Crude Swap: Can NUPRC’s Plan Fix Domestic Refinery Supply Shortages?

As Nigeria pushes to end the persistent shortage of crude oil feedstock for domestic refineries, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) recently announced moves to deepen the implementation of a crude oil and gas swap mechanism to increase supply and boost local refining capacity.

The initiative is designed to address what many industry stakeholders consider a contradiction in Nigeria’s downstream petroleum sector: the fact that the country, which produces crude oil, is still struggling to consistently supply its own refineries, forcing some domestic refineries like Dangote to import crude, even as millions of barrels are exported every month.

During a courtesy visit to the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) in Abuja on August 13, the NUPRC Chief Executive, Mrs. Oritsemeyiwa Eyesan, stated that the Commission is consulting widely with stakeholders in the industry on the idea of a domestic crude oil and gas swap that would reduce cost and increase availability of products in the country.

Eyesan noted that the scheme would help to improve compliance with the Domestic Crude Supply Obligation (DCSO) and the Domestic Gas Supply Obligation (DGDO).

Pinnacle Daily reports that a few days before the announcement of the domestic crude oil and gas swap proposal, the NUPRC had reported that its enforcement of DCSO led to a 97.4 per cent overall compliance rate, as local refineries received 53.7 million barrels of crude oil and condensate in the second quarter (between April and June 2026).

On domestic gas supply obligation, the Commission cited data, which revealed that average domestic gas delivery in the first half of 2026 stood at 2.05 billion cubic feet of gas per day (Bcf/d) against a DGDO allocation of 3.16 Bcf/d, representing a compliance level of about 65 per cent. This means the volume still fell 35 per cent short of the country’s DGDO during the period.

The DCSO is a clause under Section 109 of the Petroleum Industry Act (PIA) 2021, which mandates upstream producers to allocate a portion of their crude production to meet domestic refining needs. The clause, in other words, emphasises the need to prioritise the supply of crude oil feedstock to domestic refineries to boost local refining activities.

The NUPRC holds regular monthly meetings with crude oil producers and licensed domestic refiners where specific crude and condensate volumes are allocated to producers to offer to local refineries. However, the Commission clarified that in line with the PIA provisions, the transactions are done on a commercial basis of “willing buyer, willing seller”, which allows market dynamics to dictate final deliveries.

A total of 82.2 million barrels of crude oil and condensates were supplied in six months, as 28.5 million barrels were received by the domestic refineries in the first quarter of the year. This reflects an 88.42 per cent increase in crude oil supply to domestic refineries from the previous quarter. 

The Supply Challenge

Despite the improvement in compliance with DCSO, crude oil importation still persists, highlighting a recurring shortage of feedstock experienced by domestic refiners. Data released recently by the NMDPRA revealed that crude oil imports by domestic refineries rose by 151.5 percent in July 2026 to 5.13 million barrels from 2.04 million barrels in June. This came as domestic crude supply to local refineries fell by 25.35 per cent during the month, from 17.08 million barrels to 12.75 million barrels.

 Nigeria produced an average of 1.505 million barrels per day of crude oil in July 2026, plus about 170,000 barrels per day of condensate, for a total of 1.67 million barrels per day.

Not all production is available to domestic refineries, as some volumes are committed to exports, financing arrangements, and other contractual obligations.

Meanwhile, domestic refining capacity is expanding as Dngote Refinery alone can process 650,000 barrels per day, while other facilities are also resuming operations.

The challenge is to ensure that sufficient volumes of crude, of the appropriate quality, are available at commercially viable prices and delivered on schedule.

How the Crude Swap Works

Under the proposed arrangement, producers could exchange delivery obligations based on refinery requirements and crude location.

For example, a producer whose crude is located far from a refinery could transfer its obligation to another producer whose crude is situated closer to the facility, while they reconcile at the export terminal.

This could reduce transportation costs, improve delivery times and simplify compliance with the DCSO.

“How the swap works is that I have an obligation somewhere and I am close to an export facility. Somebody else has an obligation inland, and his own (facility) is close to a domestic offtaker. So, instead of trying to move from one end to the other, we just agree on a swap arrangement and there is a mechanism for them netting off,” Eyesan stated while giving insight into how the proposed domestic crude swap will work.

This, in practice, means a producer near a refinery could deliver locally on behalf of a producer whose crude is stranded far away, while the second producer settles its own obligation by supplying a different offtaker closer to its own fields — with the accounts reconciled afterward rather than the oil itself criss-crossing the country.

For the upstream regulator, the proposed crude swap arrangement offers a practical way of overcoming some of the logistical and commercial obstacles that have undermined the DCSO over the years.

Energy expert Ikechukwu Okafor said the idea of a crude swap is a good one and is not a new thing in Nigeria’s oil and gas sector.

Speaking in an interview with Pinnacle Daily, Mr Okafor said the concern is whether those that will enter such an agreement (producers) and the regulator will be transparent and accountable enough to diligently implement the policy and ensure it yields significant results.

“Crude swap is not new in Nigeria. It is just the transparency of the process to enable the country to earn its full value of the crude asset,” Okafor, a petroleum engineer, stated.

Expressing his support for the proposed arrangement, the National Publicity Secretary of the Crude Oil Refiners Association of Nigeria (CORAN), Eche Idoko, said it will remove the high cost of logistics associated with the delivery of crude to domestic refineries.

But the bigger question is whether a swap can solve what may be a deeper supply problem. Can rearranging where crude is delivered actually guarantee enough barrels for Nigeria’s rapidly expanding refining capacity?

There are concerns that a swap does not increase crude production, but can only improve the allocation of existing volumes. 

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DCSO: Allocation vs Delivery 

The gap between allocated and delivered crude has contributed significantly to the controversy surrounding domestic supply.

In the first quarter of 2026, refineries were allocated 61.9 million barrels, while producers offered 68.7 million barrels. Only 28.5 million barrels were delivered, largely because of disagreements over pricing.

Performance improved in the second quarter, when refineries received 53.7 million barrels, representing 97.4 per cent compliance with the DCSO.

Analysts note that the outcome suggests that improved pricing arrangements and long-term contracts can strengthen supply. It also demonstrates why a swap mechanism alone will not be sufficient.

Dangote Refinery has had to import significant volumes of crude despite being located in Nigeria.

In the second quarter, it required 63 million barrels. Producers offered 68.1 million barrels, but the refinery accepted 52.6 million.

The issue, therefore, is not solely one of availability, but also involves price, quality, location, timing, and contractual terms.

A swap may address logistical constraints, but it cannot resolve problems relating to unsuitable crude grades or commercially unattractive pricing. 

Vice Chairman of CORAN, Duchess Dolapo Okulaja-Kotun, highlighted challenges domestic refineries face in getting crude oil feedstock supply, pricing and delivery logistics. Speaking in a televised interview, Okulaja-Kotun, who is the Executive Director, Ikwe–Ona Refinery, located in Akwa Ibom State, said the challenge is not that the functional refiners cannot produce, but they are not getting enough supply of feedstock from crude oil producers.    

“We are still having issues with getting enough crude oil supply for our refiners. So, if they do not have enough feedstock, which is the crude oil, then obviously their production will be low. So right now, what is happening in Nigeria is not that the refineries cannot produce, but they are not getting enough feedstock to enable them to refine into the products that are needed in the country,” she stated.

Further painting a picture of the supply challenges faced by local refineries, she said that apart from Dangote Refinery in Lagos, many of the modular refineries are located in areas close to oil fields (OMLs), but most of the operators are directing refiners to the terminal to collect feedstocks, which adds logistics costs, instead of supplying them directly from the areas.

“What is happening now is that most of these operators are requesting that the refiner, even though you are 500 meters away, five kilometers away, they want them to go all the way to the terminal to collect the feedstock, so that they are now buying at Brent (a crude pricing benchmark) plus all the transportation and the logistics prices,” she stated.

She said local refiners have kicked against such practice and called for a system that allows having a supply agreement between producers and refiners and building a pipeline facility to transport crude from wellheads to storage tanks of refineries.

“If I’m in the enclave of an OML and I have easy access to their wellheads, then all we need to do is agree between the two organisations. We build a pipeline, or we build a facility where we can easily lift the feedstock right from source. We don’t have to go to the terminal, so there’s a bit of an issue as to where we want to pick up the feedstock and where the operators want us to pick up the crude,” she stated.

The CORAN Vice Chairman also expressed concerns about pricing crude oil sold to local refiners with the Brent benchmark, which, according to her, already includes freight logistics and other things, even when they are just 500 meters away from crude producers.

In an interview with the PUNCH recently, Eche Idoko, the CORAN national publicity secretary, stated that Nigeria’s domestic pricing structure, in which purchases are routed through producers’ trading arms, adds roughly $3 to $4 to the cost of every barrel compared with a more direct arrangement.

She also accused producers of not fulfilling DCSO as contained in the PIA, which says that all crude oil producers must ensure that local refineries get feedstock before they export.

She highlighted a peculiar challenge that modular refineries have, which is not being able to refine all blends of crude as conventional refineries do. She called on the regulators to design the crude swap deal in such a way that enables modular refineries to get specific blends they need, while also reducing additional costs arising from logistics and pricing.

She also stressed the need for improving infrastructure such as pipeline facilities, as currently, much of the crude is moved by trucks due to unrepaired or inactive pipelines. 

 Existing Commitments

Coming into the picture of the ongoing conversation is the concern about Nigeria’s current commitments with international crude buyers. These are financial agreements where the Nigerian National Petroleum Company Limited (NNPC) borrows cash upfront from international lenders or trading firms and repays the debt using physical shipments of crude oil over time. The national oil company has entered into more than $21.5 billion in forward crude sales since 2019 that inevitably eat into the barrels available for domestic delivery regardless of how efficiently they’re moved around.

Early last month, the National Economic Council (NEC) approved a $4.5 billion refinancing of NNPC’s crude-backed loan, known as Project Gazelle 2.  It replaces the $3.3 billion pre-export finance facility secured in 2023 (Project Gazelle). Under the refinancing arrangement, $3 billion is expected to be injected into the country’s external reserves, while $1.5 billion will be used to repay the outstanding loan. 

These deals were designed to provide immediate foreign exchange liquidity, stabilize the naira, and fund infrastructure or refinery upgrades.

The new arrangement reduces the volume of crude oil pledged as collateral from 90,000 barrels per day to 78,750 barrels, releasing about 11,250 barrels daily for sale or domestic use. 

However, industry analysts believe that it still affects the supply of feedstock to domestic refineries, as the additional crude is only a fraction of domestic refining demand.

There are calls for Nigeria to balance the requirements of domestic refining with export revenues and crude-backed financing obligations. 

While noting that redirecting crude volumes that are already committed could undermine the country’s credibility and increase future borrowing costs, an economist, Dr Aduku Ebikabowei, said any swap mechanism must therefore take existing contracts with buyers and lenders into account.

While noting that a well-designed swap mechanism could generate substantial logistics savings for refiners and support domestic refining, Aduku argued that “lower costs do not equate to increased supply,” adding that “Refineries would still compete for limited crude volumes if production does not rise.”

He emphasised the need for increased production to meet both existing export commitments and feedstock demands by domestic refineries.

The CORAN vice chair also called for transparency in the crude allocation process and for crude quality offered to match refinery requirements.

For now, the plan remains a proposal on the table rather than a rule on the books. Whether it becomes the fix Nigeria’s refiners have been waiting for — or simply a more efficient way of moving the same disputed barrels — will depend on modalities that NUPRC says are still being worked out, and on whether the deeper argument over price can be settled alongside it.