Proposed NUPRC framework could cut logistics costs for local refiners by up to $4 per barrel

The Dangote Petroleum Refinery and other Nigerian domestic refineries could achieve estimated crude swap savings of between $246.6 million and $328.8 million on 82.2 million barrels of crude supplied in the first half of 2026, if a proposed arrangement by the Nigerian Upstream Petroleum Regulatory Commission eliminates an estimated $3 to $4 per barrel in logistics and related costs.

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The projection comes as NUPRC begins consultations with producers, refiners and other industry stakeholders on a domestic crude and gas swap framework intended to make crude supply more efficient and strengthen compliance with the Domestic Crude Supply Obligation.

NUPRC’s Q1 data showed that 61.9 million barrels were allocated to domestic refineries between January and March, while producers offered 68.7 million barrels. Only 28.5 million barrels, however, were actually supplied during the quarter. (NURPC)

The shortfall has highlighted the structural difficulties facing Nigeria’s emerging refining industry, particularly the cost and availability of locally produced crude.

Under the proposed swap arrangement, refiners would be able to receive crude from the nearest suitable production or export terminal instead of transporting an allocated grade over a much longer distance.

Eche Idoko, National Publicity Secretary of the Crude Oil Refiners Association of Nigeria, said the arrangement could remove significant logistics expenses currently borne by refiners.

“Yes, the crude swap will save around $3-$4 per barrel,” Idoko told The PUNCH.

He explained that transportation costs could rise beyond $4 per barrel in some circumstances, particularly where barging was involved.

“Sometimes, it is more, like $5. If you are doing barging like Dangote, it is as high as $12. A swap saves this amount in logistics,” he said.

Based on the 82.2 million barrels supplied during the first six months of 2026, a $3 reduction per barrel would translate into $246.6 million in potential savings. At $4 per barrel, the figure would rise to $328.8 million.

The estimate is prospective rather than money already saved. The proposed framework was not operational during the January to June period.

NUPRC’s figures show that domestic refinery supply increased significantly between the first and second quarters. Refineries received 28.5 million barrels in Q1, equivalent to about 316,667 barrels per day, before deliveries increased to 53.7 million barrels in Q2, averaging approximately 590,110 barrels per day.

The combined six-month supply averaged about 454,144 barrels per day.

Idoko said the proposed system would allow a refinery to obtain crude from a nearby producer while the corresponding volumes were subsequently reconciled at the original export terminal.

For example, where a producer is expected to supply crude from Bonny to a refinery located closer to another producer’s terminal, the nearby crude could be delivered to the refinery and the volumes reconciled between the producers.

He said the proposed system would involve the refinery, the parties facilitating the swap and NUPRC, with the detailed operational framework still being developed.

The proposed reform would not change the international price of crude. Instead, it is intended to remove additional logistics and handling costs that can make Nigerian crude more expensive for domestic refiners.

“The international price still remains the same. It won’t change,” Idoko said. “But what we have argued is that there are other components associated with it that, if removed, would give cheaper crude and comparative advantage in the market.”

Dangote Refinery, which has a nameplate capacity of 650,000 barrels per day, is expected to be among the major beneficiaries if the system becomes operational. NUPRC’s own refinery requirement data identifies Dangote as the country’s largest refining facility.

Idoko said the same mechanism could be used if Dangote wanted to purchase crude from a producer whose export terminal was geographically convenient to the refinery.

The need for such an arrangement has become more pressing as domestic refiners have repeatedly complained about difficulties securing sufficient crude at competitive prices.

In 2024, Dangote Refinery said it was sometimes forced to buy Nigerian crude through international traders at an additional $3 to $4 per barrel premium when domestic supplies were unavailable. (Dangote Petroleum Refinery)

More recently, NUPRC has reported an improvement in producer compliance with domestic crude obligations, while acknowledging that challenges around supply, pricing and logistics remain. Reuters reported that the commission was considering reforms that would allow producers to supply nearby refineries more directly and reduce transport-related costs. (Reuters)

The proposed crude swap therefore represents more than a cost-cutting measure. It is also intended to address the gap between crude volumes allocated to refineries and the quantities ultimately delivered.

Idoko said industry stakeholders had agreed to establish a crude trading platform for domestic refiners as part of the wider reform.

“We had a roundtable on Thursday where we agreed, and far-reaching decisions were made on how we can collaborate on how we can improve access to crude for local refineries,” he said.

He added that NUPRC was working with the Nigerian Midstream and Downstream Petroleum Regulatory Authority to develop a system capable of bringing producers, refiners and regulators into a more transparent trading structure.

The initiative is being developed within the existing DCSO framework established under the Petroleum Industry Act. NUPRC already maintains guidelines and an approved framework for operationalising the domestic crude supply obligation.

For refiners, the potential impact could be substantial if the proposed system consistently removes several dollars from the cost of each barrel. For regulators, however, the bigger test will be whether the new mechanism can translate available crude into reliable physical deliveries.

That challenge was starkly illustrated in the first quarter, when only 28.5 million of the 61.9 million barrels allocated to domestic refineries were actually supplied.

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If the proposed framework succeeds in closing that gap while reducing transportation costs, it could provide a significant boost to Nigeria’s refining ambitions and strengthen the economics of locally processed petroleum products.