Yemisi Izuora
Dangote refinery is currently pushing refined petroleum products into Nigeria’s domestic market to boost the country’s energy supply capacity despite geopolitical uncertainty.
Petroleum marketers in Nigeria have halted the loading of petrol from Dangote Petroleum Refinery, after the facility switched to dollar-denominated sales, a move that legal and energy industry analyst Benga Bobaku said could lift consumer fuel costs and add pressure to the country’s foreign exchange market.
Bobaku, senior partner at Benga Bobaku & Co, speaking during an interview with CNBC Africa, said the pricing shift reflects a broader dislocation in Nigeria’s fuel supply chain, where geopolitical tensions have pushed crude prices higher and the government has struggled to fully meet refinery feedstock needs under the naira-for-crude arrangement.
According to Bobaku, Dangote has had to source a substantial portion of its crude requirements from international markets, where purchases are denominated in dollars. That, he said, makes it harder for the refinery to recover costs if refined products are sold only in naira.
“It is a result of that that has necessitated the Dangote refinery to then price their products in dollars,” Bobaku said in the interview.
He said the development cuts against one of the central promises behind the domestic refining push and the naira-for-crude framework: that refining petrol locally would help stabilize the market and make fuel cheaper for Nigerians.
A dollar-pricing model for wholesale petrol sales means marketers would likely pass the added foreign exchange cost through the supply chain, Bobaku said, with retailers and ultimately consumers absorbing the impact. “We will end up paying much more than what we are paying now,” he said.
The pause in loading also risks deepening uncertainty in the downstream sector, which has been adjusting to deregulation under the Petroleum Industry Act, or PIA. Nigeria has been trying to build a more market-driven fuel system after years of subsidies, supply distortions and periodic shortages.
Bobaku said the government needs to respond quickly if it wants to restore confidence and limit disruption. While he said there may be discussions taking place behind the scenes between the government and Dangote, he added that the market has not yet seen the same speed of official intervention that accompanied earlier friction around the crude supply arrangement.
In his view, the immediate policy priority is for the government to provide clearer assurances on how much crude can be supplied to domestic refining under the naira-for-crude framework. Such assurances, he said, could help make Dangote more comfortable reverting to naira pricing.
The feedstock issue sits at the center of the dispute. Bobaku said Nigeria’s crude production has improved and has risen to around 1.5 million barrels per day, but supply constraints remain because the country still has export obligations, including forward sale commitments tied to the Nigerian National Petroleum Company, or NNPC, and broader fiscal dependence on oil-related foreign exchange inflows.
Those competing demands limit how much crude can be set aside for domestic refining. In the short term, Bobaku said, the government may need to increase the allocation available for local refining if it wants to ease the pressure on Dangote’s operations.
But he argued the more durable answer is higher production. Nigeria, he said, needs to accelerate output growth, especially in onshore fields that can be brought onstream relatively quickly.
“Ultimately we will need to address this by increasing our production,” Bobaku said.
He credited the government with some progress over the past two years, saying crude output has increased while pipeline vandalism and oil theft have eased significantly. Still, he said more work is needed to cut losses further and support fresh investment in fields that can add barrels quickly.
That matters not only for Dangote, but for the broader refining market Nigeria is trying to build. More crude available for domestic refiners could help reduce reliance on imported feedstock, lower exposure to exchange-rate volatility and support a more competitive downstream market over time.
Bobaku also addressed the legal and regulatory question of whether downstream petroleum transactions can be priced in dollars. He said the PIA itself does not prescribe that refiners must be paid in dollars and does not specifically provide for downstream petroleum products to be sold in foreign currency.
Instead, he said, the law provides for market-determined pricing in an unrestricted and competitive market, with refiners and wholesale buyers expected to negotiate prices on an arm’s length basis.
Ordinarily, Bobaku said, naira remains Nigeria’s legal tender under the Central Bank Act and should be the default currency for domestic transactions. However, he noted that Central Bank of Nigeria regulations have carved out exemptions for certain sectors, including oil and gas, aviation and maritime, allowing some transactions to be conducted in dollars.
He said those exemptions were originally aimed more clearly at the upstream oil sector, where contracts have traditionally been denominated in U.S. currency. Still, he added, the regulations do not explicitly distinguish between upstream and downstream on their face.
Bobaku also pointed to Dangote Refinery’s location in the Lekki Free Trade Zone as another potential basis for dollar pricing at the wholesale level. Operators in export processing or free trade zones can benefit from additional regulatory flexibility, he said.
Even so, he drew a distinction between wholesale and retail transactions. He said he does not expect the exemptions to extend to filling stations selling petrol directly to motorists in dollars, and he added that he does not believe the government would allow retail fuel pricing in foreign currency.
The wider issue, Bobaku said, is how Nigeria balances deregulation with affordability. One of the PIA’s central goals was to liberalize the downstream sector and attract more participants across refining, midstream and fuel distribution.
The theory behind that reform was that more private players and freer price discovery would eventually create stronger competition and lower prices. But that outcome depends on enough supply, sufficient infrastructure and a market that is not overly concentrated.
Bobaku said deregulation under the PIA remains sound in principle, but periods like this show why government coordination still matters. Authorities, he said, have a responsibility to ensure fuel prices do not move too far beyond the reach of ordinary citizens even as the market develops.
In the longer run, he said, Nigeria needs more refiners, more supply options and a more efficient market structure so that no single player dominates price formation. That would move the downstream sector closer to the competitive model envisioned under the PIA.
He also cautioned that even mature deregulated markets remain exposed to swings in crude prices. Fuel markets in Europe and the United States, he noted, still face upward pressure whenever crude oil prices rise, underscoring that Nigeria’s challenge is not deregulation alone, but also the global oil cycle and the country’s domestic supply limitations.
Dangote Petroleum Refinery and relevant government agencies were not quoted directly in the interview, and no immediate response was provided in the transcript to the marketers’ loading pause. The next key test for the market will be whether talks between policymakers and the refinery produce a renewed crude supply understanding that allows wholesale petrol sales to revert to naira.