NNPC & Dangote Refinery Crude Oil Deal: Why the Naira-for-Crude Agreement Stalled and What Comes Next

The NNPC-Dangote Refinery Crude Oil Deal

On the 1^st of October 2024, the Nigerian National Petroleum Company (NNPC) Limited initiated a six-month crude oil supply agreement with domestic refineries, including the Dangote Petroleum Refinery. The primary objective of this agreement was to enhance domestic refining capacity, reduce the country’s reliance on imported petroleum products, and alleviate the foreign exchange burden caused by dollar-denominated fuel imports. This policy aimed to bolster local refining capabilities, diminish reliance on imported petroleum products and ease pressure on Nigeria’s foreign exchange reserves

The agreement allowed local refineries to purchase crude oil from the NNPC instead of U.S. dollars in naira. This move was strategic, as it aligned with the Nigerian government’s broader economic agenda of strengthening the naira, stabilizing the forex market, and ensuring energy security. At the time, Nigeria faced severe economic pressures due to dwindling foreign reserves, rising inflation, and a depreciating naira. The government viewed the naira-for-crude deal as a mechanism to boost the local refining sector while reducing dependence on imported refined petroleum products.

Benefits of the Deal

The deal brought significant advantages to the Nigerian economy:

1. Reduced Forex Demand: By allowing refineries to pay for crude oil in naira, the agreement significantly lowered the demand for U.S. dollars in petroleum transactions. This was expected to stabilize the forex market and ease pressure on the naira.
2. Lower Fuel Prices: With local refineries operating at full capacity, Nigeria aimed to cut down on the expensive importation of refined petroleum products. The expectation was that this would translate into lower pump prices for consumers.
3. Boost to Local Refineries: The arrangement provided Dangote and other domestic refiners with a steady and predictable supply of crude oil, enabling them to optimize production and meet domestic demand more effectively.
4. Job Creation and Industrial Growth: Increased refining activities meant more employment opportunities across the value chain, from crude supply logistics to refinery operations and petroleum product distribution.
5. Improved Government Revenue: By refining crude oil locally, Nigeria stood to generate more revenue from value-added petroleum products instead of exporting crude and importing finished products at higher costs.

Current Status of the Deal

As the six-month agreement neared its expiration in March 2025, the NNPC abruptly suspended the naira-for-crude arrangement. This shift was reportedly due to challenges in balancing sales proceeds and crude procurement costs, which are predominantly denominated in U.S. dollars. Dangote Refinery, citing similar concerns, followed suit by halting the sale of petroleum products in naira and switching to dollar transactions. This policy reversal has sparked concerns among industry stakeholders as it reintroduces the heavy dependence on foreign exchange for crude oil procurement and fuel pricing. The Nigerian government has yet to clarify whether the agreement will be reinstated or replaced with another framework to ensure local refining continues to thrive.

Dangote Refinery Clarifies Shift to Dollar Transactions Amidst Naira for Crude Uncertainty

In a statement released on Wednesday, March 19, 2025, Dangote Refinery explained its decision to temporarily halt the sale of petroleum products in naira. The management cited the need to balance revenue streams with crude oil purchase obligations, which are primarily denominated in U.S. dollars. According to the refinery, the total sales of petroleum products in naira had exceeded the value of naira-denominated crude oil it had received, making it necessary to adjust its sales currency to align with crude procurement costs. Additionally, the refinery addressed circulating rumors suggesting that operations had been disrupted due to ticketing fraud. The company dismissed these claims as baseless and reaffirmed the integrity of its internal systems, stating that no fraudulent activities had occurred. Despite the temporary shift, Dangote Refinery reassured the public of its commitment to the Nigerian market. The management confirmed that once it receives naira-priced crude from the Nigerian National Petroleum Company (NNPC), it will promptly resume sales of petroleum products in the local currency.

Potential Consequences for Nigeria’s Economy

If the NNPC and local refineries fail to reach a sustainable agreement, several economic risks loom for Nigeria:

1. Depreciation of the Naira: The shift back to dollar-denominated crude transactions will increase demand for U.S. dollars, further weakening the Naira.
2. Higher Fuel Prices: The cost of refining and distributing petroleum products will rise, potentially leading to higher pump prices and inflationary pressure on transportation and goods.
3. Reduced Refinery Viability: Without a steady and affordable supply of crude oil in naira, domestic refineries might struggle to operate at full capacity, leading to lower output and continued reliance on imported fuel.
4. Forex Reserves Depletion: The government and businesses will need to source more foreign currency for fuel imports, straining Nigeria’s forex reserves and worsening the balance of payments deficit.
5. Economic Instability: A resurgence of fuel scarcity, inflation, and forex instability could trigger economic uncertainty, affecting investor confidence and overall economic growth.

Although recently, there has been a wide array of claims and speculations both on social media and even among the locals that there has been a stop to the naira for crude oil swap agreements. This has made the NNPC’s Chief Corporate Communications Officer, Olufemi Soneye, state on Monday. In it, he explained:

“NNPC Limited has noted recent reports circulating on social media regarding the alleged unilateral termination of the crude oil sales agreement in naira between NNPC Ltd. and Dangote Refinery.” “To clarify, the contract for the sale of crude oil in Naira was structured as a six-month agreement, subject to availability, and expires at the end of March 2025. Discussions are currently ongoing towards emplacing a new contract.” 

It further stated that:

“Under this arrangement, NNPC Ltd. has made over 48 million barrels of crude oil available to Dangote Refinery since October 2024.  ” In aggregate, NNPC Ltd. has made over 84 million barrels of crude oil available to the Refinery since its commencement of operations in 2023.”