The Federal Government is considering two proposals to ease crude oil offtake by domestic refiners as it moves to address pricing and logistics challenges that have continued to constrain access to locally produced crude.
The proposals, according to the Crude Oil Refinery-owners Association of Nigeria, include allowing producers to deliver crude directly to nearby refineries and granting refiners a discount for transportation and handling costs embedded in the price of crude. This was disclosed in a report by Reuters on Wednesday.
The PUNCH also gathered that the proposals are expected to come up for discussion at the next monthly meeting between the government, through the Nigerian Upstream Petroleum Regulatory Commission, domestic refiners and crude oil producers, where stakeholders will review measures to ease domestic crude offtake and reduce feedstock costs.
The report read, “The Federal Government is considering changes to crude allocation and pricing rules to improve feedstock access for its refiners, including Dangote Refinery.”
The review comes as compliance with the domestic crude supply framework improved sharply in the second quarter of 2026, although refiners continue to complain that the cost and structure of domestic crude transactions make locally sourced feedstock expensive.
A spokesperson for CORAN, Eche Idoko, told Reuters that one of the proposals would enable producers, particularly those operating within international oil companies’ networks, to deliver crude directly to refineries located close to their production facilities.
Under the arrangement, the crude volumes could subsequently be reconciled at the relevant terminal, potentially reducing the need to transport the crude through longer trunkline routes.
Idoko said the proposal would bring crude closer to refineries while reducing some of the logistics costs associated with domestic supply. A second proposal would address the pricing component of domestic crude transactions.
Under the arrangement, refiners that lift crude directly from production facilities could receive a discount corresponding to freight and handling costs incorporated into the Brent-linked price of crude but which the refiners do not actually incur.
Idoko described the proposed arrangement as beneficial to both sides of the transaction. “Under one proposal, a producer linked to an IOC’s network could deliver crude directly to a nearby refinery, with volumes reconciled later at the terminal.
“This would reduce reliance on trunklines and bring crude closer to refiners. A second proposal would allow refiners that lift crude directly from production facilities to receive a discount reflecting the freight and handling costs embedded in Brent-linked pricing but not actually incurred by them. This could be a win-win for both the producers and refiners,” the report noted.
The proposed changes are coming against the backdrop of complaints by local refiners that the pricing structure for domestic crude makes their feedstock more expensive than necessary.
Dangote Refinery has previously estimated that Nigeria’s pricing structure could add between $3 and $4 per barrel to the cost of crude purchased by domestic refiners because transactions are often routed through trading arms of producers.
Energy analysts have similarly identified pricing, rather than the physical availability of crude, as one of the major challenges facing domestic refiners. The issue is particularly significant for the Dangote Refinery, Africa’s largest refinery, which has a nameplate capacity of 700,000 barrels per day.
Although the refinery has significantly increased its operations, securing adequate volumes of locally produced crude at competitive prices remains a key issue for the development of Nigeria’s refining industry.
The development comes shortly after the NUPRC reported a significant improvement in compliance with the Domestic Crude Supply Obligation. Data released by the upstream regulator showed that producer compliance with allocated domestic crude supply volumes rose to more than 90 per cent, from less than 43 per cent in the preceding quarter.
The figure, however, measures actual crude deliveries against volumes allocated by the regulator. It does not indicate the extent to which refinery demand was fully met. Under the DCSO framework, oil producers are required to offer allocated crude volumes to local refineries, with transactions conducted under a willing-buyer, willing-seller arrangement.
The improvement in compliance suggests that producers are increasingly meeting their obligations to offer crude to domestic refiners. However, refiners argue that the availability of crude offers does not automatically translate into affordable feedstock.
A senior NUPRC official confirmed that the proposed arrangements were being considered, particularly following pressure from inland refineries. The official said the proposals had been on the table but warned that implementation would require resolving differences in crude quality and pricing.
“It’s always been on the table. The inland refineries are pushing for it. But there are a lot of quality and pricing adjustment issues.”
The quality issue is important because Nigerian refineries do not all process the same crude grades, while the commercial value of different crude streams varies. Consequently, any new arrangement would have to establish how differences in crude quality would be reflected in the final price paid by refiners.
The direct-delivery proposal could particularly benefit inland refineries by reducing the distance between producing assets and processing facilities.
The freight-discount proposal, on the other hand, could directly address refiners’ concerns about paying for transportation and handling components that may not apply when crude is lifted directly from production facilities.
The PUNCH reports that the government has been pushing to increase domestic refining and reduce the country’s dependence on imported petroleum products.
SOURCE: PUNCH NEWS PAPER
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