Fuel Price To Increase As Dangote, NNPC’s Naira-for-crude Talks Crumble

The Dangote Petroleum Refinery has temporarily ceased selling petroleum products in naira as the naira-for-crude negotiations between the $20 billion Lekki-based facility and the Nigerian National Petroleum Company Limited (NNPCL) appear to have failed.

Following the announcement of this suspension on Wednesday, the cost of loading petrol at private depots in Lagos surged to ₦900 per litre, up from less than ₦850 per litre before the announcement.

Industry experts and oil marketers have warned that this move could heighten pressure on the foreign exchange market, as dealers would now need large amounts of U.S. dollars to purchase petroleum products.

Multiple industry sources familiar with the issue cited the extensive forward sales of crude oil by NNPCL as a key factor behind the failure of the naira-for-crude talks.

According to The PUNCH, these sources pointed out that NNPCL had used large volumes of unproduced crude oil to secure loans from international financial institutions, leaving it with insufficient crude to supply the domestic market.

In a statement issued on Wednesday, the Dangote Group explained that the suspension of sales in naira was temporary.

The statement read: “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 US 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 refuted online reports claiming the halt was due to an incident of 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.

When asked about the effects of the decision on the oil sector, a major marketer who spoke on the condition of anonymity said, “Two key things to ponder. Nigeria generates over 90 percent of its foreign exchange earnings from the sale of crude oil. Secondly, we have not been able to produce much more than 1.6 million barrels a day on a consistent basis. Much of that production has already been sold in advance to ease cash flow problems caused by NNPCL absorbing the cost of subsidizing gasoline prices. So your guess is as good as mine as to how naira for crude can be sustained.”

The marketer further noted that the development suggested the collapse of the naira-for-crude deal between NNPCL and Dangote refinery. “I really can’t say beyond the fact that the negotiations may not be going well. As in all negotiations, there must be give and take and compromise. Once either party insists on their own position irrespective of the circumstances, then things might break down,” the dealer stated.

In an interview, NNPCL spokesman Olufemi Soneye neither confirmed nor denied that NNPCL was halting the naira-for-crude deal with Dangote refinery.

However, sources revealed to The PUNCH that discussions between Dangote refinery and the Technical Sub-Committee regarding the naira-for-crude deal had collapsed due to a lack of adequate crude supply.

Soneye reiterated NNPCL’s commitment to supplying crude for local refining under mutually agreed terms. “As I have repeatedly stated, NNPC remains committed to supplying crude for local refining based on mutually agreed terms and conditions. Additionally, the NUPRC has disclosed that all local refining companies collectively produce less than 50 percent of our national consumption. You can do the Maths,” he said.

Last week, NNPC revealed that 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 stated that 48 million barrels of crude had been supplied to the Dangote refinery since October.

As Dangote refinery halts the sale of petroleum products in naira, marketers will need to source U.S. dollars to purchase petrol from the refinery.

This development has raised concerns about a potential devaluation of the naira, as the National Vice President of the Independent Petroleum Marketers Association of Nigeria (IPMAN), Hammed Fashola, 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 is sustainable for now, Dangote’s suspension of naira sales may not affect prices for now. But the dollar may lose value if marketers run after the dollar to buy petrol from Dangote refinery, the naira will lose value again. Let’s wait and see the market reaction to this move from the Dangote refinery.”

Fashola also appealed to the Federal Government to maintain the naira-for-crude deal, saying: “I would like to advise the FG to look into the agreement with Dangote again to maintain the tempo of the prices of petroleum products. The masses today are happy with the drop in petrol prices. But just a few hours ago the private depot owners started reacting to the Dangote press release by reviewing their prices upward. Yesterday, we closed with N825 to N826, but this afternoon, prices have started increasing again to N835 to N836 per litre. I will appeal to the FG to continue supplying crude to Dangote and other local refiners to maintain stability in the sector.”

Meanwhile, the National President of the Petroleum Products Retail Outlet Owners Association of Nigeria (PETROAN), Billy Gillis-Harry, indicated that the suspension of sales in naira could lead to price hikes.

He also confirmed that the Federal Government has yet to make a decision on halting the naira-for-crude deal.

“There was no decision that has been made as we speak. So, I don’t know where that Dangote decision is coming from. But he is a businessman, he can speculate. Every businessman is entitled to a projective opinion,” he said.

The naira-for-crude deal had enabled Dangote refinery to lower petrol prices repeatedly, forcing NNPC to follow suit even when it affected its margins.

Some industry sources speculated that halting the deal might be a move to reduce the influence of the $20bn refinery, which some accuse of seeking to monopolize the sector.

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 of the deal, describing it as a strategy to hinder Dangote refinery and encourage the return of 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, and we are not privy to what transpired. We also don’t know the terms and conditions. It is now making it difficult for us to midwife in the conversation.”

He continued: “At this rate, this means we would revert to full import and that means our naira will begin to struggle again. That is the implication and high petrol price. We knew that the naira-for-crude deal was going to help the Federal Government in the long run. But right now, the issue is that a lot of people are blinded by the fact that Dangote is benefitting from it and not looking at the overall advantages it has for Nigerians.”

IPMAN National Public Relations Officer, Chinedu Ukadike, added 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 for 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 go and get your dollars ready to buy petrol. We can’t escape price increases,” he warned.

Amid the uncertainty, private depot owners have raised their petrol loading costs. Several depots, including Bovas, Aipec, Menj, and Integrated, 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 depot upon hearing that Dangote refinery has suspended sales of petroleum products reaffirms Dangote as the market leader and driver of the downstream sector. I am calling on NNPCL and NUPRC, as a matter of urgency, to act on section 109 of the PIA act that states clearly that Local refineries should be given unhindered access to crude,” he said.