Nigeria considers crude pricing changes to boost refinery operations

Nigeria is considering changes to crude allocation and pricing rules to make domestic crude cheaper and more accessible to local refineries, including the 650,000-barrel-per-day Dangote Refinery. Proposals include allowing producers to deliver crude directly to nearby refineries and offering discounts on transportation costs. Producer compliance with domestic supply obligations has risen above 90%, but pricing and crude quality remain key challenges.

Nigeria is considering changes to its crude oil allocation and pricing rules in an effort to improve access to domestic feedstock for local refineries, including the 650,000-barrel-per-day Dangote Refinery.
The proposed changes are expected to be discussed this week as regulators review the country's domestic crude supply framework, which requires oil producers to supply Nigerian refineries before exporting crude.
The move comes as refiners continue to face challenges securing crude locally despite improvements in producer compliance with domestic supply obligations.

PRICING REMAINS A MAJOR CHALLENGE

The Crude Oil Refinery-owners Association of Nigeria (CORAN) said pricing, rather than the physical availability of crude, remains one of the main obstacles facing domestic refiners.
Dangote Refinery has previously said Nigeria's current pricing structure adds about $3 to $4 per barrel to its crude costs because purchases are often routed through trading companies linked to oil producers.
The additional costs can reduce refinery margins and make it more difficult for local plants to compete with imported petroleum products.

DIRECT CRUDE SUPPLY PROPOSED

One proposal under consideration would allow oil producers linked to international oil companies to deliver crude directly to nearby refineries.
The volumes could then be reconciled at the relevant terminal.
According to CORAN spokesperson Eche Idoko, the arrangement could reduce reliance on long-distance transportation and allow refiners to receive crude closer to their facilities.
This could lower logistics costs and make domestic crude transactions more efficient.

REFINERS COULD RECEIVE PRICING DISCOUNTS

A second proposal would allow refiners that collect crude directly from production facilities to receive discounts reflecting transportation and handling costs included in Brent-linked pricing.
The argument is that refiners should not have to pay for freight and handling costs they do not actually incur when collecting crude directly from producers.
Idoko described the proposal as potentially beneficial to both producers and refiners.

DANGOTE REFINERY AT THE CENTRE OF THE DISCUSSION

The proposed changes could have a significant impact on Dangote Refinery, Africa's largest refinery.
The facility has a production capacity of 650,000 barrels per day, but its operations have at times been constrained by difficulties securing sufficient domestic crude.
Improving access to competitively priced Nigerian crude could allow the refinery to operate more consistently and increase domestic fuel production.
A stronger domestic supply chain could also reduce Nigeria's dependence on imported refined petroleum products.

PRODUCER COMPLIANCE IMPROVES

Data released by the Nigerian Upstream Regulatory Commission (NUPRC) showed that producer compliance with the domestic crude supply framework increased to more than 90%, compared with less than 43% in the previous quarter.
However, the figure measures actual crude deliveries against volumes allocated by the regulator. It does not necessarily indicate that local refineries received all the crude they required.
Under the current framework, producers are required to offer allocated crude volumes to domestic refineries, with transactions based on a "willing-buyer, willing-seller" arrangement.

CRUDE QUALITY ALSO MATTERS

While pricing is a major concern, regulators say other technical issues must also be resolved.
A NUPRC official said the proposals are being considered partly in response to requests from inland refiners.
However, implementation would require addressing differences in crude quality and making appropriate pricing adjustments.
Not all Nigerian refineries are designed to process the same types of crude, meaning the quality and characteristics of available feedstock can affect refinery performance and operating costs.

POTENTIAL IMPACT ON NIGERIA'S ENERGY MARKET

If successfully implemented, the proposed changes could improve the relationship between crude producers and domestic refiners.
More predictable access to competitively priced crude could support refinery utilisation, strengthen local fuel production and reduce pressure on Nigeria's import bill.
For oil producers, a more efficient domestic market could also provide a reliable local outlet for crude while reducing disputes over pricing and delivery.
The broader objective is to ensure that Nigeria's crude resources support more domestic refining and value creation rather than being exported primarily as raw crude.

THE ROAD AHEAD FOR NIGERIA’S REFINING SECTOR

The proposals are expected to form part of the regulator-led review of Nigeria's domestic crude supply obligation this week.
The outcome could determine whether producers are allowed greater flexibility in delivering crude directly to refineries and whether pricing discounts are introduced for refiners that avoid certain transportation costs.
For Nigeria's refining sector, the changes could mark an important step towards resolving one of its biggest challenges: ensuring that domestic refineries have reliable access to affordable crude.