Fiona Nanna, ForeMedia News

5 minutes read. Updated 7:01PM GMT Mon, 22July, 2024

Nigeria’s Dangote Refinery is grappling with significant challenges in securing crude oil, a situation it attributes to the Nigeria National Oil Company (NNPC) Ltd’s forward crude oil sales. This predicament has hindered the refinery’s ability to meet its refining targets.

Olakunle Alake, Vice President of Dangote Industries Ltd, highlighted that the forward sales conducted by the state-owned oil company have complicated the procurement of crude oil. “If there is crude, we will get enough, but if you’ve already sold a substantial part of your production forward, there will be an issue with supplying current needs because you’ve already obtained money against your future production,” Alake explained during a recent meeting with members of the House of Representatives and journalists.

Alake emphasized the uncertainty surrounding the extent of these forward sales arrangements but acknowledged the resultant difficulties in securing sufficient crude for current operations. “We currently have some arrangement with NNPC which is on a case-by-case basis. This means that for every month we seek to purchase crude, NNPC is only expected to give us what they think they have available,” Alake stated. “There is no contractual obligation that mandates NNPC to provide Dangote refinery with all the crude we require every month; they are only expected to give us what they think they have available.”

The issue has been exacerbated by the NNPC’s recent financial maneuvers. On August 16, 2023, the NNPC secured a $3.3 billion emergency crude repayment loan aimed at supporting the naira and stabilizing the foreign exchange market. To facilitate the repayment, the NNPC announced a forward sale of 90,000 barrels per day of Nigeria’s share of offshore crude oil under the production sharing contract (PSCs) with oil companies.

The situation has drawn significant attention due to its potential impact on Nigeria’s refining capacity and overall energy market stability. The Dangote Refinery, a critical infrastructure project intended to bolster Nigeria’s self-sufficiency in refined petroleum products, faces operational uncertainties amid these financial and logistical challenges.

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Learn more: Dangote Refinery: Nigeria’s Hope for Refining Capacity