Aliko Dangote’s refinery, others under pressure as NNPC ends naira-for-crude deal

Key Points

• Nigeria’s NNPC has scrapped the naira-for-crude swap, forcing refiners like Dangote’s to source crude internationally and pay in U.S. dollars.
• The policy shift raises operational costs for local refiners, potentially driving up fuel prices amid Nigeria’s ongoing foreign exchange challenges.
• The refinery is ramping up storage capacity and crude imports while expanding fuel exports to Africa and beyond, including a recent deal with Saudi Aramco.

The Dangote Petroleum Refinery, Africa’s largest refinery owned by billionaire Aliko Dangote, is facing a new setback. Nigeria’s state-owned oil company, the Nigerian National Petroleum Company (NNPC) Limited, has abruptly scrapped the naira-for-crude oil swap deal.

This decision forces local refiners—including Dangote’s facility—to source crude oil from international suppliers and pay in dollars instead of naira. The move is expected to drive up operational costs and could lead to higher fuel prices.

The naira-for-crude deal was introduced on October 1, 2024, to support domestic refining, ease pressure on Nigeria’s foreign exchange reserves, and reduce reliance on imported fuel. With its sudden suspension, local refiners must now turn to international suppliers—often at higher prices—making fuel production more expensive.

Dangote’s Refinery powers Nigeria’s energy shift

Since launching operations last year, Dangote’s refinery has reshaped Nigeria’s fuel market. Spanning 6,200 acres in the Lekki Free Zone, the $20 billion facility has reduced the country’s dependence on imported petroleum products, forcing European refiners to look for new buyers.

By mid-2024, the refinery was processing 350,000 barrels per day (b/d), with output increasing to 500,000 b/d by January 2025. Full capacity of 650,000 b/d is expected within months, making it one of the largest refineries in the world.

Despite its growing output, the refinery has faced challenges securing crude oil and has never relied entirely on Nigerian supply. In October 2024, Dangote Group addressed reports suggesting it had accused NNPC of failing to meet supply commitments. “We have never accused NNPC of not supplying us with crude,” the company said in a statement.

“Our concern has always been NUPRC’s reluctance to enforce the domestic crude supply obligation,” it added. “In September, we needed 15 cargoes, but NNPC allocated only six. When we approached international oil companies (IOCs) operating in Nigeria, they either directed us to their trading arms or said their cargoes were already committed. As a result, we often end up buying the same Nigerian crude from international traders at a $3-$4 per barrel premium—costing an extra $3-$4 million per cargo.”

By November 2024, reports emerged that the refinery had resumed crude imports from the United States after a three-month pause. Around that time, it secured two million barrels of WTI Midland crude from Chevron Corp. to keep production running.

NNPC’s move and the impact on domestic refining

NNPC defends its decision, stating that its crude production is already tied up in forward contracts, leaving little room for local refiners. But the explanation has been met with skepticism, especially as Nigeria’s crude output has reportedly risen since the naira-for-crude deal was introduced. With the policy shift, local refiners must now settle payments in dollars—an added burden at a time when Nigeria is grappling with foreign exchange challenges.

Despite these setbacks, Dangote is pushing forward. The refinery is currently running at 85 percent capacity, and its executive, Edwin Devakumar, says full capacity could be reached soon. To tackle supply constraints, the company is expanding its crude storage facilities, adding eight new tanks—four of which are nearing completion. When finished, these additions will increase storage capacity by 41.67 percent to 3.4 billion liters.

Expanding global reach

Beyond Nigeria, Dangote Petroleum Refinery is positioning itself as a major global fuel supplier. It has already begun exporting diesel and aviation fuel to countries like Cameroon, Angola, Ghana, and South Africa. A recent milestone was supplying jet fuel to Saudi Aramco—the world’s largest oil producer—signaling its growing international influence.

With production ramping up, the refinery’s global footprint is expected to grow. In November 2024, it resumed crude imports from the United States after a three-month pause, purchasing two million barrels of WTI Midland crude from Chevron Corp.

Fuel costs may rise for Nigerians

NNPC’s decision to scrap the naira-for-crude deal is raising concerns about the future of Nigeria’s refining industry. While Dangote’s massive refinery has the capacity to source crude through other channels, smaller refiners could struggle to stay afloat. If the rising costs are passed on to consumers, Nigerians may soon face higher fuel prices.

For Dangote, the challenge isn’t just about securing crude—it’s also about navigating Nigeria’s ever-changing policies. As Africa’s richest man continues his push for energy self-sufficiency, the bigger question is whether policymakers will rethink their approach or if his refinery will once again have to adjust.

The timing of NNPC’s decision is notable. It comes just two weeks after the Dangote Petroleum Refinery cut the ex-depot price of Premium Motor Spirit (PMS), or petrol, by another 7.3 percent—bringing the total reduction since the start of 2025 to 13.16 percent.