Dangote Refinery Pauses Naira Sales: What Happens Next?

What Just Happened Between Dangote Refinery and NNPCL?

Let’s get straight to the point: The Dangote Petroleum Refinery, a $20 billion powerhouse located in Lekki, has paused selling petroleum products in naira. This move came after negotiations for the naira-for-crude deal with the Nigerian National Petroleum Company Limited (NNPCL) hit a snag. In simpler terms, the refinery can no longer afford to sell its products in naira because it needs U.S. dollars to buy crude oil. It’s like trying to pay for groceries in one currency while your credit card only accepts another.

Now, here’s the impact: Following the announcement on Wednesday, petrol prices at private depots in Lagos skyrocketed to ₦900 per litre, up from just under ₦850. Industry experts and oil marketers are warning that this could put even more strain on the foreign exchange market. Without the naira-for-crude deal, marketers will need to scramble for U.S. dollars to buy fuel, and that’s not a small thing in a country where dollars are already in short supply.

Why Did the Naira-for-Crude Talks Fail?

Industry insiders say the root of the problem lies in how NNPCL has been handling its crude oil sales. According to sources, NNPCL has been selling large chunks of crude oil that hasn’t even been produced yet to secure loans from international financial institutions. This leaves them without enough crude to supply the domestic market. Think of it like borrowing money by promising to pay back with something you don’t even own yet. It’s a risky move that can backfire, and in this case, it seems to have done just that.

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In a statement on Wednesday, the Dangote Group explained that the halt in naira sales is temporary. Here’s what they said: “Dear valued customers, we wish to inform you that the Dangote Petroleum Refinery has temporarily halted the sale of petroleum products in naira. This decision is necessary to avoid a mismatch between our sales proceeds and our crude oil purchase obligations, which are currently denominated in U.S. dollars. To date, our sales of petroleum products in naira have exceeded the value of naira-denominated crude we have received. As a result, we must temporarily adjust our sales currency to align with our crude procurement currency.”

The refinery also shot down rumors that the halt was due to ticketing fraud. “This is a malicious falsehood. Our systems are robust, and we have had no fraud issues. We remain committed to serving the Nigerian market efficiently and sustainably. As soon as we receive an allocation of naira-denominated crude cargoes from NNPC, we will promptly resume petroleum product sales in naira,” the statement clarified.

What Do the Experts Say?

A major marketer, who wished to remain anonymous, shared some insights. “Two key things to consider. First, Nigeria relies on crude oil sales for over 90 percent of its foreign exchange earnings. Second, we haven’t been able to consistently produce much more than 1.6 million barrels a day. A lot of that production has already been sold in advance to ease cash flow problems caused by NNPCL subsidizing gasoline prices. So, how sustainable is the naira-for-crude deal really?”

Another marketer added that this could signal the collapse of the deal between NNPCL and Dangote refinery. “In any negotiation, there’s give and take. If either side refuses to compromise, things can fall apart. It seems like that might be what’s happening here,” the dealer said.

What’s NNPCL’s Stance?

NNPCL spokesman Olufemi Soneye didn’t confirm or deny the halt of the naira-for-crude deal. However, sources revealed that discussions between Dangote refinery and the Technical Sub-Committee had collapsed due to insufficient crude supply. Soneye reiterated NNPCL’s commitment to supplying crude for local refining under mutually agreed terms. “As I’ve said before, NNPC remains committed to supplying crude for local refining based on mutually agreed terms and conditions. Additionally, the National Upstream Petroleum Regulatory Commission (NUPRC) has disclosed that all local refining companies collectively produce less than 50 percent of our national consumption. You do the math,” he said.

Last week, NNPC revealed it had initiated new talks with Dangote refinery to renew the naira-for-crude agreement, anticipating the expiration of the first phase that began in October 2024 and ends this month. Soneye mentioned that 48 million barrels of crude had been supplied to the Dangote refinery since October.

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What’s the Impact on the Market?

With Dangote refinery halting naira sales, marketers will now need to source U.S. dollars to buy petrol. This has raised concerns about a potential devaluation of the naira. Hammed Fashola, the National Vice President of the Independent Petroleum Marketers Association of Nigeria (IPMAN), noted, “The price of petrol will depend on the exchange rate, the crude price, and other factors that determine the landing cost. Recently, the landing cost was around N774.82. If that’s sustainable for now, Dangote’s suspension of naira sales may not affect prices immediately. But if marketers start chasing dollars to buy petrol from Dangote refinery, the naira could lose value again. Let’s wait and see how the market reacts to this move.”

Fashola also urged the Federal Government to reconsider the naira-for-crude deal. “I would advise the FG to revisit the agreement with Dangote to maintain the stability of petroleum product prices. The masses are happy with the drop in petrol prices. But just a few hours ago, private depot owners started reacting to the Dangote press release by raising prices. Yesterday, we closed with N825 to N826, but this afternoon, prices have started increasing again to N835 to N836 per litre. I appeal to the FG to keep supplying crude to Dangote and other local refiners to maintain stability in the sector,” he said.

What Are Others Saying?

Billy Gillis-Harry, the National President of the Petroleum Products Retail Outlet Owners Association of Nigeria (PETROAN), indicated that the suspension could lead to price hikes. He also confirmed that the Federal Government hasn’t made a final decision on halting the naira-for-crude deal. “There’s been no decision made as of now. So, I don’t know where that Dangote decision is coming from. But he’s a businessman, and every businessman is entitled to an opinion,” he said.

The naira-for-crude deal had allowed Dangote refinery to repeatedly lower petrol prices, forcing NNPC to follow suit even when it affected its margins. Some speculate that halting the deal might be an attempt to reduce the influence of the $20 billion refinery, which some accuse of trying to monopolize the sector.

What’s Next?

On Tuesday, Finance Minister Wale Edun met with Aliko Dangote, President of the Dangote Group, and reportedly expressed concerns about the challenges surrounding the naira-for-crude deal. Domestic refiners criticized the suspension, calling it a strategy to hinder Dangote refinery and encourage full petroleum product importation.

Eche Idoko, the National Publicity Secretary of the Crude Oil Refinery-owners Association of Nigeria (CORAN), stated, “What the Federal Government did during the negotiations was that it shut CORAN out, and we’re not privy to what transpired. We also don’t know the terms and conditions. It’s now making it difficult for us to mediate in the conversation.” He continued, “At this rate, this means we’ll revert to full importation, and that means our naira will struggle again. That’s the implication, and higher petrol prices. We knew the naira-for-crude deal would help the Federal Government in the long run. But right now, a lot of people are blinded by the fact that Dangote is benefitting from it and not looking at the overall advantages for Nigerians.”

IPMAN National Public Relations Officer, Chinedu Ukadike, warned that the suspension would likely push pump prices higher due to the cost of sourcing foreign exchange. “Dangote has been under serious pressure to source dollars to buy crude. And this means marketers would have to buy in dollars. Whatever happens in the oil and gas sector must trickle down to the final consumer. So, get your dollars ready to buy petrol. We can’t escape price increases,” he said.

Amid the uncertainty, private depot owners have raised their petrol loading costs. Several depots, including Bovas, Aipec, Menj, and Integrated, have halted petrol sales. Olatide Jeremiah, CEO of petroleumprice.ng, expressed concern that loading costs could hit ₦1,000 per litre if a resolution isn’t reached soon. “The sharp petrol price increase and stop in sales by private depots upon hearing that Dangote refinery has suspended sales of petroleum products reaffirms Dangote as the market leader and driver of the downstream sector. I’m calling on NNPCL and NUPRC, as a matter of urgency, to act on section 109 of the PIA act that clearly states local refineries should be given unhindered access to crude,” he said.