In a significant shift aimed at easing the financial burden on domestic crude oil refiners, the Nigerian government has announced that local refiners, including the Dangote Refinery, can now purchase crude oil using the Nigerian Naira or US Dollars. This decision was disclosed by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) during a briefing in Abuja, marking a pivotal change in policy that aligns with the provisions of Section 109(2) of the Petroleum Industry Act 2021.
A New Template for Domestic Crude Oil Supply
The NUPRC has developed a new template for Domestic Crude Oil Supply Obligation (DCSO) to streamline and ensure the consistent supply of crude oil to domestic refineries. This template was created in collaboration with stakeholders including NNPC Upstream Investment Management Services, representatives of Crude Oil/Condensate Producers, Crude Oil Refinery-Owners Association of Nigeria, and Dangote Petroleum Refinery.
The intention behind allowing transactions in naira is to alleviate the pressure on Nigeria’s foreign exchange rate,” stated Gbenga Komolafe, Chief Executive of NUPRC. He emphasized that this flexibility in currency choice is expected to support the exchange rate and encourage investments in Nigeria’s midstream sector, which is crucial for the country’s energy independence.
Impact on Modular Refineries
The shift is expected to particularly benefit modular refineries, which have struggled due to the foreign exchange crisis that made it difficult to purchase crude priced in US dollars. These refineries, which are essential for producing products like diesel and kerosene, have faced the risk of shutdown due to the inability to afford crude imports. Allowing payments in naira could stabilize operations and reduce the cost of refined products domestically.
Crude Reserves and Economic Optimism
In addition to policy changes, the government also revealed uplifting news about Nigeria’s oil reserves. As of January 1, 2024, the total crude oil and condensate reserves were reported at 37.5 billion barrels, with a life index of 68.01 years, indicating a promising outlook for the sector. Moreover, the country’s gas reserves have increased to 209.26 trillion cubic feet, affirming Nigeria’s position as a significant player in the global energy market.
Komolafe highlighted the positive additions to both oil and gas reserves, stating, “These figures not only reflect our capability to sustain production but also our potential to fuel the growing energy needs both domestically and internationally.”
Challenges and Prospects
Despite these positive steps, the Nigerian oil sector faces ongoing challenges such as infrastructure vandalism and regulatory hurdles. However, the new policies and the bolstering of reserves are seen as critical moves toward stabilizing the industry and encouraging local refining capacity, which is essential for Nigeria’s energy security.
The decision to allow crude oil purchases in naira is seen as a strategic move that will likely bolster the economic outlook for domestic refineries and reduce the nation’s dependency on imported refined products. It is a significant step towards achieving greater economic stability and a more robust energy sector in Nigeria.
