Dangote Refinery: IOCs sell Nigerian crude via third parties, raising costs

Dangote Petroleum Refinery and Petrochemicals has stated that International Oil Companies (IOCs) operating in Nigeria are selling crude designated for domestic refining via third parties. This intermediary step, the refinery argues, adds significant costs, rendering Nigerian crude less competitive on the global market.

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As a result, a substantial portion of the crude allocated under the arrangement has had to be sourced through International Oil Companies and third parties rather than directly from Nigerian upstream producers.

The refinery clarified its position following reports suggesting it rejected substantial volumes of crude from local producers. Devakumar Edwin, Group Vice President of Oil & Gas and Fertiliser at Dangote Industries Limited, affirmed the refinery's commitment to the Domestic Crude Supply Obligation (DCSO) framework and sourcing Nigerian crude. However, he highlighted persistent challenges in obtaining adequate volumes at commercially viable prices directly from domestic producers since the DCSO's inception.

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This process often introduces additional premiums and transaction costs that can drive crude prices above internationally recognised benchmarks published by agencies such as Platts and Argus. In many cases, this has made domestically sourced crude less competitive than alternative supplies available on the international market.

Edwin explained that the reliance on IOCs and third parties introduces additional premiums and transaction costs. These often inflate crude prices beyond international benchmarks, such as those published by Platts and Argus, making domestically sourced crude more expensive than comparable international supplies. This situation directly impacts the refinery's operational economics.

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Our position is straightforward. We are ready and willing to purchase Nigerian crude oil, provided it is available in sufficient volumes and at competitive market prices. Like every refinery, we must procure crude that supports sustainable operations and value creation.

Dangote Refinery emphasized that its concern lies not with the nominal volume of crude offered under the DCSO, but with the actual availability of crude under commercially viable conditions. The refinery stated its readiness to purchase Nigerian crude provided sufficient volumes are available at competitive market prices, which is essential for sustainable operations and delivering affordable petroleum products to Nigerians. The additional costs incurred through intermediaries ultimately translate into higher prices for refined products in the domestic market.

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When additional layers of intermediaries introduce premiums, the cost of crude acquisition increases significantly, affecting the overall economics of domestic refining.