Nigeria considers crude supply reforms to aid Dangote, other refiners

Nigeria is exploring significant reforms to its crude oil allocation and pricing mechanisms, a move aimed at bolstering access to feedstock for its burgeoning domestic refining sector. The Crude Oil Refinery-owners Association of Nigeria (CORAN) indicated that discussions are underway with regulators to adjust rules that currently impose additional costs on refiners.

Dangote Refinery, Africa's largest with a capacity of 650,000 barrels per day, has faced operational constraints due to difficulties in securing sufficient domestic crude supplies. CORAN spokesperson Eche Idoko explained that Nigeria's current pricing structure, which routes purchases through producers' trading arms, adds an estimated $3 to $4 per barrel to feedstock costs. Analysts suggest that pricing, rather than physical availability, is the primary hurdle in domestic crude transactions.

Under one proposed change, crude oil producers linked to international oil companies (IOCs) could deliver crude directly to nearby refineries. These volumes would then be reconciled later at the terminal, reducing the need for long-distance transportation via trunklines and bringing crude closer to the refiners. A second proposal would offer discounts to refiners that lift crude directly from production facilities, reflecting freight and handling costs embedded in Brent-linked pricing that they do not actually incur.

"This could be a win-win for both the producers and refiners," Idoko stated. The Nigerian Upstream Regulatory Commission (NUPRC) recently reported that producer compliance with domestic crude supply obligations rose to over 90 percent in the previous quarter, up from less than 43 percent. However, this metric measures actual deliveries against allocated volumes, not the total refinery demand.

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This could be a win-win for both the producers and refiners.