Understanding Nigeria’s Crude Oil Dilemma
It seems Nigeria may soon witness another increase in petrol prices, and the reason might surprise you. Recently, the Nigerian National Petroleum Company (NNPC) Limited has reportedly halted a significant arrangement: the naira-for-crude deal with local refineries. It’s a complex issue that might ripple through various sectors of everyday life.
Inside sources suggest that NNPC has ceased this crucial deal, which now forces local refineries, including the massive Dangote Refinery, to procure crude oil using dollars. This sudden shift could result in a dramatic increase in production costs, subsequently exerting additional pressure on the nation’s currency, the naira. The result? A likely surge in the prices at petrol stations across the country. But why has the NNPC chosen to make such a move?
An insightful report from TheCable suggests that NNPC declared to its refineries that all its crude oil has been forward-sold, which implies that even though production levels have remarkably increased compared to six months ago when the deal kicked off, future batches of crude have already been committed elsewhere.
What does this mean?
The act of “forward-selling all its crude” essentially means that NNPC has entered into agreements to sell crude oil that is yet to be produced, potentially in exchange for immediate funds or to settle previously incurred debts. For instance, in August 2023, NNPC availed a $3.3 billion emergency loan from Afreximbank to aid in stabilizing Nigeria’s foreign exchange market. It functioned through a crude-for-cash setup, hence, Nigeria promised to repay the loan through future sales of crude oil.
An Unfolding Crude Supply Crisis
Though NNPC has remained officially silent, diverse sources told TheCable that this initiative, which began on October 1, 2024, will stay on hold until 2030. A scenario that’s undoubtedly set to evoke myriad reactions!
Consider the crude-for-naira agreement from its starting point, where Dangote Refinery was a promising recipient, receiving four cargoes of crude from the NNPC by October. Yet, just as the leaves of November began to rustle, whispers emerged of cracks within this seemingly straightforward deal.
By November 2024, the vice-president of Dangote Industries Limited (DIL), Edwin Devakumar, candidly expressed concerns. “We need 650,000 barrels per day, but the state oil firm NNPC Ltd promised a minimum of 385,000 barrels per day, a promise that’s currently unmet,” he stated.
In a shocking twist, a reliable insider mentioned that NNPC has directly informed Dangote Refinery and other local processors that exercising its previously established agreement will no longer be feasible. Apparently, the company’s crude is contracted forward until 2030.
Although the Dangote Refinery has yet to publicly speak out about NNPC’s latest resolution, a company official has hinted at a cautious approach to assess their current standing and determine subsequent actions accordingly.
While readers marvel at these unfolding events, one might wonder: how will Nigeria’s local economy adapt to this unforeseen challenge? Is this a strategic move designed to fortify Nigeria’s economic standing or a desperate attempt to patch deeper holes we might yet uncover? Only time will tell.
Edited By Ali Musa
Axadle Times International–Monitoring
