Naira-for-Crude Deal To Last Six Months As Dangote Refinery Receives 400,000 Barrels Of Oil Daily

Naira-for-Crude: A Six-Month Deal at Dangote Refinery

The Naira-for-crude deal, in which Nigeria’s National Petroleum Company Limited (NNPC) will supply crude oil to Dangote Refinery in exchange for naira payments, is set to last for six months, according to sources close to the Technical Sub-Committee on Domestic Sales of Crude Oil in Local Currency. The deal is part of an effort to reduce foreign currency dependence in local transactions for the oil sector.

An official from Dangote Refinery, who requested anonymity due to the sensitivity of the matter, confirmed, “The deal will last for six months initially, and we are expecting the first deliveries soon.”

The Federal Government’s decision to implement the Naira-for-crude exchange is an attempt to mitigate the pressure on the Nigerian naira and reduce transaction costs tied to converting naira to dollars. The Finance Ministry, in a statement last month, revealed that the Naira-for-crude initiative would officially start on October 1, 2024.

400,000 Barrels Daily Supply to Dangote

According to reports from Bloomberg, the government is expected to deliver 400,000 barrels of crude oil daily to Dangote Refinery over the next two months. This amounts to a total of 24 million barrels between October and November 2024. Dangote Refinery, with a capacity of 650,000 barrels per day, is expected to significantly reduce Nigeria’s crude exports and help meet domestic fuel demand.

Ronan Hodgson, an analyst at FGE, observed, “The shift of this volume to the Dangote Refinery will tighten the West African crude market, potentially sending Nigeria’s exports below one million barrels per day.”

Uncertainties in the Oil Market

On Monday, oil marketers expressed concern over rumors that the NNPC might cease to be the sole off-taker of petrol from Dangote Refinery. This uncertainty led some depot owners to temporarily halt the sale of petrol, anticipating a price hike. One major oil marketer noted, “There were no sales for hours in many depots as we awaited a price update from Dangote.”

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However, by late afternoon, sales resumed after no official statement was made by either NNPC or Dangote regarding any changes in their off-take agreement. Independent Petroleum Marketers Association of Nigeria (IPMAN) confirmed that they were waiting for formal communication from Dangote Refinery regarding the pricing and commencement of lifting petrol for independent marketers.

“We are yet to start lifting petrol from Dangote, but once we receive official notification, we’ll begin,” said Chinedu Ukadike, the IPMAN Publicity Secretary.

Naira-for-Crude Deal: A Temporary Arrangement

While many Nigerians have celebrated the Naira-for-crude deal, stakeholders clarified that the arrangement is temporary. A senior Dangote Refinery official remarked, “The deal will run for six months for now. This is significant as crude oil is priced in dollars, but this initiative allows for a naira exchange equivalent. However, it’s not indefinite, and we should expect it to be reviewed.”

Another source within the committee overseeing the deal emphasized the temporary nature of the agreement, stating, “This is a six-month arrangement. After that, we will review its impact and decide whether to continue.”

The deal is seen as a bold move by President Bola Tinubu’s administration to stabilize the naira while boosting domestic refining capacity.

Impact on Nigeria’s Oil Exports

With Dangote Refinery’s increasing reliance on locally sourced crude oil, Nigeria’s crude export market could see significant disruptions. The refinery’s large demand will consume a portion of Nigeria’s oil production that would have otherwise been exported.

Market experts have already flagged potential supply issues. “The volumes allocated to Dangote could drastically reduce Nigeria’s exports, impacting the Atlantic oil market,” Hodgson added.

According to Bloomberg, Nigeria typically exports 50 cargoes per month, but with the Naira-for-crude initiative in place, this figure could drop as more crude is diverted to local refining.

Depot Owners Resume Operations Amid Price Concerns

Amid the speculation, depot owners resumed operations late Monday after holding off sales, fearing a petrol price hike. One major oil marketer shared, “Most depots are now back to normal operations. We didn’t get any confirmation of price changes from Dangote or NNPC, so it seems the status quo remains.”

Depot owners have been closely monitoring market trends as the Naira-for-crude initiative takes effect, and many remain cautious about future fuel prices.

Ukadike also confirmed that NNPC had reopened its portal for independent marketers to purchase petrol after a brief closure. “NNPC’s portal is functional again, and our members have resumed processing and loading products,” he explained.

For now, petrol prices remain stable, with NNPC continuing to distribute fuel across the country.

The Naira-for-crude initiative is an ambitious six-month project aimed at stabilizing the naira and reducing reliance on dollar transactions in Nigeria’s oil industry. As Dangote Refinery begins receiving 400,000 barrels of crude daily, the potential impacts on Nigeria’s crude export market and local fuel prices will continue to be closely monitored by industry stakeholders.