NNPC’s Crude Oil Supply Deal: Economic Boost or Political Crisis? – Dr. Kenny Odugbemi

 The Nigerian National Petroleum Company (NNPC) Limited’s crude oil supply deal, designed to strengthen local refining, has become the center of a heated political and economic debate. The agreement, which includes the supply of crude oil to Dangote Refinery and other domestic refineries, has faced significant inconsistencies, raising concerns about its execution and long-term impact on Nigeria’s energy sector.

A Bold Move for Local Refining

In a bid to reduce Nigeria’s reliance on imported petroleum products, NNPC entered into a supply agreement that aimed to boost local refining capacity. Under this deal, Dangote Refinery, which commenced operations in 2023, was set to receive a daily allocation of 385,000 barrels of crude oil. Since October 2024, NNPC has supplied the refinery with approximately 48 million barrels, contributing to a total of over 84 million barrels since operations began.

This initiative was expected to strengthen Nigeria’s economy by stabilizing the naira, easing pressure on foreign exchange reserves, and generating employment in the oil and gas sector. By prioritizing local refining, the government sought to reduce dependency on imported fuel, lower costs, and create a more self-sufficient energy industry.

Supply Challenges and Economic Implications

Despite the ambitious plans, NNPC has struggled to meet its supply commitments due to its obligation to service oil-backed loans. The initial agreement allowed local refineries to purchase crude oil in naira, reducing reliance on dollar transactions. However, with NNPC’s failure to consistently honor this agreement, local refiners now face the burden of sourcing crude from international markets, which requires payments in dollars—a situation that further strains Nigeria’s foreign exchange market.

This sudden shift has disrupted operations at local refineries, making it difficult for them to remain competitive. Many stakeholders have criticized the NNPC’s handling of the deal, with marketers and industry experts calling for greater transparency in the allocation process. The Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMPRDC) has also been accused of regulatory inconsistencies, exacerbating tensions within the sector.

Dangote Refinery’s Price War and Market Shifts

One of the most significant developments stemming from this deal is Dangote Refinery’s aggressive pricing strategy. By reducing the cost of refined petroleum products, Dangote has initiated a price war, forcing other refineries to lower their prices in an attempt to remain competitive. While consumers have welcomed this development, industry players argue that Dangote’s pricing model could be unsustainable in the long run, potentially destabilizing the sector.

Meanwhile, despite the rise in local refining capacity, Nigeria still imports approximately 90% of its refined petroleum products. This highlights the ongoing challenges within the industry, particularly the need for more robust infrastructure and regulatory stability.

The Path Forward: Resolving the Crisis

The controversies surrounding NNPC’s crude oil supply deal underscore the urgent need for a reassessment of Nigeria’s energy policies. To prevent further disruptions and ensure sustainable growth in the refining sector, the government must take immediate steps to address the underlying issues:

• Renegotiating the Supply Deal: A more transparent and enforceable agreement should be established to guarantee a consistent supply of crude oil to local refineries.
• Regulatory Reforms: The NNPC and NMPRDC must provide clear guidelines and improve oversight to prevent supply inconsistencies and market distortions.
• Strengthening Local Refining Capacity: The government should introduce incentives that support domestic refining, ensuring that Nigeria can meet its energy demands without excessive reliance on imports.

As the debate continues, it remains to be seen whether the NNPC’s crude oil supply strategy will ultimately be remembered as a turning point for Nigeria’s energy independence or a policy misstep that deepened the nation’s economic challenges.