Dangote Refinery CEO Flays Crude Supply Gap, Says Firm Paying $18 Premium To Buy Nigerian Oil Abroad

The Chief Executive Officer of Dangote Petroleum Refinery, David Bird, has expressed concerns over the refinery’s inability to secure adequate volumes of Nigerian crude oil under the government’s crude-for-naira programme, revealing that the company has been forced to purchase Nigerian crude in the international market at a premium.

Bird disclosed this during an interview on Arise Television’s Morning Show monitored by GreenPlinth  on Wednesday, where he clarified misconceptions about the crude-for-naira initiative and explained the operational challenges facing the refinery due to supply constraints.

According to him, while the programme has helped stabilise Nigeria’s foreign exchange market, the refinery is not receiving the agreed quantity and preferred grades of crude needed to operate optimally.

“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.

He explained that the programme does not provide crude oil to the refinery at discounted rates but allows the purchase of crude using 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 added.

Refinery receiving far fewer cargoes

Bird disclosed that the refinery was meant to receive between 13 and 15 cargoes of crude oil monthly under the agreement with the government, volumes he said are necessary to meet Nigeria’s domestic fuel demand.

However, he said the refinery is currently receiving only about five cargoes per month, a situation that has significantly affected its feedstock supply.

“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,” Bird stated.

He emphasised that the shortfall should not be interpreted as a failure by the refinery to meet expectations.

“So that’s not an underperformance against that pre-agreed volume contract,” he said.

Challenge of crude quality allocation

Apart from the quantity shortfall, Bird also pointed to challenges relating to the type and quality of crude allocated to the refinery.

Nigeria produces multiple crude grades exported from different terminals, but the Dangote Refinery’s processing equipment was designed around a specific blend of crude types.

“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.

Bird, however, noted that the refinery frequently does not receive those preferred grades even when allocations are made.

“Not only do we not get the full allocation, very often we don’t get the grades that we’re highlighting as our preference,” he said.

He therefore called for greater clarity and openness in how crude allocations are determined, particularly as the government now allocates about 30 per cent of Nigeria’s crude production under the crude-for-naira programme.

Paying premium for Nigerian crude overseas

Bird said the refinery has discovered that the same Nigerian crude grades it requests locally are often sold on the international market, forcing the company to buy them through global traders at 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.

He added that the global appetite for crude oil has driven up the premium on Nigerian crude grades.

“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 explained.

According to him, the refinery is currently paying about $18 per barrel premium to obtain these Nigerian grades from the international market.

“We’re paying $18 per barrel premium for those same Nigerian crude grades,” Bird said.

Misconception about crude-for-naira

The refinery CEO also addressed widespread perceptions that the crude-for-naira programme represents a form of subsidy for Dangote Refinery.

“There’s a misunderstanding of the crude-for-naira programme to mean some kind of subsidy. It is not,” he said.

Bird explained that the refinery still pays the full international benchmark price for crude oil and also bears the cost of 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 disruptions affecting crude supply chains and freight costs.

He warned that Nigeria is effectively losing value when local crude meant for domestic refining ends up being sold abroad and then repurchased by Nigerian refiners at a premium.

“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 difficulties, Bird said the refinery has been able to sustain operations by sourcing crude from other countries.

He explained that the refinery regularly imports crude from the international market to complement domestic supply.

“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.

According to him, between 30 and 40 per cent of the refinery’s crude feedstock currently comes from international markets.

He described this as evidence of the refinery’s design flexibility and the strategic foresight behind its construction.

“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.

Flexibility seen as key advantage

Bird noted that the refinery’s ability to process different crude grades has helped it remain operational 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.

He added that many refineries around the world are limited to processing specific crude types, unlike the Dangote facility.

“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,” Bird said.

The 650,000-barrels-per-day Dangote Refinery, located in the Lekki Free Zone in Lagos, is expected to play a major role in boosting Nigeria’s refining capacity and reducing reliance on imported petroleum products once operating at full capacity.