Dangote Refinery pays $18 premium for Nigerian crude as supply shortfalls bite

Dangote Refinery, Africa’s largest oil refinery, has been forced to purchase Nigerian crude on international markets at a premium of more than $18 per barrel, after chronic shortfalls in domestic crude allocations left the facility operating well below its contracted supply levels.

David Bird, chief executive of the Dangote Petroleum Refinery, told ARISE News that the 650,000-barrel-per-day facility, large enough to meet Nigeria’s entire domestic fuel demand and supply surplus volumes to regional markets, is currently receiving only five crude cargoes per month under a government-backed supply arrangement, against a pre-agreed volume of 13 to 15.

“That’s an underperformance against that pre-agreed volume contract,” Bird said. “We’re now paying over $18 per barrel premium for those same Nigerian crude grades. That value is money that Nigeria is leaking to the international trading community.”

The shortfall represents one of the starkest illustrations yet of the structural tensions surrounding Nigeria’s Crude-for-Naira programme, a mechanism introduced to stabilise the naira by allowing domestic refiners to pay for locally produced oil in local currency rather than dollars.

Bird was careful to stress the programme is neither a subsidy nor a discount, crude is priced at full international benchmark levels, but said its impact has been significantly blunted by inconsistent delivery.

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Roughly 30 to 35 percent of the refinery’s crude requirements are currently met through the Crude-for-Naira arrangement, with an additional 30 to 40 percent sourced from international markets, Bird said, describing the facility as a merchant refinery with the flexibility to procure globally.

That flexibility, however, comes at a cost that ultimately filters through to Nigerian consumers already grappling with elevated fuel prices.

Bird said the refinery submits detailed grade preferences aligned to its hardware configuration, but routinely fails to receive them.

“Our hardware is designed around a certain crude slate,” he said. “Not only do we not get the full allocation, very often we don’t get the grades that we are highlighting as our preferences.”

The comments amount to a pointed call for greater transparency and accountability in Nigeria’s crude allocation system, which has long been criticised for opacity and inefficiency.

Nigeria, Africa’s largest oil producer, has struggled for years with crude theft, pipeline vandalism and production underperformance relative to OPEC quotas, problems that have periodically squeezed domestic supply.

Regarding fuel pricing, Bird acknowledged that the refinery can do little to fully insulate consumers from global market forces.

All major cost inputs, crude, freight and insurance, are exposed to geopolitical volatility, he said, referencing current tensions affecting global energy supply chains. Any resolution to ongoing conflicts, he cautioned, would still leave supply chain disruptions persisting for months.

“This is a cost-of-living crisis,” Bird said. “Every facet of the modern economy is impacted by energy.”

Looking ahead, Bird urged Nigerian authorities to adopt a comprehensive view of the operating environment, addressing not only crude pricing but the broader cost of doing business in the country.

He also advocated for building strategic petroleum reserves, warning that the COVID-19 pandemic had exposed dangerous vulnerabilities in global supply chains that governments and industry had yet to fully reckon with.

On a more bullish note, Bird confirmed the refinery is advancing plans for a public listing, which he described as a broad-based opportunity for ordinary Nigerians.

“This is the people’s IPO,” he said. “We want it to be one of the most widely subscribed IPOs in the world.”

For now, however, the refinery’s more immediate challenge remains securing the crude it needs at prices that do not hand a windfall to international traders, a problem Bird suggested is as much a policy failure as a market one.

“Our job is to be cost-effective, disciplined and resilient through the cycle,” he said. “What goes up always comes down.”