₦airaland Forum

Fresh concerns have emerged over a possible increase in petrol price and renewed pressure on the naira following reports that Dangote Petroleum Refinery may begin selling refined petroleum products in U.S. dollars.

The development comes amid renewed tensions in the Middle East, which have pushed global crude oil prices higher and raised fears of supply disruptions in the international energy market.

Industry analysts say that if implemented, dollar-denominated sales by Africa’s largest refinery could have significant implications for fuel pricing, foreign exchange demand and inflation in Nigeria.

The reports also come as the Federal Government seeks to ensure that domestic fuel prices reflect movements in international crude oil prices.

However, the recent escalation of geopolitical tensions has reversed an earlier decline in crude prices, with benchmark oil prices rising again on concerns over global supply.

Sources familiar with the matter attributed the refinery’s reported plan to uncertainties surrounding the naira-for-crude arrangement between the Nigerian National Petroleum Company Limited (NNPC Ltd.) and Dangote Refinery.

The initiative was designed to allow the refinery to purchase locally produced crude oil in naira, thereby reducing dependence on foreign exchange and helping stabilise domestic fuel prices.

However, industry sources said crude supplies under the arrangement have fallen short of the refinery’s operational requirements, forcing it to rely more on internationally sourced crude purchased in U.S. dollars.

One source, who declined to be named because he was not authorised to speak publicly, said selling refined products in naira while buying a substantial portion of crude oil in dollars exposes the refinery to exchange-rate risks.

“If marketers continue buying in naira while the refinery purchases crude in dollars, exchange-rate losses become inevitable whenever the naira weakens,” the source said.

Analysts say a shift to dollar sales would require independent marketers to source foreign exchange before purchasing products from the refinery, increasing operating costs and exposing them to exchange-rate volatility.

Those additional costs could eventually be passed on to consumers through higher pump prices, particularly if the naira depreciates further against the U.S. dollar.

Economists also warn that increased demand for dollars by fuel marketers could put additional pressure on Nigeria’s foreign exchange market, potentially weakening the naira if foreign currency supply fails to keep pace.

Dr. Muda Yusuf, an economist, said, “It’s still too early to conclude because we are yet to hear an official position from Dangote Refinery. We need to wait for an official pronouncement before treating it as company policy.”

Yusuf, who is the Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), said the reported move should be viewed primarily as a business response to the volatility in the global oil market rather than an arbitrary pricing decision.

According to him, renewed geopolitical tensions, particularly in the Middle East, have made international crude oil prices increasingly unstable, creating challenges for refiners.

“What is most disturbing now is the volatility in the global oil market. That, for me, is the bigger issue. With that volatility, you have to adjust your price almost every month.”

He noted that the renewed hostilities involving Iran have further heightened uncertainty in the oil market, making it difficult for refiners to maintain stable domestic pricing.

“It is that volatility that is the problem. Until we have a more stable global oil environment, we may continue to face these kinds of challenges.”

Yusuf said if Dangote Refinery eventually decides to sell products in dollars, it could simply reflect the company’s strategy for managing exchange rate and commodity price risks.

“If that is the way they want to manage the volatility, then we should see it as part of their strategy for responding to the geopolitical challenges affecting the global oil market.”

However, he warned that such a policy could have implications for Nigeria’s foreign exchange market.

“If people now have to pay in dollars, that means they have to source the dollars to buy the products. That could create additional pressure on the foreign exchange market and the exchange rate.”

Naira-for-crude not a discount scheme – Expert

Oil and gas analyst, Dr. Ayodele Oni in his comment said the “naira-for-crude arrangement was never a discount scheme.”

He said, “The refinery pays international benchmark prices for Nigerian crude. What the arrangement provides is currency matching: crude purchased in naira, products sold in naira. The moment NNPC is unable to deliver sufficient naira-denominated crude, that matching collapses and the refinery is left buying feedstock in dollars while selling in naira. No commercially rational operator can carry that foreign exchange exposure indefinitely.

“The refinery has had to import substantial volumes of crude in recent months, paid for in dollars, because domestic allocations under the arrangement have consistently fallen short of contracted expectations.

“The refinery’s position is stronger than many assume. This is because the refinery sits within a free zone regime, which has historically permitted it to transact in foreign currency, particularly for exports and coastal sales.

“The counterweight is the legal tender provisions of the CBN Act and the domestic crude supply obligation under Section 109 of the Petroleum Industry Act. The unresolved tension is that the naira-for-crude framework rests on policy directives rather than an enforceable statutory scheme, so every suspension becomes, in effect, a renegotiation lever.”

He also noted that a shift to dollar sales would push marketers into the foreign exchange market in large numbers, “pressuring the naira, raising pump prices, and feeding inflation through transport and production costs.”

“I expect a political rather than legal resolution, consistent with previous episodes in which government intervention restored naira sales within days,” he added.

Oni stated that the “durable fix” is to ensure “guaranteed crude allocations backed by enforceable delivery obligations on NNPC, or a credible hedging mechanism that covers the currency gap between crude purchase and product sale.”

Ofunaofu:
The Tinubu-led federal government introduced the naira-for-crude deal with the Dangote Refinery, only to undermine it by failing to supply enough crude under the arrangement. As a result, the refinery has had to rely more on internationally sourced crude purchased in U.S. dollars.

Quite the definition of sabotaging your own policy.

CodeTemplar:
NNPCL as a rival should hand off anything that has to do with crude supply to Dangote.

anonimi:
World Bank offers Nigeria forex rate advice, as Tinubu eyes N200/Dollar rate

April 23, 2023

The President-elect said he would work with the Central Bank of Nigeria (CBN) to *bring down the exchange rate to N200 in his first term.*

“My administration will collaborate with the Central Bank to harmonize the fiscal and monetary policy to achieve immediate stabilization of the value of the naira against the US dollars and other currencies and in the short term, strengthen the naira by boosting the supply of foreign currency and moderating demand.

“The short-term goal is to achieve a naira/dollar rate of 300 naira/US$ and gradually achieve a less than 200 naira rate over the next four years, Tinubu stated.

https://www.ripplesnigeria.com/world-bank-offers-nigeria-forex-rate-advice-as-tinubu-eyes-n200-dollar-rate/?amp

Muhammadu Buhari, presidential candidate of the All Progressives Congress (APC), has promised to ensure that the naira would be equal to the dollar in value if voted into office.

NAN reports that Buhari said this on Monday during the south-east presidential rally of the party at Dan Anyiam Stadium, Owerri.

“It is sad that the value of the naira has dropped to more than N230 to one dollar. This does not speak well for the nation’s economy,” he said.

He urged the people to vote for APC, noting that he would ensure that corruption was tackled headlong if elected.

https://www.thecable.ng/ill-make-naira-equal-dollar-says-buhari/amp

malali:
This is exactly the betrayal we feared.After promising Nigerians heaven, earth, and naira stability through local refining and reduced forex pressure, we are now quietly sliding back to sourcing dollars for petrol produced inside Nigeria.

The same people who hounded and fired voices like Farouk (who insisted on real competition and open importer licensing) have now cornered the market monopolistically, and suddenly the rules are being rewritten against the people.

Every importer in this country, whether selling solar panels, cars, phones, or food , buys in dollars abroad, yet they don’t price in dollars locally. So why is one man’s refinery holding the entire nation’s energy sector to ransom?This is not business. This is economic hostage-taking.

Nigerians, it is time we start praying seriously, because human beings running this country have clearly run out of solutions. The pain is becoming unbearable.

malali:
There has to be government oversight. Nigeria's primary source of income is crude sales. If you want to handover everything to Dangote, you might as well lock CBN, and give Dangote the keys.

Do you realize the government pays everybody salary and execute capital projects with crude sales. You cannot hand over crude supply to one man.

As a matter of national security. He shouldn't even be allowed to where crude allocation and sales are being discussed, he should just submit his bid and get his designated allocation. He is a private entity and should be treated as such. Many years of Monopoly has him feeling like the federal Government.

Helinuse:
Word wey una no wan hear,
Una must hear.



When we told you guys about the risk of the monopolist in a semi-capitalist economy, una dey cough.

Princecalm:
Jul 29, 2015

The Nigerian National Petroleum Corporation has announced that the Port Harcourt and Warri refineries have been successfully re-streamed after a nine-month rehabilitation exercise conducted by its in-house engineers and technicians.

The corporation, in a statement, noted that both plants commenced preliminary production of petroleum products after successful test-runs, adding that while PHRC was ramping up its operation to about 60 per cent of its 210,000 barrels per day capacity, WRPC production was projected to hit 80 per cent of its installed 125,000bpd capacity.

The NNPC said the Port Harcourt refinery was projected to boost the nation’s local refining capacity with a product yield of five million litres of petrol per day, while Warri refinery would contribute 3.5 million litres of petrol.

Providing insight into the rehabilitation exercise, the NNPC noted that it had to adopt the phased rehabilitation strategy after the Original Refinery Builders, who were initially contacted for the project came up with unfavorable terms.

It said, “Though a decision was taken in 2011 to rehabilitate all the refineries using the ORB of each of the refineries, we were impelled to switch strategy after the ORBs declined participation and nominated some partners in their stead who came up with outrageously unfavorable terms.”

The NNPC stated that the nominated partners, as sole-bidders, came up with humongous price offers after two years of thorough and exhaustive scope of work definition and price negotiations.

It added that the proxies were also unwilling to provide post rehabilitation performance guarantees.

The corporation said, “The phased rehabilitation strategy which entailed phased and simultaneous rehabilitation of all the refineries using in-house and locally available resources in line with the spirit and letter of the Nigerian Content Law, also involved the use of Original Equipment Manufacturer representatives to effect major equipment overhaul and rehabilitation.”

The national oil firm said the phased rehabilitation programme, which started in October 2014 after the required funding stream was established, created a 70 per cent reduction in costs which helped largely in mitigating the financing challenges of refinery rehabilitation.

It observed that with the successful re-streaming of the PHRC and WRPC, attention has now moved to the 110,000 barrels per day Kaduna Refining and Petrochemicals Company which was billed to come on stream soon.

http://www.punchng.com/news/pharcourt-warri-refineries-commence-preliminary-operations-nnpc/

saintopus:
Dec 06, 2024
The PH Refinery ships its first export of petroleum products to Dubai.

The company is expected to load the cargo in the coming days onboard the Wonder Star MR1 ship, signalling the commencement of operations at the plant and the exportation of petroleum products.

The ship will load 15,000 metric tons of the product, which translates to about 13.6 million litres.

Although the volume coming from the NNPC into the global market is still small, the development has the potential to impact the Very Low Sulphur Fuel Oil (VLSFO) benchmarks in the future while changing the market realities for Atlantic Basin exporters into Nigeria and other regions.

The sulfur content of the export by NNPC stands at 0.26 per cent per wt and a 0.918 g/ml density at 15°C, according to Kpler, a data and analysis company.

The cargo was reportedly sold at an $8.50/t discount to the NWE 0.5 per cent benchmark on a Free on Board (FOB) basis.

Kpler reported that the development would help displace imports from traditional suppliers in Africa and Europe, as Nigeria’s falling clean product (CPP) imports are already decreasing, dragging imports into the wider West Africa region lower as well.

https://guardian.ng/energy/nnpc-begins-export-from-ph-refinery-as-dubai-firm-buys-first-cargo/

Ofunaofu:
The Tinubu-led federal government introduced the naira-for-crude deal with the Dangote Refinery, only to undermine it by failing to supply enough crude under the arrangement. As a result, the refinery has had to rely more on internationally sourced crude purchased in U.S. dollars.

Quite the definition of sabotaging your own policy.

Mattswaggz:
What kind of leaders do we have in this country......what level of greed and weekedness is this?.....you have enough to last you more than 10 life times yet you're still doing everything possible to strangulate the poor and suck them of the little they have to add to your own as if you're taking the riches acquired by cruelty to the other side.

Ofunaofu:
The Tinubu-led federal government introduced the naira-for-crude deal with the Dangote Refinery, only to undermine it by failing to supply enough crude under the arrangement. As a result, the refinery has had to rely more on internationally sourced crude purchased in U.S. dollars.

Quite the definition of sabotaging your own policy.

nairalanda1:
I doubt the government has enough money to do that thing...we ain't producing enough crude.

Government planned to raise crude production to 4m bpd by 2027, today it' s still 1.75m bpd.

There we are. I never believed government had the capacity to do it. It was just a political statement.

malali:
So why doesn't the government open up the petrol market and issue out importation licenses and make the market free for the lowest price. Provide government quality control.
They deceived Nigerians that importation was costing us Forex. Guess what Dangote is still importing today and he is also charging in Forex. We are not all stupid in Nigeria.

We can see whats going on. The scam is as clear as daylight.