A new report reveals Dangote and other local refiners face challenges securing sufficient crude oil supplies, impacting Nigeria’s refining capacity.
Edwin Devakumar, the Vice-President of Dangote Industries Limited, mentioned that both their refinery and other domestic refiners have struggled to acquire sufficient crude oil supplies. This challenge persists despite the federal government’s plans to sell crude priced in local currency.
To tackle the issues related to obtaining foreign currency, the Federal Government announced in July that it would begin selling crude oil priced in naira to domestic refineries for an initial period of six months starting October.
On October 1, Nigeria began officially selling crude oil to refineries in naira, prompting the Dangote refinery to concentrate on local supply.
Recently, the refinery acquired four shipments of crude oil from the NNPC through a naira-for-crude sale agreement; however, it continues to seek additional supplies from the US.
“We require 650,000 barrels per day. The state oil firm NNPC Ltd agreed to supply at least 385,000 bpd but is falling short of even that,” said Edwin Devakumar, head of the Dangote refinery, in a statement to Reuters on Friday.
The Dangote Refinery in Lagos plans to rival European refineries once it reaches full operational capacity. However, it has faced challenges in obtaining enough crude supplies to function at an optimal level.
Although Devakumar did not provide exact numbers, he referred to the deliveries from NNPC under the scheme as “insignificant.”
According to Mathins Obaze, the acting executive director of the Crude Oil Refinery-owners Association of Nigeria (CORAN), a trade organization for refiners, Dangote remains the sole beneficiary among Nigeria’s eight operational refineries under the naira-denominated crude sale arrangement.
“Members are still unable to access crude using naira and are currently in discussions with the government for a resolution,” Obaze stated.
The cause of the shortfall was not immediately apparent, and NNPCL did not reply to a request for comment.
In August, the Dangote refinery called on the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) to implement a regulation requiring oil producers to supply local refineries.
The NUPRC did not provide a response to inquiries regarding the situation.
READ ALSO: Dangote Resumes US Crude Oil Imports After Three-Month Hiatus
In a statement released in August, Dangote Refinery alleged that the NUPRC did not adequately enforce the Domestic Crude Supply Obligation (DCSO), which mandates crude oil producers to provide domestic refiners with part of their production.
“Our concern has consistently been that while the NUPRC is making efforts, the international oil companies are not adhering to their directives,” stated Anthony Chiejina, a spokesperson for Dangote Refinery.
“As a result, we frequently buy the same Nigerian crude from international traders at an extra cost of $3-$4 per barrel, amounting to an additional $3-$4 million for each cargo,” he stated.
In response to the allegation, the NUPRC stated that certain producers were facing operational difficulties and others had committed a significant portion of their production to oil traders who funded drilling activities. Additionally, they mentioned that compelling these producers to increase their supply would breach existing contracts.
Dangote, currently operating at a capacity of 425,000 barrels per day and aiming to achieve 85% operational efficiency by the end of the year, has sought out international markets for supplies.
According to the report, which cites trade sources and shipping data, NNPCL acquired two million barrels of U.S. WTI Midland crude on Wednesday—marking its first purchase of American crude since August.
At the same time, NNPCL is exploring new markets for its crude oil. On Wednesday, the company was in London looking to establish long-term customers for its recently introduced Utapate crude oil grade.
