The Federal Government and the Crude Oil Refinery Owners Association of Nigeria, CORAN, are calling for a more reliable and commercially sustainable framework for supplying crude oil to domestic refineries as Nigeria intensifies efforts to expand local refining capacity.
The renewed push centres on the Domestic Crude Supply Obligation, DCSO, established under the Petroleum Industry Act, which requires crude producers to make supplies available to qualifying domestic refineries. While crude allocations to local refineries have improved, refinery operators argue that physical allocation alone does not guarantee that crude will actually reach plants under commercially workable conditions.
From Allocation to Actual Delivery
One of the biggest issues facing domestic refiners is the difference between crude being allocated and crude being successfully delivered.
CORAN has pointed to first-quarter 2026 figures showing that 61.9 million barrels were allocated to domestic refineries, while producers offered 68.7 million barrels. Actual deliveries, however, stood at only 28.5 million barrels.
The Nigerian Upstream Petroleum Regulatory Commission, NUPRC, identified pricing gaps between producers and domestic refiners as one of the factors contributing to the shortfall.
By the second quarter, the situation had improved considerably. NUPRC reported that 53.7 million barrels of crude oil and condensate were supplied to local refineries, representing 97.4 per cent performance under the DCSO.
Nevertheless, CORAN argues that the improvement must go beyond allocation figures. Refineries need crude delivered at prices and under arrangements that allow them to operate consistently and remain commercially viable.
Government Wants a Sustainable Framework
The Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, has said the Domestic Crude Supply Obligation should evolve beyond an administrative requirement into a transparent and commercially sustainable system.
That approach places greater emphasis on certainty for both crude producers and refinery operators.
For producers, a workable framework must provide clarity around pricing, volumes and payment arrangements. For refiners, meanwhile, it must ensure predictable access to appropriate crude without imposing costs that undermine their ability to process it profitably.
Consequently, the debate is shifting from whether domestic refineries should receive Nigerian crude to how that crude should be supplied.
Pricing Remains a Major Issue
CORAN has repeatedly called for a transparent domestic crude pricing framework.
The association argues that international benchmarks remain useful references but should not automatically determine the final cost of crude delivered to a Nigerian refinery.
According to the refinery owners, factors such as crude quality, delivery location, transportation expenses, evacuation costs and the distance between producing assets and refineries should be considered.
This is particularly relevant for modular refineries located relatively close to oil-producing assets. Where crude can move directly from a nearby producing field to a refinery, the cost structure can differ significantly from an international export transaction.
Therefore, CORAN is advocating a pricing system that reflects the actual economics of domestic crude transactions rather than simply applying international prices without adjustments.
Naira-for-Crude Returns to the Spotlight
The debate has also renewed attention on the Federal Government’s Naira-for-Crude initiative.
CORAN has expressed support for institutionalising the mechanism and making it predictable for qualifying domestic refineries, including modular and emerging operators.
The association’s argument is that refineries selling petroleum products predominantly in naira can face additional financial pressure when their crude supply arrangements expose them unnecessarily to foreign exchange costs.
A predictable naira-based framework could therefore help reduce some of the currency-related pressure surrounding domestic crude procurement.
However, its effectiveness will depend on clear eligibility rules, transparent pricing and reliable implementation.
Crude Swaps Could Reduce Logistics Costs
Another proposal gaining attention is the use of crude swaps and proximity-based supply arrangements.
The idea is relatively straightforward: where a producing asset is located close to a domestic refinery, the crude could potentially be supplied directly or through a more efficient arrangement rather than being transported through distant export infrastructure before returning to the domestic market.
NUPRC has acknowledged the potential value of such mechanisms and has been consulting on approaches that could match producing assets more efficiently with nearby refineries.
For refinery operators, reducing unnecessary transportation, barging, trucking and evacuation costs could improve the economics of domestic processing.
Infrastructure Remains Part of the Problem
Reliable crude supply cannot depend on pricing arrangements alone.
Pipelines, storage facilities, terminals, depots and other evacuation infrastructure remain essential to moving crude efficiently from producing fields to refineries.
CORAN has therefore called for greater investment across the supporting infrastructure network.
This is important because even when crude is commercially available, inadequate infrastructure can increase transportation costs and create delays.
Moreover, reliable infrastructure can help refineries plan their operations with greater certainty because they can better anticipate when and how feedstock will arrive.
Why Reliable Supply Matters
For Nigeria, the importance of the issue extends beyond individual refinery operators.
A stronger domestic refining industry could reduce the country’s dependence on imported petroleum products and allow more of the value created from crude oil to remain within the domestic economy.
Instead of exporting crude and subsequently importing refined products, Nigeria could increasingly process its crude locally and supply petrol, diesel, aviation fuel and other products to domestic consumers.
That would also create opportunities across transportation, storage, refining services, engineering, logistics and other parts of the petroleum value chain.
However, achieving that objective requires refineries to operate consistently rather than intermittently.
Balancing Producers and Refiners
The emerging framework will also have to balance the interests of crude producers and refiners.
Oil producers need commercially viable returns on their crude, while refiners need feedstock at prices that allow them to compete in the domestic and regional markets.
Consequently, any pricing mechanism must avoid simply transferring costs from one side of the industry to the other.
The objective is to establish a transparent system where both producers and refiners understand the commercial terms before transactions take place.
This balance will become increasingly important as Nigeria’s domestic refining capacity expands.
The Next Step Is Implementation
The Federal Government and CORAN now face the challenge of turning the ongoing discussions into a predictable operating framework.
That could involve strengthening enforcement of the DCSO, establishing a transparent pricing template, expanding crude-swap arrangements, improving infrastructure and making Naira-for-Crude more predictable.
CORAN has also called for a Presidential Refining Industry Roundtable involving refiners, regulators, crude producers, NNPCL, financial institutions, infrastructure investors and relevant government ministries.
Such broader engagement could allow the different parts of the petroleum value chain to address the supply problem collectively rather than treating it as a dispute between producers and refiners.
From Crude Supply to Refining Security
Nigeria’s refining landscape is changing rapidly, with large-scale and modular refineries increasing the country’s potential domestic processing capacity.
Yet capacity alone does not guarantee production. Refineries require reliable feedstock, commercially workable prices, dependable infrastructure and access to financing.
Therefore, the current push by the Federal Government and CORAN is ultimately about creating the conditions that allow Nigeria’s refining investments to operate consistently.
If the country can establish a reliable crude supply framework, improve infrastructure and maintain commercially sustainable transactions, domestic refineries will have a stronger foundation for long-term operations.
The broader objective is clear: Nigerian crude should increasingly supply Nigerian refineries, while Nigerian refineries provide a greater share of the petroleum products consumed within the country.
For the Federal Government and refinery owners, the challenge now is to transform that objective into a predictable system that works for producers, refiners and ultimately the wider Nigerian economy.
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