By Obinna Uballa
The Dangote Petroleum Refinery has expressed frustration over the need to purchase Nigerian crude oil from the international market at a significant premium despite an existing supply arrangement with the Nigerian government under the crude-for-naira programme.
The Chief Executive Officer of the refinery, David Bird, disclosed this during an interview on Arise TV’s Morning Show monitored by The New Diplomat on Wednesday, saying the refinery is currently receiving far less crude than agreed under the arrangement with the Nigerian National Petroleum Company Limited (NNPCL).
Bird said the refinery was meant to receive between 13 and 15 crude cargoes monthly under the agreement but is currently getting only about five cargoes, a shortfall that is forcing the refinery to source additional crude from international traders.
“We have been very vocal that there’s an existing arrangement in place under the crude-for-naira programme, commonly misunderstood as a pricing regime. It is not,” Bird said.
According to him, the programme does not provide crude oil at discounted rates but merely allows transactions in naira instead of foreign exchange.
“It is priced at full international benchmark for crude oil pricing, however, without the foreign exchange implications. That has been very successful in stabilising the foreign exchange back in Nigeria and the relationship between NNPC and Dangote. We should be proud of that,” he said.
Crude supply shortfall
Bird explained that the refinery’s concern is not about pricing but about volume and quality of crude allocation, which he said have not met the terms of the agreement.
“Our demand of the government is that there be transparency in allocation. Under the agreement, we should be getting about 13 to 15 cargos a month, and that’s what we could process to meet the domestic fuel requirement of Nigeria. Currently, we’re only getting five,” he said.
He stressed that the current situation should not be interpreted as underperformance by the refinery.
“So that’s not an underperformance against that pre-agreed volume contract,” Bird added.
Dispute over crude grades
Beyond the supply gap, the refinery CEO said the company has also struggled to obtain the preferred Nigerian crude grades suitable for its refining configuration.
Nigeria produces multiple crude grades from different export terminals, but Bird noted that the refinery’s processing units were designed around a specific crude slate.
“Nigeria has a wide variety of crude grades that are exported from different terminals, and we have a preference. Our hardware is designed around certain crude slate. So we submit our preference,” he said.
However, he said those preferred grades are often not allocated to the refinery even when available.
“Not only do we not get the full allocation, very often we don’t get the grades that we’re highlighting as our preference,” Bird said.
He added that the refinery’s management is asking for greater transparency in the crude allocation methodology, especially since about 30 per cent of Nigeria’s crude production is now designated under the crude-for-naira programme.
Buying Nigerian crude abroad at a premium
Bird revealed that the refinery has had to buy the same Nigerian crude grades it requested locally from international traders at significantly higher prices.
“If we go back to the international market, we find the same grade that we preference for that were denied to us now being sold in the international market,” he said.
According to him, global demand for crude has intensified competition, pushing up prices.
“We do purchase those and right now there’s obviously the global thirst for crude no matter where it comes from, and that has a significant premium being attached to Nigerian crude grades,” he said.
Bird disclosed that the refinery is paying as much as $18 per barrel premium for these Nigerian crude grades on the global market.
“We’re paying $18 per barrel premium for those same Nigerian crude grades,” he said.
No subsidy under crude-for-naira
Bird also addressed what he described as a common misconception that the crude-for-naira programme amounts to a subsidy for the refinery.
“There’s a misunderstanding of the crude-for-naira programme to mean some kind of subsidy. It is not,” he said.
According to him, the refinery still pays full international benchmark prices for crude oil and bears additional costs associated with transporting and insuring the cargo.
“We purchase the crude, we transport the crude and we insure that crude as if we’re in the international benchmark, and every one of that cost is impacted by this crisis,” he said, referring to global supply disruptions affecting freight rates.
He warned that the current system results in unnecessary financial losses for Nigeria.
“It is disappointing that it is coming back to us in the open market, and that value between the purchase price and the premium that we’re now seeing is money that Nigeria is leaking to the international trading community. And that’s unnecessary,” Bird said.
Refinery sourcing crude globally
Despite the supply challenges, Bird said the refinery has leveraged its flexible processing design to source crude from other parts of the world.
He explained that, in addition to Nigerian crude supplied under the programme, the refinery typically imports 30 to 40 per cent of its feedstock from international markets.
“With the strength of the Dangote Refinery and with all of the input infrastructure, all of that crude and feedstock that is seaborne, that means we’re also bringing international crude,” he said.
He noted that the ability to process various crude grades was part of the original vision behind the refinery project.
“That is testimony to the investment and the foresight that Alhaji Aliko Dangote had. He built an asset that is very versatile, very flexible and able to process a wide variety of crude,” Bird said.
Flexible refining capacity
The refinery CEO said the facility’s adaptability has enabled it to continue operating despite supply constraints.
“This month in time, we’re showcasing the benefits of that flexibility such that we don’t have to rely on a single supply source,” he said.
Bird contrasted the refinery with some global facilities that are designed to process only specific crude types.
“The same can’t be said of some refineries that process only the Middle Eastern grades. So we should be very proud here in Nigeria that we have Dangote Refinery that has the flexibility to process a wide variety of its feedstocks,” he added.
The Dangote Refinery, located in the Lekki Free Zone in Lagos, is Africa’s largest refinery with a capacity of 650,000 barrels per day and is expected to play a key role in reducing Nigeria’s dependence on imported refined petroleum products.
