Dangote Refinery could get cheaper crude under Nigeria supply reforms

Nigeria is evaluating overhaul measures for its crude allocation and pricing mechanisms to strengthen feedstock accessibility for domestic refiners, including the Dangote Refinery, according to details disclosed by the local oil refiners’ association.

The proposed changes address a problem that domestic refiners have raised for years: the cost of buying Nigerian crude. Dangote Refinery has said the current pricing structure can add $3 to $4 a barrel to its crude costs because purchases are often handled through the trading arms of international oil companies and domestic producers rather than through direct commercial arrangements. The issue, according to people familiar with the market, is less about whether crude is available and more about the price and terms at which refiners can buy it. 

Direct crude supply could cut costs

Two proposals are being considered to address the problem. The first would allow an upstream producer linked to an international oil company’s regional operations to supply crude directly to a nearby refinery. The volumes would then be reconciled at the crude export terminal. Such an arrangement could reduce reliance on long-distance pipelines and other infrastructure while bringing crude supplies closer to the refineries that need them.

The second proposal would give refiners a discount when they take crude directly from offshore or onshore production sites. The adjustment would reflect freight and handling costs that are typically included in Brent-linked pricing but may not apply when crude is delivered directly to a refinery. Refiners argue that removing those costs from the price would better reflect the actual expense of supplying crude and could benefit both producers and processors.

Crude compliance rises, pricing stays key

The proposals come as compliance with Nigeria’s domestic crude supply rules has improved sharply. Data released Monday by the Nigerian Upstream Petroleum Regulatory Commission showed that producer compliance rose to more than 90 percent from less than 43 percent in the previous quarter.

The commission has clarified that the figure refers to physical deliveries against volumes allocated to domestic refiners, rather than the share of total refinery demand being met with local crude. Under the existing framework, oil producers are required to make their allocated volumes available to domestic refineries, while the buyer and seller negotiate the final commercial terms.

For refiners, the distinction is important. Higher compliance can increase the amount of crude offered to local processors, but the price at which that crude changes hands remains a separate issue. The proposed changes are therefore focused not only on getting more Nigerian crude to domestic refineries but also on making the cost of that crude more competitive.