Nigeria Eyes Direct Crude Supply to Lower Refinery Costs

The Federal Government is considering major changes to crude oil pricing and allocation rules to provide domestic refineries, including the 650,000-barrel-per-day Dangote Refinery, with better and cheaper access to feedstock.

The proposed reforms to the Domestic Crude Supply Obligation (DCSO) are expected to be discussed this week during a regulator-led review, according to the Crude Oil Refinery-owners Association of Nigeria (CORAN).
Industry players say the major challenge is not crude availability but pricing. The Dangote Refinery has previously argued that Nigeria’s existing structure adds between $3 and $4 per barrel to feedstock costs because crude purchases are often routed through the trading arms of international oil companies (IOCs) rather than supplied directly.
CORAN spokesperson, Eche Idoko, said the proposed changes are aimed at addressing the challenge.
One of the proposals would allow IOC-linked producers to deliver crude directly to nearby refineries, with the volumes later reconciled at export terminals. According to Idoko, the arrangement would reduce reliance on trunkline infrastructure and bring crude closer to refining facilities.
The second proposal would allow refiners lifting crude directly from production sites to receive discounts reflecting freight and handling costs included in Brent-linked pricing but not incurred under direct deliveries. Idoko said the proposal could benefit both producers and refiners.
Meanwhile, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) reported on Monday that producer compliance with the DCSO framework had risen to over 90 per cent, from less than 43 per cent in the previous quarter.
However, the regulator clarified that the figure represents actual deliveries against volumes allocated to producers and does not indicate the proportion of total refinery demand being met.
Under the current framework, producers are required to offer allocated crude volumes to local refiners, with transactions concluded on a willing-buyer, willing-seller basis.
A senior NUPRC official said the proposed changes are being considered largely in response to requests from inland refiners.
The official, however, noted that implementation would require resolving technical issues relating to crude quality differences and pricing adjustments.
If approved, analysts say the reforms could help increase output at the Dangote Refinery, Africa’s largest refinery, which has at times struggled to secure sufficient crude supplies from local producers despite the DCSO policy.