London, UK | – Nigeria is set to ramp up the amount of crude oil it swaps for vital gasoline imports by more than a third as it grapples with the worst economic crisis in years and upheaval in its graft-ridden energy sector.
A more than 60 percent drop in global oil prices since 2014 has hammered Nigeria’s economy and triggered a currency crisis, leaving it short of funds to pay for imports of oil products.
While the country is Africa’s biggest oil producer, it is almost entirely reliant on imports for oil products, especially gasoline, after successive governments allowed its refineries to fall into disrepair.
In recent weeks, state oil company NNPC agreed deals with seven refining companies – ENI, Essar, Litasco, Total, Cepsa, Societe Ivorienne de Raffinage (SIR) and Vitol refining arm Varo, with local partners – to take oil in exchange for gasoline imports, according to traders and other sources close to the negotiations.
The deals are crucial to staving off fuel shortages that have already created queues across the country. “Nobody wants to see people spend two hours on fuel queues,” oil minister Emmanuel Kachikwu said on Twitter this week. “We are working on long-term solutions.”
The deals are not yet watertight, however. While the broad terms were agreed, multiple sources told Reuters that at least some of the one-year contracts have not been signed – leaving them at risk of change.
NNPC is in the middle of a restructuring that will split it into 30 different companies, leading to an extensive management shake-up. Sources said constant changes in management and staffing at NNPC meant they were at times dealing with one person one day, and a different the next, making it difficult to conclude the contracts and raising concerns over NNPC changing the terms.
Under preliminary agreements, each refiner will ship roughly 90,000 tonnes of gasoline in exchange for each 950,000-barrel cargo of oil, regardless of the grade, along with other products, sources said.
That amounts to NNPC swapping 330,000 barrels per day (bpd) of crude in total, well above the 210,000 bpd agreed initially last year with four refineries.
The new agreements were intended to start with the April crude loading programmes.
Even with the new deals, Nigeria needs additional product imports. NNPC’s ambitious plan to revamp its 445,000 bpd of neglected refining capacity was quickly thwarted by security problems; frequent attacks on pipelines feeding the four plants have kept most of them offline all year.
As the currency crisis has hampered importers’ ability to get credit, NNPC has also asked trading houses to bring in oil products, particularly gasoline, sources told Reuters. In exchange, it has promised cargoes of crude oil later on, in what are effectively spot swap deals.
“That is the only way they can resolve the immediate drought,” one trader said of the exchange proposal. “It’s the only thing they can do.” Shipping fixtures showed a rise in the number of vessel bookings into Nigeria over the past two weeks. But traders said NNPC’s promise to supply crude only after delivery of the product, would make it difficult for some traders to meet their orders.
“The rules have changed,” another trader said. “Now, it’s the products supplier who is exposed.” Still, fear of missing out on potentially lucrative future deals means some are willing to take that risk. “If you refuse, you’re out of the game,” the trader said.