The Federal Government has reportedly concluded arrangements to be supplying up to 400,000 barrels of crude oil daily to Dangote refinery through the earlier sealed Naira-for-crude-pact between the management of the refinery and the government.
A report from Bloomberg indicated that the supply would span over the next two months, thereby making the government to a total of 24 million barrels from October to November 2024.
Analysts believe that the latest move by the government will significantly impact operations at the refinery and transform the domestic oil landscape.
As the Naira-for-crude deal commences, Bloomberg News predicts that Dangote’s increasing reliance on domestic crude may lead to a decline in Nigeria’s crude exports, potentially disrupting the Atlantic oil market.
With a capacity of 650,000 barrels per day—the largest in Africa and Europe—the refinery will require 13 to 14 shipments, drawing from Nigeria’s usual monthly output of around 50.
Analyst Ronan Hodgson from FGE predicts that the West African crude market will experience “substantial tightening” in the fourth quarter, potentially driving Nigerian exports below 1 million barrels a day.
While some shipments may encounter delays (with October allocations already including two cargoes pushed back from September), the planned volumes are a significant increase from the average of 255,000 barrels per day that Dangote processed in the first half of the year as it ramped up operations. Currently operating at 60-70% capacity, Dangote is expected to reach full capacity within months, according to Vartika Shukla, Chairman of Engineers India Ltd.
Additionally, Dangote has been scaling back its imports of US crude, having previously relied heavily on WTI Midland, now shifting its purchasing strategy.
Last month, the Nigerian National Petroleum Company Limited (NNPCL) agreed to supply crude to Dangote in exchange for being the exclusive distributor of the refinery’s gasoline production. If this ramp-up continues, Nigeria may finally achieve its long-standing objective of reducing expensive oil product imports.
“If the refinery runs at higher rates, the West African market for gasoline and diesel imports will shrink extremely quickly,” FGE’s Hodgson said.
It would be recalled that the Minister of Finance and Coordinating Minister of the Economy, Mr Wale Edun, in a statement at the weekend disclosed that in line with the Federal Executive Council (FEC) directive, the sale of crude oil and refined petroleum products in naira officially kicked off on October 1, 2024.
The minister said: “Following a meeting of the Implementation Committee, Chaired by the Minister of Finance and Coordinating Minister of the Economy to conduct a post-commencement review of the Crude Oil and Refined Products Sales in Naira initiative, the commencement of this strategic initiative was affirmed by key stakeholders”.
Edun expressed optimism that the initiative would positively impact on the nation’s economy, fostering growth, stability, and self-sufficiency, especially as the country continues to navigate the complexities of global markets.
