FG Mulls New Crude Pricing, Direct Supply Rules to Cut Costs for Dangote, Other Refineries

Proposed DCSO reforms target $3-$4 per barrel savings and higher compliance from oil producers

The Federal Government is weighing major changes to its crude oil pricing and allocation rules to give domestic refiners, including the 650,000-barrel-per-day Dangote Refinery, better and cheaper access to feedstock.

The proposed reforms to the Domestic Crude Supply Obligation, DCSO, are expected to be discussed this week during a regulator-led review, according to the Crude Oil Refinery-owners Association of Nigeria, CORAN.

*The Core Problem: Pricing, Not Supply*
Industry players say the main bottleneck is not crude availability, but pricing.

Dangote Refinery has previously argued that Nigeria’s current structure adds between $3 and $4 per barrel to feedstock costs. This is because crude purchases are often routed through the trading arms of international oil companies, IOCs, instead of being supplied directly.

CORAN spokesperson Eche Idoko said the new proposals aim to fix that.

—Two Key Proposals on the Table—

1. Direct Delivery by IOC-linked Producers

Under one proposal, producers linked to IOCs would be allowed to deliver crude directly to nearby refineries. The volumes would later be reconciled at export terminals.

“This arrangement would reduce reliance on trunkline infrastructure and bring crude closer to refining facilities,” Idoko said.

2. Freight and Handling Discounts

The second proposal would allow refiners lifting crude directly from production sites to receive discounts. The discount would reflect freight and handling costs built into Brent-linked pricing but not incurred under direct deliveries.

“This could be a win-win for both the producers and refiners,” Idoko added.

—Compliance Improving, But Gaps Remain—

The Nigerian Upstream Petroleum Regulatory Commission, NUPRC, reported on Monday that producer compliance with the DCSO framework rose to over 90 per cent, up from less than 43 per cent in the previous quarter.

However, the regulator clarified that the figure measures actual deliveries against volumes allocated_ to producers, not the proportion of total refinery demand met.

Under the current framework, producers are required to offer allocated crude volumes to local refiners. Transactions are concluded on a willing-buyer, willing-seller basis.

—What Happens Next—

A senior NUPRC official said the proposals are being considered largely in response to requests from inland refiners.

But the official cautioned that implementation would require resolving technical issues around crude quality differences and pricing adjustments.

If approved, analysts say the changes could help raise output at the Dangote Refinery — Africa’s largest — which has at times struggled to secure adequate crude supplies from local producers despite the DCSO policy.