The Federal Government-backed plan to supply crude oil to Nigerian refiners in exchange for naira payments has hit a major roadblock. The Nigerian National Petroleum Company Limited (NNPC) is struggling to meet its obligations under the “naira-for-crude” arrangement, as it prioritises servicing oil-backed loans.
This setback means refineries like the massive Dangote Refinery must now turn to international suppliers, paying in dollars, which significantly raises their costs.
Why the Deal is Stalling
Multiple industry sources revealed that NNPC has already committed much of its crude oil production to repay loans. These loans, secured with future crude deliveries, are now taking priority over local refinery supply.
“There’s just not enough crude to go around,” said an industry insider.
Another source confirmed that NNPC has informed Dangote Refinery and other local players that it can no longer guarantee crude supply because its crude output is already tied up in forward contracts until 2030.
At a time when Nigerians are hoping for cheaper fuel, the government’s decision to halt the naira-for-crude initiative could lead to higher prices instead.
NNPC Responds
NNPC, however, insists that the deal was only meant to last six months and will officially end in March 2025.
“The contract was structured as a short-term agreement and was always subject to availability,” said Olufemi Soneye, NNPC’s chief corporate communications officer.
He added that discussions are underway for a new arrangement and that NNPC has already supplied Dangote Refinery with over 84 million barrels of crude since it began operations.
Nigeria’s Oil Loans Take Centre Stage
Experts say NNPC’s financial commitments are the real issue.
A recent report revealed that NNPC has pledged 272,500 barrels per day of crude oil to repay loans worth $8.86 billion. This means over 8 million barrels of crude per month are already allocated to various debt settlements.
Among the key projects funded by these oil-backed loans are Project Panther, Project Bison, and Project Gazelle. So far, NNPC has repaid $2.61 billion, but a massive $6.25 billion is still outstanding.
Dangote Refinery Feeling the Pressure
The 650,000-barrel-per-day Dangote Refinery, expected to transform Nigeria’s energy landscape, is facing serious supply shortages.
While it needs at least 650,000 barrels daily, NNPC had initially agreed to supply 385,000 barrels per day. However, current deliveries are falling far short.
For February 2025, Dangote Refinery was allocated only 61,290 barrels per day. In March, this allocation dropped further to 4.75 million barrels for the whole month, with only 1.9 million barrels available for purchase in naira—the rest must be bought in US dollars.
Dangote Group’s Vice President, Edwin Devakumar, described NNPC’s crude supply as “peanuts,” highlighting the refinery’s struggle to get enough crude to operate at full capacity.
What’s Next?
With local refineries facing uncertainty, Nigeria’s energy sector is at a crossroads. If NNPC cannot find a way to balance debt repayments with domestic crude supply, refiners like Dangote may have to rely more on expensive foreign oil.
For Nigerians, this could mean continued high fuel prices, as the dream of lower costs through local refining remains just that—a dream.