morganable politics/Governance
He explained that production-sharing contracts and joint ventures determine how crude oil output is distributed between the government and private-sector partners, with the applicable ratios varying across arrangements.
KaNo—
The Minister of Finance and Coordinating Minister of the Economy, Taiwo Oyedele, has said Nigeria’s crude oil production constraints remain a major obstacle to meeting the demands of domestic refineries, despite the removal of petrol subsidy by President Bola Tinubu in 2023.
Oyedele said the country did not have sufficient freely available crude oil to supply the Dangote Refinery and other local refiners, explaining that production-sharing agreements, joint ventures, production costs and royalties significantly reduced the volume available to the Federal Government.
The minister made the disclosure on Friday during an interview on Channels Television’s Politics Today, amid renewed calls for government intervention in the petroleum sector and proposals for production subsidies to support domestic refineries.
He said Nigeria’s crude oil output did not translate into an equivalent volume available for government allocation because a substantial portion was committed to contractual obligations with oil companies involved in exploration and production.
Oyedele dismissed suggestions that the government could simply calculate crude oil production costs and use them to determine discounted supply prices for domestic refiners, arguing that such proposals failed to account for the complexities surrounding Nigeria’s petroleum production arrangements.
“So the people that are saying, ‘We’ll discount it, we’ll do the cost of production,’ don’t know what they’re talking about. We don’t have enough to service Dangote. Dangote imports crude. And I just want us to establish that fact,” he said.
According to the minister, Nigeria currently produces approximately 1.8 million barrels of crude oil daily, but the entire volume does not belong to the government.
He explained that production-sharing contracts and joint ventures determine how crude oil output is distributed between the government and private-sector partners, with the applicable ratios varying across arrangements.
“Under the production sharing contract and joint venture, they share these things. And the ratios vary. Let’s say roughly 45, 55, right? You do that,” Oyedele said.
He added that the government’s share was further reduced by the costs associated with extracting crude oil and the payment of royalties before the remaining volume could be distributed as profit oil.
According to him, these deductions significantly affect the quantity of crude available to the government for allocation to refineries and other buyers.
“Then there’s the cost. To produce it, to get it out of the ground, you take it in the cost of oil. That’s also barrels that are going away. Then you take the one for royalty. Before you now start talking about profit oil that you share,” he said.
Oyedele said the situation had implications for Nigeria’s ability to meet domestic refining requirements, even as the country sought to reduce its dependence on imported petroleum products.
“The long and short of what I’m telling you is that whatever is left for Nigeria, we have sustained it almost entirely because of fuel subsidy,” he added.
The minister disclosed that Nigeria currently had less than 700,000 barrels of crude oil freely available for allocation to buyers, including the Dangote Refinery.
“I don’t want to go into the technicalities, but the reality is that today we do not have up to 700,000 free crude to give anyone, including Dangote,” he said.
His remarks highlight the difference between Nigeria’s total crude oil production and the quantity available for domestic refining after contractual obligations and production-related deductions have been accounted for.
The Dangote Refinery, owned by businessman Aliko Dangote, is a major component of Nigeria’s efforts to expand domestic petroleum refining capacity and reduce reliance on imported refined products.
However, the refinery has faced challenges securing sufficient crude oil supplies locally, leading to the importation of crude from other countries to supplement available domestic volumes.
Oyedele said the naira-for-crude policy introduced by the Tinubu administration had helped provide some stability in the supply arrangement but acknowledged that the quantity available remained inadequate.
The policy allows crude oil transactions involving participating domestic refineries to be conducted in naira, with the aim of easing pressure on foreign exchange demand and supporting local refining.
“That’s why when Mr President introduced the Naira for Crude, it was meant to help us gain some stability. And it has worked, but we don’t have enough quantity to give as of yet,” the minister said.
He expressed optimism that increased domestic production would eventually enable Nigeria to meet the feedstock requirements of the Dangote Refinery and other local processors.
According to him, expanding output and making additional crude volumes available would help address the current supply gap and strengthen the domestic refining industry.
“As we ramp up production and we free up some barrels, we’ll get to a point where we’ll be able to give Dangote everything he wants and other refiners will be able to get enough,” he said.
The minister also expressed hope that Nigeria would eventually refine all the crude oil it produces locally and export only refined petroleum products.
“I even hope personally that we get to a point in Nigeria where all the crude we produce will be refined in Nigeria and we only export refined products,” Oyedele said.
The debate over crude supply has intensified amid rising petrol prices and calls for the Federal Government to introduce measures to ease the financial pressure on households and businesses.
The government recently announced a 30-day petrol discount at retail outlets operated by the Nigerian National Petroleum Company Limited, prompting questions about whether the intervention represented a return to fuel subsidy under another arrangement.
The discount was introduced to provide temporary relief to motorists amid rising international crude oil prices linked to the conflict in the Middle East.
However, the government has maintained that the initiative is a commercial promotion funded from NNPC’s retail margin rather than a government-funded subsidy.
Tinubu removed the petrol subsidy in 2023 as part of his administration’s economic reforms, arguing that the policy had become financially unsustainable and placed considerable pressure on public finances.
The removal, alongside changes to the foreign exchange market, contributed to higher living costs, prompting calls for additional measures to protect households from the effects of rising transportation and commodity prices.
The government has defended the reforms as necessary to address economic distortions and improve fiscal sustainability, while critics have continued to call for interventions to reduce the burden on Nigerians.
Oyedele’s remarks suggest that expanding domestic crude oil production will be central to efforts to improve feedstock availability for local refineries.
Although Nigeria remains a major crude oil producer and now has substantial domestic refining capacity, the quantity of crude available to meet local demand remains constrained by production levels, contractual commitments and competing obligations.
Increasing production and improving the volume available for domestic allocation could therefore play an important role in supporting local refiners, reducing dependence on imported crude and strengthening Nigeria’s petroleum supply chain.
