Obligation (DCSO) framework or any other special arrangement. This framework, a key component of the Petroleum Industry Act 2021, was designed to ensure a portion of domestically produced crude oil is allocated to local refineries. However, it appears that an estimated 500,000 barrels per day intended for domestic refining are being diverted to the international market, driven by the allure of foreign exchange earnings for producers and traders. This practice effectively undermines the DCSO and deprives local refineries of the raw material they need to operate.
Industry experts point to the preference of oil companies for selling crude to international traders for foreign currency, thereby neglecting the mandated allocations for domestic refineries. This has prompted the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) to ban the export of crude oil earmarked for domestic refining, deeming it a violation of the law. The NUPRC has vowed to deny export permits for such cargoes, aiming to enforce compliance and ensure the availability of crude oil for local refineries. However, oil producers argue that the domestic crude market requires further sanitization for such measures to be truly effective.
CORAN members have resorted to private arrangements, including costly imports, to source crude oil, a challenging process that has hampered their ability to operate at full capacity. While they welcome the NUPRC’s directive, they remain cautiously optimistic about its implementation and the cooperation of International Oil Companies (IOCs). Furthermore, they have pointed out the lack of financial incentives for domestic refiners, contrasting it with the incentives provided to importers of refined petroleum products. This disparity creates an uneven playing field and further disadvantages local refineries, hindering their growth and contribution to the national economy. CORAN has appealed to President Bola Tinubu and his economic team to prioritize support for domestic refineries, particularly modular refineries, emphasizing their potential to boost the economy and strengthen the Naira.
Looking ahead, the NUPRC has projected that the Dangote Petroleum Refinery and seven other domestic refineries will require 770,500 barrels of crude oil equivalent per day in the first half of 2025. This includes a range of refineries, from smaller modular refineries to larger facilities like the Dangote refinery, the old Port Harcourt refinery, the Warri refinery, and the Kaduna refinery. The NUPRC has affirmed its commitment to ensuring consistent crude oil supply to these refineries, aiming for a daily allocation representing approximately 37% of the projected average daily production of 2,066,940 barrels per day. This ambitious target is underpinned by the “Project One Million Barrels” initiative launched in October 2024, which aims to boost Nigeria’s crude oil production capacity for both domestic consumption and export.
The Petroleum Products Retail Outlets Owners Association of Nigeria (PETROAN) has commended the NUPRC’s ban on exporting crude allocated for local refineries, viewing it as a positive step towards boosting local refining capacity, reducing reliance on imported refined products, and easing pressure on foreign exchange reserves. PETROAN has also accused oil producers of diverting the allocated 500,000 barrels per day of crude oil meant for local refineries, highlighting the ongoing struggle to ensure domestic refineries receive their allocated share of crude oil. Despite attempts to solicit comments from oil producers through the Oil Producers Trade Section of the Lagos Chamber of Commerce and Industry, they have remained silent on the matter, further highlighting the complex dynamics at play within the Nigerian oil refining sector.
