Naira-crude deal: NNPCL, Dangote Refinery begin fresh negotiations

The Nigerian National Petroleum Company Limited (NNPCL) and Dangote Refinery have initiated fresh negotiations to renew the naira-for-crude agreement in anticipation of the expiration of the initial deal this month. The partnership between the two entities has been a subject of interest as they explore the benefits and challenges of the existing contract while considering potential adjustments for the future. Ayodele Oni, Partner at Bloomfield Law Practice, shed light on this development and other key issues in the oil and gas sector. The naira-for-crude agreement was established under the Petroleum Industry Act, granting both sellers and refiners the flexibility to negotiate the sale and purchase of crude in a mutually agreed currency. While the NNPC opted to have refineries, particularly Dangote Refinery, buy crude in naira, there is no mandate to transact solely in the local currency. This decision has alleviated pressure on the naira and boosted availability and competition within the domestic market. However, the possibility of introducing a hybrid currency mix in the future, combining USD and naira, remains under consideration to accommodate varying income streams and operational dynamics. Amidst discussions on contract renewal, questions arise regarding the participation of smaller refineries that were originally intended to benefit from the agreement. As the possibility of demanding USD for crude purchases could impact some players, the integration with upstream assets or collaboration with producers possessing refineries becomes a potential solution to navigate currency challenges. The need for strategic partnerships and innovative approaches is highlighted to ensure continued access to crude amidst evolving market conditions. In assessing the production landscape of the oil and gas sector, a positive trajectory is observed, with an increase in production output contributing to exceeding OPEC quotas. The government's efforts to address infrastructural damage and enhance regulatory approvals for asset divestments have facilitated production growth, reflected in improved financial performance for key players. While challenges persist in the gas segment, particularly concerning infrastructure and transportation issues, advancements in the liquid petroleum sector signal promising developments for the industry. The ongoing negotiations between NNPCL and Dangote Refinery underscore the dynamic nature of energy agreements and the importance of adaptability in navigating the complexities of the oil and gas market. As stakeholders continue to explore collaborative opportunities and regulatory frameworks, the sector is poised for continued growth and resilience in the face of evolving industry dynamics.