Modular refineries shun domestic crude over high costs
August 12, 2026 12:11 am
Dangote Petroleum Refinery. Photo: Dangote
By Dare Olawin
The Crude Oil Refinery Owners Association of Nigeria says its members did not lift crude oil allocated to refiners under the Domestic Crude Supply Obligation administered by the Nigerian Upstream Petroleum Regulatory Commission in the second quarter of 2026, citing “unrealistic commercial terms” and high costs arising from international crude pricing benchmarks.
According to NUPRC data, 68.1 million barrels were offered to the Dangote Petroleum Refinery, representing 98 per cent of all crude volumes offered to domestic refiners during the period.
The refinery accepted 52.6 million barrels, representing 78 per cent of the volume offered to it. The commission did not reveal that any other refinery received crude in the second quarter of the year.
Speaking with our correspondent, CORAN spokesman, Eche Idoko, confirmed that modular refineries did not receive crude under the arrangement within the period under review.
He said the use of international pricing indices such as Platts, Brent and West Texas Intermediate made crude too expensive for modular refineries, while also creating what he described as double charges on logistics.
“The smaller refineries couldn’t take crude because of the issues we have outlined. The commercial terms were not realistic. And though receiving attention, these issues have not been resolved,” he said.
Idoko explained that modular refineries typically purchase crude directly from producing assets and bear the cost of evacuating it from the production point to their facilities.
“Quoting prices using a pricing index like Platt makes crude costs very high, especially for modular refineries, and amounts to double charges. For example, typical crude purchases for these refineries entail us going to the producing assets to pick the oil.
“Now, Brent and WTI pricing indices encapsulate all the costs. So when the producers give modular refineries prices at Brent or WTI rates, they (refiners) pay for freight and insurance while still bearing the cost of picking the product at the wellhead,” Idoko said.
His comments followed the release of the NUPRC’s second-quarter report on the implementation of the DCSO, which showed that 53.7 million barrels of crude oil and condensate were supplied to local refiners between April and June.
The commission said this represented an overall DCSO performance of 97.4 per cent during the quarter. Under the DCSO framework established by the Petroleum Industry Act, the NUPRC meets monthly with crude oil producers and licensed domestic refineries before allocating specific volumes of crude oil and condensate to producers for supply to local refiners.
The regulator, however, noted that the arrangement operates on a willing-buyer, willing-seller basis, meaning that volumes allocated or offered may not necessarily translate into actual crude lifted by refiners.
The report showed that in April, the commission allocated 18.13 million barrels to producers, who offered 19.31 million barrels to refiners. Actual supply eventually reached 20.88 million barrels, representing 114.9 per cent performance against the allocation.
In May, producers were allocated 18.78 million barrels but offered 23.19 million barrels to local refiners. Actual supply stood at 14.23 million barrels, representing 75.8 per cent compliance.
In June, 18.17 million barrels were allocated to producers, while 26.84 million barrels were offered to refiners. Actual supply stood at 18.61 million barrels, representing 102.4 per cent performance.
For the modular refineries, Idoko said the pricing model needed to take into account the actual point of crude delivery and the logistics costs borne by the refinery.
“Pricing crude oil supplied to Nigerian modular refineries using international benchmarks such as Platts, Brent, or WTI can significantly increase the effective cost of crude and, in some circumstances, result in what amounts to a duplication of logistics-related costs.
“The fundamental issue is that modular refineries often purchase crude directly from producing assets and are responsible for evacuating the crude from the production point to their refinery facilities. This means the refinery bears the actual cost of transportation, evacuation, handling, security, and other associated logistics,” Idoko stated.
He said international crude benchmarks could include logistics assumptions that did not reflect the actual domestic delivery arrangement.
“Therefore, where a producer sells crude to a domestic modular refinery at a price derived directly from Brent, WTI, or a Platts-based international benchmark without making appropriate adjustments for the actual domestic delivery point and logistics responsibilities, the refinery may effectively pay a price that incorporates international logistics assumptions while still bearing the full cost of evacuating the crude from the wellhead or production facility,” Idoko said.
He called for a domestic crude pricing structure that reflected the actual delivery point and removed costs not incurred by producers.
“A more equitable domestic crude pricing framework should therefore recognise the actual point of delivery. Where the refinery takes crude at the wellhead or production facility, the applicable benchmark should be appropriately adjusted to remove freight, insurance, transportation, and other costs that are not actually incurred by the producer.
“This would ensure that domestic refiners pay for the true value of the crude without effectively being charged twice for logistics, while still guaranteeing producers a fair and commercially competitive price for their production,” he mentioned.
The NUPRC said it remained committed to enforcing the DCSO and sustaining the recent increase in domestic crude production. “The commission reaffirms its commitment to achieving the government’s objective of energy sufficiency. Leveraging the framework of the PIA, 2021, the commission aims to sustain recent gains in crude oil production while continuously enforcing the DCSO,” it stated.
Dare Olawin is a journalist at Punch Newspapers with over a decade of reporting experience. He began his career as a community reporter and now covers the energy sector, including oil, gas, electricity, and renewables. Dare’s work reflects hands-on newsroom experience, professional development through workshops and conferences, and a strong commitment to accurate and insightful journalism.
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