FG to Supply 400,000 Barrels of Crude Daily to Dangote Refinery Under Naira-for-Crude Deal

The Federal Government is preparing to supply up to 400,000 barrels of Nigerian crude oil daily to the Dangote refinery under a naira-for-crude agreement, according to a report by Bloomberg on Monday.

The report stated that this significant development is expected to occur within the next two months, amounting to 24 million barrels of Nigerian crude oil being delivered between October and November 2024.

This expansion in processing capacity could have a profound impact on both the refinery’s operations and the local oil sector, potentially reshaping the region’s import and export markets.

Ronan Hodgson, an analyst at FGE based in London, remarked that the West African crude market is expected to become “substantially tighter” in the fourth quarter due to the supply being channelled to Dangote.

He also noted that this volume could reduce Nigeria’s exports to below 1 million barrels per day.

Some shipments scheduled for the next two months may experience delays, with October’s schedule already including two cargoes carried over from September.

Nevertheless, the planned volume is considerably higher than the average 255,000 barrels per day of Nigerian oil that Dangote processed in the first half of the year as it gradually increased capacity, according to data gathered by Bloomberg.

The Dangote refinery is currently operating at 60-70% capacity, and it is expected to reach full capacity in the coming months, as stated last month by Vartika Shukla, Chairman of the project management firm Engineers India Ltd.

Additionally, the latest allocations suggest that Dangote has continued to reduce its purchases of US crude oil, according to traders.

Earlier this year, the refinery imported millions of barrels of WTI Midland crude, but later resold some of the oil and abandoned further buying plans.

This development follows the Federal Government’s announcement that the naira-for-crude agreement has officially begun.

The Nigerian National Petroleum Company (NNPC) reached a deal with Dangote last month, whereby the state-owned energy firm will supply crude oil in exchange for being the exclusive distributor of the refinery’s critical gasoline production.

If Dangote’s production increase continues as expected, Nigeria may begin to achieve its long-standing aim of reducing expensive oil product imports.

“If the refinery operates at higher rates, the West African market for gasoline and diesel imports will shrink very rapidly,” Hodgson from FGE added.