Why NNPC May Fail to Supply Dangote Refinery Crude Oil

Imagine you have a tight budget and many bills to pay, as a result of this, you need to promise one of your largest bills with the little money you have. That’s the situation facing the Nigerian National Petroleum Company (NNPC) as regards supplying crude oil.

The NNPC, Nigeria’s oil backbone, is currently seeking a hefty $2 billion loan in Europe, which will be paid back using the country’s oil specifically, 35,000 barrels each day. 

This comes at a time when the NNPC is supposed to supply crude oil to Africa’s largest refinery, owned by Aliko Dangote. 

However, the complex web of debts, international agreements, and local commitments might make this difficult. Here’s why the NNPC might struggle to deliver crude oil to Dangote Refinery.

NNPC Might not be able to supply enough crude oil

The NNPC has its hands full. With Nigeria’s daily oil production at about 1.3 million barrels, you’d think there’s plenty to go around. However, a large chunk of this oil is already spoken for. Thanks to previous loans and agreements, much of Nigeria’s oil is tied up. 

These commitments mean less oil is available for new obligations, like supplying the Dangote Refinery.

Moreover, the oil that is available isn’t just for selling; it’s also needed for important national issues like supporting the naira and stabilizing the foreign exchange market. For instance, last year, the NNPC secured a $3 billion deal with Afreximbank, pledging a whopping 164.25 million barrels of crude to back this up. This leaves even less room for new commitments.

NNPC Financial constraints and priorities

When money is tight, priorities have to be set. The NNPC’s priority seems to be stabilizing the national economy and managing its debts. Supplying crude to Dangote Refinery, while important, might not top the list when these broader financial responsibilities are at stake. 

Plus, the refinery’s plan to pay in naira, though beneficial for Nigeria’s economy, adds another layer of complexity given the NNPC’s need for foreign currency to manage other international loans and obligations.

NNPC Internal and External pressures

The relationship between NNPC and Dangote Refinery isn’t just about contracts and oil; it’s also influenced by politics, regulatory decisions, and even international perceptions. Recent disagreements and public disputes between Dangote and regulatory authorities show that not all is smooth. These tensions could affect how smoothly crude oil is supplied to the refinery.