FG weighs crude pricing reforms as refiners battle high costs

The Federal Government is considering changes to Nigeria’s crude allocation and pricing framework to reduce feedstock costs and improve crude access for domestic refiners, amid persistent challenges threatening the economics of local refining.

The proposed reforms, which are expected to be discussed during a regulator-led review of the Domestic Crude Supply Obligation (DCSO), could particularly support the 650,000 barrels-per-day Dangote Refinery, Africa’s largest, which has faced difficulties securing sufficient domestic crude.

The Crude Oil Refinery-owners Association of Nigeria (CORAN), in comments reported by Reuters, said the proposals are aimed at improving the supply and pricing of crude to local refineries.

Dangote Refinery has previously said Nigeria’s current pricing structure adds between $3 and $4 per barrel to its feedstock costs because crude purchases are often routed through producers’ trading arms.

CORAN spokesperson Eche Idoko said one proposal would allow producers linked to international oil companies to deliver crude directly to nearby refineries, with the volumes reconciled later at the terminal. The arrangement, he said, would reduce reliance on trunklines and bring crude closer to refiners.

Another proposal would allow refiners lifting crude directly from production facilities to receive a discount reflecting freight and handling costs embedded in Brent-linked pricing but not actually incurred by the refiners.

“This could be a win-win for both the producers and refiners,” Idoko said.

The proposed changes come against the backdrop of a significant gap between crude allocated to domestic refiners and volumes actually supplied.

The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) reported that domestic refineries received 28.5 million barrels of crude in the first quarter of 2026, against 61.9 million barrels allocated for the period.

Although producer compliance subsequently rose above 90 per cent from less than 43 per cent in the previous quarter, the improvement does not necessarily mean refiners are receiving sufficient crude to operate at full capacity.

Under the DCSO framework, producers are required to offer allocated crude volumes to local refineries, while transactions are concluded on a “willing-buyer, willing-seller” basis.

The pricing and supply challenges have therefore exposed a critical gap in Nigeria’s refining strategy: higher domestic refining capacity cannot deliver maximum economic benefits without reliable and commercially viable access to crude.

The proposed reforms seek to address that gap by reducing unnecessary supply-chain costs, improving direct access to crude and making domestic refining more competitive.

For Nigeria, resolving the issue could have wider implications for fuel supply, foreign exchange demand and the value retained from crude oil production, particularly as the country seeks to reduce dependence on imported refined petroleum products.