FG considers new crude rules as refiners battle high feedstock costs

The Nigerian government is contemplating alterations to its crude allocation and pricing regulations in an effort to enhance feedstock accessibility for local refineries, as reported by Reuters. These proposed modifications are expected to tackle the financial and supply hurdles confronting domestic refiners amid Nigeria's pursuit of augmenting domestic crude supply under the Domestic Crude Supply Obligation (DCSO) framework.

Dangote Refinery, Nigeria's largest refinery with a capacity of 650,000 barrels per day, has previously contended that Nigeria's pricing framework inflates refiners' feedstock expenses by $3 to $4 per barrel due to the routing of crude purchases through producers' trading entities. According to CORAN, the proposed adjustments are anticipated to be deliberated during a regulator-led evaluation of Nigeria's domestic crude supply obligation, which mandates producers to supply local refineries before exporting.

The proposals aim to refine the mechanism of domestic crude allocation and pricing while alleviating certain expenses linked to supplying local refineries. As of May, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) disclosed that Nigeria supplied 28.5 million barrels of crude oil to domestic refineries during the first quarter of 2026, markedly lower than the 61.9 million barrels allocated for the period.

Consequently, the enhancement in compliance does not necessarily signify that refineries are receiving the requisite crude to operate at peak capacity. In April, esteemed economist and Managing Director of Financial Derivatives Company, Bismarck Rewane, suggested a paradigm shift in Nigeria's fuel subsidy framework, advocating for a refinery-centric model that directly channels advantages to consumers.

Rewane elucidated that the proposed model would entail the government procuring crude oil for domestic refineries at a regulated price, while ensuring refined petroleum products are sold to consumers at reduced rates. The Nigerian Economic Summit Group (NESG) had projected that escalating geopolitical tensions in the Middle East could yield a substantial oil revenue windfall for Nigeria, potentially amounting to N30.2 trillion if the conflict between Iran and Israel persists.