Dangote Refinery Urges Enforcement of Local Crude Supply Law to Cut Rising Costs

The Dangote Oil Refinery has urged Nigeria's upstream oil regulator, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), to enforce the Domestic Crude Supply Obligation (DCSO) law.

This provision mandates crude oil producers to supply a portion of their output to local refineries, a requirement that the refinery claims is not being strictly enforced.

As a result, the 650,000-barrel-per-day refinery, which was built by billionaire Aliko Dangote on the outskirts of Lagos, is facing increased operational costs. According to a statement from Dangote Refinery, the lack of compliance by international oil companies has forced it to buy Nigerian crude from international traders at a premium of $3-$4 per barrel, leading to millions in additional costs per cargo.

The refinery, which began operations in January, requires 325,000 barrels per day but has only been receiving about half that amount. The NUPRC acknowledged the issue, stating that some producers are facing operational challenges while others are tied to contracts with oil traders who financed their drilling activities.

The DCSO, established under Nigeria's 2021 Petroleum Industry Act, has been difficult to enforce due to declining oil production and the Nigerian National Petroleum Corporation's commitments to crude-backed loans. The situation has further strained the refinery’s operations, as it also contends with challenges in fuel imports amidst a highly competitive market environment.