Nigeria’s Dangote Petroleum Refinery has announced a temporary suspension of fuel sales in the local naira currency, citing challenges in matching naira-denominated sales with dollar-based crude purchases.
The decision by the 650,000-barrel-per-day refinery, Nigeria’s largest, could trigger higher petrol prices and further depreciation of the naira, as local fuel traders scramble for U.S. dollars to secure fuel supplies.
Why Is Dangote Refinery Making This Move?
The refinery, located on the outskirts of Lagos, was expected to revolutionize Nigeria’s petroleum sector by reducing dependence on fuel imports. However, it has struggled to secure adequate crude volumes under an arrangement where the Nigerian government agreed to sell crude to local refineries in naira.
In a statement, Dangote Refinery explained:
“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 company did not specify how long the suspension would last.
Impact on the Fuel Market
This shift could have significant consequences:
Petrol Prices May Rise: Since most fuel retailers operate in naira, they will need to source dollars to purchase refined fuel from Dangote. The increased demand for dollars could further weaken the naira in the forex market.
Supply Uncertainty: The Nigerian National Petroleum Corporation (NNPC) had initially agreed to supply crude to local refineries in naira for six months (starting October 2023). However, Dangote Refinery has complained about not receiving the agreed volumes. Other local refineries have reported receiving no crude at all.
Legal Battle Over Fuel Imports: In an effort to eliminate petrol imports, Dangote has cut petrol prices by more than 20% since December and has taken legal action to halt gasoline imports into Nigeria.
Government Response & The Future of Local Refining
Last week, NNPC stated it was in discussions with Dangote Refinery to renew the naira-based crude supply deal, but it remains uncertain whether the agreement will be extended.
As of now, NNPC has not provided an official response to Dangote’s decision.
The Dangote Refinery, built by Africa’s richest man, Aliko Dangote, has been hailed as a potential game-changer for Nigeria’s energy security. However, challenges in crude supply, foreign exchange pressures, and policy inconsistencies continue to pose major obstacles to its full-scale operation.
For now, the uncertainty around fuel pricing, naira stability, and supply chain disruptions will keep both consumers and industry stakeholders on edge.
