Paragraph 1: The Nigerian National Petroleum Company Limited’s (NNPC) decision to temporarily halt crude oil supply to the Dangote refinery and other domestic refineries significantly impacted Nigeria’s oil output in March 2025, contributing to a decline in overall OPEC production. According to a Reuters survey, OPEC’s oil output decreased by 110,000 barrels per day (bpd) to 26.63 million bpd in March, primarily due to production drops in Nigeria, Iran, and Venezuela. Nigeria’s output fell by 50,000 bpd, despite exceeding its OPEC quota, as the reduced supply to domestic refineries offset higher export volumes. Iran and Venezuela also experienced a 50,000 bpd decline due to renewed US sanctions targeting their oil exports.
Paragraph 2: The disruption in crude supply to the Dangote refinery stemmed from a disagreement between NNPC and Dangote over payment terms. NNPC had allocated seven crude cargoes, equivalent to approximately 245,000 bpd or 7.2 million barrels over 30 days, for delivery to the refinery in April. However, NNPC delayed the delivery due to the unresolved payment dispute. Reports suggest that the disagreement arose from the termination of a previous “naira-for-crude” deal between the two entities, which involved Dangote paying for crude in the local currency, naira, instead of US dollars.
Paragraph 3: The naira-for-crude deal, initiated in October 2024, aimed to stabilize and potentially lower fuel prices in Nigeria. Under this agreement, NNPC supplied crude to Dangote in exchange for naira, but the arrangement reportedly fell short of the agreed-upon volume. By March 10, 2025, NNPC had delivered approximately 280,000 bpd to Dangote, less than the stipulated 385,000 bpd. As the six-month deal expired, concerns grew that the Federal Government might not renew it, potentially leading to further fuel price hikes. Adding to these challenges, Dangote had also suspended naira-denominated fuel sales.
Paragraph 4: The disagreement over payment terms further complicated the situation. Sources indicate that the credit facilities previously extended to Dangote were withdrawn, and the refinery was now required to provide Letters of Credit before receiving crude shipments. This shift in payment expectations likely contributed to the supply disruption. Dangote executives also expressed skepticism about the renewal of the naira-for-crude deal, citing the challenges of selling refined products in naira while contract prices were pegged to dollar-based benchmarks, creating exposure to currency fluctuations.
Paragraph 5: Beyond the Dangote refinery issue, NNPC faced additional challenges, including pipeline sabotage and instability in Rivers State, impacting its production outlook. These operational difficulties further constrained Nigeria’s crude output. Meanwhile, Nigerian crude oil grades encountered weak demand in the April trading cycle due to competition from lower-priced alternatives like US WTI and Caspian CPC Blend, which attracted European buyers. As a result, a significant number of April-loading Nigerian cargoes remained unsold as the trading cycle shifted to May.
Paragraph 6: In a broader context, Africa’s refining capacity constraints and reliance on imported refined products pose significant challenges. The continent exports a substantial portion of its crude oil and natural gas production, leaving it dependent on external sources for refined fuels. The African Export-Import Bank pledged $3 billion to finance the purchase of refined products within Africa as part of a strategy to enhance local refining capacity. However, challenges such as a lack of storage infrastructure and the prevalence of smaller, older refineries remain obstacles to achieving greater energy independence. Adding to the complex picture, global crude prices experienced a decline, with Brent crude falling to $63.23 per barrel and WTI to $59.82. This downward trend has implications for Nigeria’s 2025 budget, which benchmarked crude prices at $75 per barrel, but it could also lead to lower fuel prices at filling stations, offering some potential relief to consumers.
