FG Considers New Crude Supply Rules as Refiners Battle High Feedstock Costs

By Benson Daniel

The Federal Government is considering new measures to improve the supply of crude oil to domestic refineries as operators continue to face high feedstock costs that are putting pressure on refining margins and the prices of petroleum products.

The development comes amid renewed efforts to ensure that Nigeria’s growing refining capacity is adequately supplied with locally produced crude, reducing the need for refiners to source expensive feedstock from international markets.

The issue has become increasingly important following the expansion of domestic refining capacity, particularly with the operations of the Dangote Petroleum Refinery and the gradual return of other refineries to production.

Refiners have complained that securing sufficient Nigerian crude at commercially viable prices remains a major challenge. Where domestic crude is unavailable or not offered on acceptable terms, operators may be forced to purchase crude from international suppliers, adding freight, insurance and other logistics costs to their feedstock expenses.

The high cost of crude has direct implications for the economics of refining. When feedstock prices rise faster than the prices refiners can charge for finished petroleum products, refining margins come under pressure.

Recent developments in the global oil market have further complicated the situation. International disruptions have pushed up crude and refined product prices and increased competition among refiners for available feedstock. Global refining margins have also risen sharply as supplies of refined products have tightened.

For Nigeria, the challenge is particularly significant because the country is a major crude oil producer but is seeking to develop sufficient domestic refining capacity to meet local demand and become a net exporter of refined petroleum products.

The government has therefore been examining ways to make the domestic crude supply system more predictable for refiners while ensuring that oil producers are not forced into commercially unsustainable arrangements.

The debate is also linked to the implementation of the Domestic Crude Supply Obligation under the Petroleum Industry Act. The policy is intended to support local refining and energy security, but disputes have emerged over crude pricing, payment arrangements, availability, quality and logistics.

Industry stakeholders have called for a transparent pricing mechanism that balances the interests of producers and refiners. They argue that domestic refineries need reliable access to crude at prices that allow them to compete with imported petroleum products, while producers must also receive commercially viable returns for their crude.

The Federal Government is expected to consider regulatory adjustments that could improve coordination between producers, refiners and the relevant petroleum authorities.

A more efficient domestic crude market could reduce the exposure of Nigerian refiners to international freight and supply disruptions while strengthening the country’s energy security.

It could also help Nigeria maximise the economic benefits of its expanding refining industry. Increased local refining would support jobs, reduce foreign exchange demand for imported petroleum products and create opportunities across transportation, storage, petrochemicals and other downstream activities.

However, stakeholders say the success of any new crude supply rules will depend on their transparency, enforceability and commercial viability.

As Nigeria moves towards becoming a major regional refining hub, ensuring a stable and affordable supply of crude will remain critical to the sustainability of domestic refineries and the wider petroleum value chain.