Nigeria’s petroleum sector is facing heightened uncertainty following the Dangote Petroleum Refinery’s suspension of the sale of petroleum products in naira, triggering widespread concerns over potential fuel price hikes.
This decision comes as negotiations between the refinery and the Federal Government (FG) over the naira-for-crude arrangement hit an impasse, leaving industry players scrambling for clarity.
Stockpiling Begins as Marketers Anticipate Price Hike
In the wake of Dangote’s announcement, some filling station owners have begun stockpiling Premium Motor Spirit (PMS), commonly known as petrol, in anticipation of a price surge. Depot owners have also reportedly increased their prices, capitalizing on fears of an impending hike.
The cost of loading petrol at private depots in Lagos rose to approximately N900 per liter, up from less than N850 before the refinery’s decision was made public.
The Independent Petroleum Marketers Association of Nigeria (IPMAN) has, however, warned against panic buying, cautioning that such actions could lead to severe losses if Dangote Refinery eventually reduces prices.
“Some depot owners are using this as an opportunity to profiteer, which is not good for the economy,” IPMAN’s National Publicity Secretary, Chinedu Ukadike, said. “We advise our marketers not to panic-buy because when Dangote resumes sales and possibly lowers prices, they could suffer significant losses.”
The Crux of the Naira-for-Crude Dispute
The Dangote Refinery, which has a production capacity of 650,000 barrels per day, cited a fundamental mismatch between its sales proceeds and crude oil procurement obligations as the reason for halting sales in naira.
According to the refinery, its crude oil purchases are denominated in U.S. dollars, while sales in naira have exceeded the amount of naira-denominated crude it has received.
“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,” the refinery stated in its official announcement.
The Nigerian National Petroleum Company Limited (NNPCL) has also weighed in on the issue, revealing that 48 million barrels of crude have been supplied to the Dangote Refinery since the inception of the naira-for-crude deal in October 2024.
However, sources indicate that NNPCL has struggled with crude availability due to pre-existing commitments to international lenders, making it difficult to sustain the agreement.
Government and Dangote Resume Talks
To prevent a full-blown fuel crisis, government officials and representatives of Dangote Refinery have resumed discussions to find a way forward. The Technical Sub-Committee on the Naira-for-Crude Policy, tasked with reviewing the agreement, met on Monday to deliberate on possible solutions. Insiders suggest that the suspension of naira crude supply is not permanent, with ongoing efforts to renegotiate terms.
A senior government official disclosed that the Nigerian Upstream Petroleum Regulatory Commission has been directed to explore alternative options that could restore the naira-for-crude deal while ensuring the stability of crude supply for local refining.
“The Federal Government and Dangote Refinery are working to resolve this matter. We expect an official statement soon,” Ukadike revealed.
Potential Economic Impact and Industry Reactions
Industry analysts warn that the refinery’s shift to dollar-based transactions could further weaken the naira by increasing demand for foreign exchange. This move may also disrupt fuel supply chains and drive up costs, as marketers will now have to source U.S. dollars to procure petrol from the Dangote facility.
The National Vice President of IPMAN, Hammed Fashola, expressed concerns that the change could lead to instability in fuel pricing and create additional hardship for Nigerians.
“There will be more pressure on the naira, which has only recently begun to stabilize. If marketers must now buy dollars to purchase PMS, we could see an increase in pump prices across the country,” Fashola warned.
Meanwhile, other stakeholders in the downstream petroleum sector have voiced suspicions that the suspension of the naira-for-crude arrangement might be an attempt to curb Dangote Refinery’s growing market dominance.
Some industry players believe the move could be aimed at reinstating full-scale importation of refined petroleum products, which the $20 billion refinery had effectively disrupted by offering lower prices than NNPCL.
Domestic refiners under the Crude Oil Refinery Owners Association of Nigeria also criticized the suspension, arguing that it undermines efforts to achieve energy security.
“The halt in crude supply in naira is a deliberate attempt to frustrate Dangote Refinery and bring back fuel importation,” said Eche Idoko, the association’s National Publicity Secretary.
NNPCL-Dangote Rivalry and Importation Concerns
The Naira-for-Crude deal had previously enabled Dangote Refinery to repeatedly lower PMS prices, forcing NNPCL to follow suit despite its financial constraints. Some fuel importers reportedly lost billions of naira due to these price cuts.
As a result, certain stakeholders had advocated for regulations that would restrict price reductions to a six-month interval.
Recent reports indicate that at least seven vessels carrying imported PMS, totaling approximately 154.22 million liters, are expected to berth at Nigerian seaports between March 17 and 23.
The arrival of these imports could provide temporary relief but also underscores the ongoing reliance on foreign fuel supplies.
With fuel prices fluctuating and supply chains in limbo, Nigerians are bracing for potential economic repercussions. As discussions between the Federal Government and Dangote Refinery continue, industry players remain hopeful that a resolution will be reached soon to stabilize the market.
Until an official agreement is reached, the downstream petroleum sector remains in a state of uncertainty, with fears of fuel price hikes looming over consumers and businesses alike.
