How Nigeria’s “Naira for Crude” Strategy Could Slash Fuel Prices

The Naira for crude deal, set to begin on October 1, 2024, marks a pivotal shift in Nigeria’s approach to its energy sector, with the Nigerian National Petroleum Company Limited (NNPCL) supplying crude oil to the Dangote Refinery, and transactions settled in Naira instead of foreign currency. This initiative, spearheaded by President Bola Tinubu’s administration, is aimed at reducing the pressure on Nigeria’s foreign reserves, curbing inflation, and stabilizing fuel prices, which have surged to between N950 and N1,100 per liter.

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Under this deal, NNPCL will supply around 385,000 barrels of crude oil per day to the Dangote Refinery. This equates to approximately 11.5 million barrels per month, which will be processed into refined products such as petrol and diesel. These products will be sold in the local market, with diesel available to any interested off-taker and petrol exclusively sold to NNPCL for distribution through its channels.

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The Naira-based transactions are expected to lower operational costs, as they will eliminate the need for foreign exchange in purchasing crude. This is particularly critical, given the depreciation of the Naira and its impact on the cost of importing petroleum products. By localizing payments, the government aims to reduce the fuel price, a matter of significant public concern, as Nigerians have faced steadily rising fuel costs since the removal of fuel subsidies earlier in the year.

Although expectations are high, some challenges remain. Modular refineries in Nigeria have raised concerns about being excluded from this arrangement, as the deal currently focuses solely on the Dangote Refinery. These smaller refineries, which have a combined capacity of thousands of barrels per day, are facing severe crude shortages and have called on the government to extend the Naira-for-crude initiative to include them.

Additionally, while this new arrangement could ease supply issues, there are uncertainties regarding the actual impact on fuel prices. The Dangote Refinery has yet to officially disclose the pricing of its refined products, despite claims that its petrol will be cheaper than imported alternatives. Nigerians are eagerly awaiting further announcements from the government on how this deal will translate into price reductions at the pump.

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This deal also aligns with broader economic policies aimed at improving the efficiency of Nigeria’s oil and gas sector and fostering financial stability by reducing the nation’s reliance on foreign exchange for essential imports. However, its success depends on effective implementation and the government’s ability to manage the intricacies of this complex arrangement

The coming weeks will be crucial as the technical and regulatory committees overseeing the deal, including representatives from the Central Bank of Nigeria and the Nigerian Upstream Petroleum Regulatory Commission, transition to the execution and monitoring phase. Their role will be essential in ensuring smooth operations and addressing any challenges that may arise during the early stages of this initiative