The Nigerian National Petroleum Company Limited (NNPCL) recently suspended crude oil supplies to the Dangote Refinery and other local refineries, a move that has significantly affected the Organisation of the Petroleum Exporting Countries (OPEC) production levels in March, according to a new report.
A survey conducted by Reuters revealed that OPEC’s total oil output dropped by 110,000 barrels per day (bpd) in March compared to February. The largest declines were recorded in Nigeria, Iran, and Venezuela, with each country reducing output by 50,000 bpd. Specifically, Nigeria’s reduction was attributed to lower deliveries to domestic refineries, including the Dangote Refinery, despite the country maintaining production slightly above its OPEC quota.
The suspension of crude supplies has sparked concerns about Nigeria’s energy sector and its ability to meet both domestic and international demands. According to reports the NNPCL delayed the delivery of seven crude oil cargoes allocated to the Dangote Refinery last month, amounting to approximately 245,000 bpd or about 7.2 million barrels over 30 days. This delay stemmed from disagreements between the NNPC and Dangote over payment terms, according to a report by S&P Global.
Payment Disputes and the End of the Naira-for-Crude Deal
The tension between the NNPCL and Dangote Refinery escalated following the apparent termination of a six-month “naira-for-crude” deal, which was introduced in October 2024 to help stabilise Nigeria’s fuel prices by allowing the refinery to pay for crude in local currency. However, the deal fell short of expectations. S&P Global noted that by March 10, the NNPC delivered only about 280,000 bpd of crude to Dangote in naira, far below the agreed target of 385,000 bpd.
As the deal expired on April 8, 2025, there are growing fears that the Nigerian government may not renew it. This uncertainty has already led to a spike in fuel prices after Dangote Refinery announced it would suspend naira-based fuel sales. A senior executive at Dangote expressed doubts about the deal’s renewal, arguing that the requirement to sell oil products in naira exposed the refinery to financial risks. He explained that converting dollar-based benchmark prices into naira at the point of sale left the company vulnerable to exchange rate fluctuations and market instability.
Additionally, sources revealed that credit facilities previously extended to Dangote were withdrawn, and the refinery is now required to provide letters of credit before receiving future crude deliveries. When approached for comment, an NNPCL official declined to discuss the matter, stating that such transactions are not conducted publicly.
Broader Challenges for Nigeria’s Oil Sector
The NNPCL is facing multiple challenges beyond the Dangote dispute. Foreign exchange shortages, mounting debts, and operational issues such as pipeline sabotage and instability in Rivers State are clouding the company’s production outlook. These factors have compounded the difficulties of maintaining consistent oil output and meeting OPEC commitments.
Meanwhile, the global market for Nigerian crude has weakened. Reports indicate that Nigerian oil grades faced lukewarm demand in April due to competition from cheaper alternatives like US West Texas Intermediate (WTI), Caspian CPC Blend, and Mediterranean grades. Market participants told Argus Media that as many as 15 April-loading Nigerian cargoes are still seeking buyers, signaling oversupply and reduced interest from international buyers.
On the international front, crude oil prices continued to slide, with Brent crude falling to $63.23 per barrel and WTI to $59.82 on Tuesday. Experts warn that this downward trend could negatively impact Nigeria’s 2025 budget, which was based on an oil price benchmark of $75 per barrel. However, some analysts suggest that cheaper crude could eventually lead to lower fuel prices at Nigerian filling stations, offering a silver lining for consumers.
Regional and Global Implications
The situation in Nigeria reflects broader challenges in Africa’s energy sector. The continent exports around 80% of its crude oil and 45% of its natural gas, leaving it heavily dependent on imported refined products. A lack of storage infrastructure and outdated refineries with limited capacity, particularly in sub-Saharan Africa, exacerbate this reliance. In response, the African Export-Import Bank has pledged $3 billion to finance the purchase of refined products within Africa, aiming to boost regional refining capacity and reduce import dependency.
For OPEC, Nigeria’s reduced output, combined with drops in Iran and Venezuela partly due to renewed US efforts to limit their exports has raised questions about the cartel’s ability to stabilise global oil markets. The Reuters survey highlighted that these declines could influence oil prices and supply chains worldwide in the coming months.
Looking Ahead
As Nigeria navigates these challenges, the future of its oil industry remains uncertain. The government and NNPCL will need to address payment disputes, infrastructure issues, and market competition to restore confidence among investors and consumers. For Dangote Refinery, adapting to new financial arrangements and market conditions will be crucial to maintaining its operations and contributing to Nigeria’s energy security.
