Nigeria has initiated a groundbreaking move in its oil sector by starting crude oil sales in naira to the Dangote Refinery. This decision marks a critical shift from the traditional dollar-denominated transactions that have long dominated the Nigerian oil industry. With the objective of boosting local currency usage and encouraging the Nigerian economy’s self-sufficiency, the Federal Government is keen to strengthen this new trading arrangement.
New Phase of Oil Trade in Naira
Recently, the NNPC signed a deal with the Dangote Refinery for the supply of 385,000 barrels of crude oil per day, bpd. What makes the deal peculiar is that the sale of the crude and the purchase price of the refined products from the refinery comprising petrol and diesel, will be done in naira. This falls in line with the government policy that has focused on de-establishing dependence on the U.S. dollar for vital commodity exports of the country.
This will make the Dangote Refinery with an installed capacity of 650,000 barrels per day one of the key drivers of this shift. Under the deal, all regulatory charges, including those emanating from the Nigeria Ports Authority and the Nigerian Maritime Administration and Safety Agency, would equally be paid in naira. Heineken Lokpobiri, the Minister of State for Petroleum Resources, indicated that the adjustment will not only increase economic stability for the country but also reduce foreign exchange stress produced by oil trades in US dollars.
How This Move Affects the the Nigerian Economy
The sale of crude oil in naira to the Dangote Refinery may have far-reaching implications for the economy. An immediate benefit would be that pressure on foreign exchange reserves will be dampened. Being an exporting nation of oil, Nigeria has long depended on foreign exchange for oil transactions and has struggled for a long period with currency depreciation and inflation. This could save foreign reserves and probably stabilize the naira by pricing oil sales in local currency.
This move also places the Dangote Refinery at an center position in Nigeria’s downstream oil market. The refinery, though presently designed to meet the demand for petrol in the local market, also is expected to export diesel into other countries to further enhance its profitability and increase the economic footprint of Nigeria within the global market.
The NNPC shall be the sole off-taker of the refinery’s entire petrol output for the Nigerian market. Aliko Dangote, the brain behind the refinery, said this deal would give great relief to Nigerians through helping solve the persistent fuel crisis that has confronted Nigerians for many decades. Again, it might also lower the risk of fuel price volatility in the Nigerian market, since it can sell refined products in naira.
Another potential concern is how this shift may affect global and local oil markets. The agreement provides the Dangote Refinery with a consistent supply of crude oil, but it also grants the refinery the freedom to sell diesel and other refined products to international buyers if local demand proves insufficient. Given Nigeria’s fuel demand of around 40-50 million litres per day, some market observers worry that any significant export of diesel might lead to domestic shortages, particularly in a volatile global energy market.
This deal also comes at a time when Nigeria is grappling with escalating inflation and increasing fuel prices. Petrol prices in the country have surged following the removal of fuel subsidies, further straining an already burdened populace. Many are hopeful that the commencement of local refining operations by Dangote will alleviate some of these pressures by stabilizing fuel supply and, by extension, reducing prices in the medium term.