The Nigerian National Petroleum Company Limited (NNPC) is facing significant challenges in supplying crude oil to the Dangote Refinery. This crisis, as explained by the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), stems from decisions made during the administration of former President Muhammadu Buhari.
According to PENGASSAN, crude oil supplies were used as collateral for loans taken by Buhari’s government, complicating the situation for the new administration.
The Dangote Refinery, owned by Africa’s richest man, Aliko Dangote, is a major player in Nigeria’s quest for self-sufficiency in petroleum products. Launched in 2023, the refinery is expected to reduce Nigeria’s dependence on imported fuels. However, to operate effectively, the refinery needs a consistent supply of crude oil.
PENGASSAN President Festus Osifo shared insights during a recent interview on Channels TV. He pointed out that the challenges faced by the NNPC in supplying crude to the Dangote Refinery are linked to financial decisions made in the past. “The NNPC does not have enough crude to supply to the Dangote Refinery due to a loan taken by the previous government,” Osifo explained.
Osifo elaborated that the Buhari administration took loans from Afrexim Bank, using crude oil as collateral. This means that a portion of the crude available to the NNPC is tied up in these loan agreements. “What Dangote should have done is that you should have started discussing crude supply five years ago. You don’t start discussing crude supply six months into production,” he said.
This situation has created a supply gap that affects not only the Dangote Refinery but also the broader Nigerian economy. The government’s decision to tie up crude oil as collateral has had unintended consequences, limiting the NNPC’s ability to meet its commitments to the Dangote Refinery.
Osifo also discussed the complexities of crude supply agreements within the oil and gas industry. “In the oil and gas industry, it’s a highly regulated industry,” he stated. International oil companies (IOCs) are reportedly demanding premiums for immediate crude supply to the Dangote Refinery. This has further complicated negotiations and supply schedules.
“The issue of premium was what led to the initial conversation around the Dangote Refinery and the allegation that they were not supplying the refinery crude,” Osifo explained. The dynamics of these premiums, coupled with the constraints imposed by past loans, have left Dangote’s operations in a precarious position.
Another critical point raised by PENGASSAN concerns the pricing strategies of the NNPC and how they affect the broader fuel market. Osifo highlighted the disparity in prices at which NNPC buys and sells Premium Motor Spirit (PMS). He noted that NNPC might purchase PMS at approximately N950 but would sell it to independent marketers at around N700.
This pricing strategy leads independent marketers to prefer purchasing from the NNPC rather than directly from the Dangote Refinery. According to Osifo, major marketers who buy directly from Dangote would need to sell it at a higher price, potentially exceeding N1,000. “Independent marketers prefer to purchase from NNPC to take advantage of the lower prices,” he remarked.
The difficulties faced by the NNPC in supplying crude oil to the Dangote Refinery have broader implications for Nigeria’s economy. The country has long struggled with fuel shortages and rising costs. The Dangote Refinery was expected to alleviate these issues by providing a stable supply of refined products. However, without a reliable source of crude oil, the refinery’s potential remains limited.
Fuel shortages can lead to increased transportation costs, which in turn affect the prices of goods and services across the country. This situation underscores the urgent need for a comprehensive strategy to resolve the supply chain challenges facing both the NNPC and the Dangote Refinery.
As the situation unfolds, there are calls for the Nigerian government to address these issues head-on. Experts believe that a collaborative approach involving the NNPC, the Dangote Refinery, and international oil companies is essential to ensure a steady supply of crude oil and stabilize the fuel market.
