A recent report suggests that the Nigerian government might reduce its crude oil supply to Dangote Petroleum Refinery, cutting it down from the current allocation of 300,000 barrels per day.
This adjustment is expected to be part of the government’s naira-for-crude initiative, following the revival of the Warri and Port Harcourt refineries.
Currently, the combined capacity of these two refineries is around 135,000 barrels per day. This capacity, coupled with the ongoing revitalization of other local refineries, could impact the crude oil supply to Dangote Refinery unless there is a notable increase in Nigeria’s oil production.
The refineries, operated by the Nigerian National Petroleum Corporation Limited (NNPCL), began operations recently after being dormant for several years due to government neglect. Sources indicate that the planned reduction of crude to Dangote Refinery is aimed at ensuring a balanced and adequate supply to all the country’s refineries.
An insider told Punch, “It is clear that crude allocation to Dangote refinery and other local refineries will be reduced because all our refineries are coming back online. The old Port Harcourt refinery is operational, the new Port Harcourt is nearly finished, and Warri just resumed operations last week.”
Smaller refineries with less capacity are also set to receive crude allocations. Reports show that the Lekki-based Dangote Refinery, which is valued at $20 billion, was previously allocated 300,000 barrels per day out of the 450,000 barrels approved by the government.
The reduction of crude supply to Dangote Refinery is contingent on the nation’s oil output. “The only way to avoid this reduction is for oil production to increase,” the source emphasized. Additional refineries, such as the BUA refinery, are also set to begin operations soon, further contributing to the demand for crude oil.
The government had previously redirected 445,000 barrels per day of crude, initially allocated to the Warri, Kaduna, and Port Harcourt refineries during their shutdown, to Dangote Refinery. However, with the resumption of production at these plants, the crude share will likely be reallocated among all local refineries, including the new and upgraded facilities.
In addition to these changes, the government has announced a halt to selling crude on credit to local refineries. Refineries will now be required to pay upfront for crude supplies, a move aimed at improving revenue collection. Although local refiners are dissatisfied with this policy, the government believes it is essential for fiscal sustainability.
Given these developments, Dangote Refinery may have to rely on crude imports, which are subject to the fluctuations of international market prices. This potential shift in supply dynamics highlights the complex balance between local refinery operations and the broader oil production strategy in Nigeria.