Fuel Crisis Looms as Dangote Refinery Halts Naira Sales

Retailers Stockpile Petrol Amid Fears of Price Hike

A fuel crisis looms with the suspension of petroleum product sales in naira by the Dangote Petroleum Refinery; a wave of uncertainty has gripped the downstream oil sector in Nigeria. This sudden decision has led to widespread stockpiling of Premium Motor Spirit (PMS), commonly known as petrol, as filling stations anticipate an imminent price increase.

Petroleum retailers across the country are now scrambling to purchase fuel in large quantities, fearing that petrol prices will soon skyrocket due to the Federal Government’s inability to sustain crude oil sales to the refinery in local currency. The Independent Petroleum Marketers Association of Nigeria (IPMAN) has urged marketers to refrain from panic buying, warning that such speculative moves could result in significant financial losses.

Last week, Dangote Refinery, the country’s largest petroleum processing facility, announced a temporary halt in naira sales after negotiations between the refinery and the Nigerian National Petroleum Corporation Limited (NNPCL) over a naira-for-crude deal failed to yield an agreement.

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Why Dangote Refinery Suspended Naira Sales

The Dangote Refinery, which boasts a refining capacity of 650,000 barrels per day, justified its decision by citing a mismatch between sales proceeds and crude oil procurement obligations, which are denominated in U.S. dollars.

In an official statement, the refinery explained the rationale behind its decision:

“We wish to inform you that Dangote Petroleum Refinery has temporarily halted the sale of petroleum products in naira. This decision is necessary to avoid a mismatch between our sales proceeds and our crude oil purchase obligations, which are denominated in U.S. dollars. To date, our sales of petroleum products in naira have exceeded the value of naira-denominated crude we have received. Therefore, we must adjust our sales currency to align with our crude procurement currency.”

This announcement triggered immediate market reactions, with the cost of loading petrol at private depots in Lagos surging to approximately N900 per litre, up from less than N850 per litre before the news broke.

Rising Fuel Prices and Depot Profiteering

As soon as the refinery’s decision was made public, the downstream petroleum sector was thrown into chaos. Marketers, fearing further price surges, rushed to stockpile fuel, while private depot owners increased prices to take advantage of the panic-driven demand.

Speaking in an interview with The PUNCH, IPMAN’s National Publicity Secretary, Chinedu Ukadike, condemned the profiteering tactics of depot owners, cautioning marketers against hoarding and panic-buying.

“Some depot owners are already increasing the price, but we are advising marketers not to panic-buy. When the Dangote refinery reverses the price, it could lead to significant losses for marketers.”

Ukadike further warned that filling stations that hoard fuel in anticipation of price hikes could suffer massive financial losses if the market stabilizes.

“Marketers should be careful about overstocking fuel, as purchasing large volumes at inflated prices could lead to losses,” he added.

Efforts to Resolve the Naira-for-Crude Dispute

Despite the disruption, efforts are underway to resolve the dispute between the Federal Government and Dangote Refinery. According to Ukadike, negotiations are progressing, with both parties reviewing the naira-for-crude agreement in a bid to restore crude oil sales to the refinery in local currency.

“I’ve gathered that the Federal Government and Dangote Refinery are almost resolving this matter. The two parties are reviewing the naira-for-crude deal to continue crude sales in naira to the refinery,” he revealed.

Sources from the Federal Ministries of Finance and Petroleum Resources confirmed that the Technical Sub-Committee on the Naira-for-Crude Policy would reconvene to deliberate on the issue.

The NNPCL’s Role and Crude Oil Supply Challenges

Industry insiders have linked the failure of the naira-for-crude deal to NNPCL’s massive forward sale of crude oil, which has left the corporation struggling to meet domestic supply obligations. A spokesperson for the NNPCL, Olufemi Soneye, confirmed that fresh negotiations were underway with Dangote Refinery to renew the naira-for-crude agreement.

“We have already supplied 48 million barrels of crude to Dangote Refinery since October. We are working on renewing the agreement as the first phase concludes this month,” Soneye said.

With the refinery’s suspension of naira sales, marketers will now have to source U.S. dollars to purchase petroleum products, a situation that could further weaken the naira and put pressure on the foreign exchange market.

Economic and Market Implications

The halt in naira transactions at Dangote Refinery has far-reaching economic consequences. Experts warn that the suspension could trigger:

• Further depreciation of the naira, as marketers scramble to buy U.S. dollars to pay for petroleum imports.
• A ripple effect on fuel prices, causing higher inflation and increasing transportation costs nationwide.
• Disruptions in domestic refining, as other refinery operators may also struggle with forex-based crude procurement.

The National Vice President of IPMAN, Hammed Fashola, emphasized that Dangote Refinery’s ability to sell fuel at lower prices was largely due to the naira-for-crude arrangement.

“The naira-for-crude agreement helped Dangote Refinery lower petrol prices, which in turn pressured the NNPC to follow suit. If this agreement is permanently halted, it could reverse the price advantage that Nigerian consumers have enjoyed,” Fashola warned.

Some analysts speculate that the decision to suspend the deal may be part of a strategic move to limit the influence of Dangote Refinery, which has faced accusations of monopolistic practices in the downstream sector.

Industry Reactions and Stakeholder Concerns

Local crude oil refiners have criticized the suspension of the naira-for-crude deal, arguing that it undermines Nigeria’s goal of self-sufficiency in refining and energy security.

Eche Idoko, National Publicity Secretary of the Crude Oil Refinery-Owners Association of Nigeria, condemned the decision, stating:

“This move obstructs our collective efforts to achieve energy security. If local refiners are forced to source crude in dollars, it will increase production costs and ultimately harm consumers.”

Mitigating Fuel Scarcity: Government Plans Importation of PMS

In an effort to mitigate potential fuel shortages, the Federal Government has facilitated the importation of seven vessels carrying 115,000 metric tonnes of PMS, expected to arrive in Nigerian ports between March 17 and 23. These shipments will be distributed through:

• Tincan Port, Lagos
• Lekki Deep Seaport, Lagos
• Calabar Port, Cross River State

These imports are expected to help stabilize fuel supply nationwide and prevent widespread shortages.

The suspension of naira sales by Dangote Refinery has sparked panic buying, depot profiteering, and fears of a fuel price hike. While government officials and industry stakeholders work to resolve the naira-for-crude dispute, the situation remains precarious.

If the issue is not quickly addressed, Nigeria may face higher fuel prices, increased inflation, and a weakened naira. However, the planned fuel imports and ongoing negotiations offer a glimmer of hope for stabilizing the sector in the coming weeks.

With millions of Nigerians relying on affordable petrol for transportation and daily activities, all eyes are now on the Federal Government, NNPCL, and Dangote Refinery to reach a solution that prevents further economic disruption.