LAGOS, Nigeria — The Federal Government is considering changes to Nigeria’s crude oil allocation and pricing system aimed at making it easier and cheaper for the Dangote Petroleum Refinery and other domestic refineries to obtain locally produced crude.

The proposed reforms could reduce dependence on intermediaries, lower transportation and handling costs and improve access to feedstock for local refiners as Nigeria intensifies efforts to strengthen domestic refining and reduce reliance on imported petroleum products.

According to a Reuters report published on Wednesday, August 12, the proposals are expected to feature in discussions during a regulator-led review of the country’s Domestic Crude Supply Obligation, DCSO, which requires oil producers to make specified volumes of crude available to Nigerian refineries before exporting.

One of the proposals would allow crude producers connected to the network of international oil companies to deliver crude directly to nearby Nigerian refineries, rather than routing transactions and deliveries through arrangements that can add logistical and intermediary costs.

Eche Idoko, spokesperson for the Crude Oil Refinery-owners Association of Nigeria, CORAN, said crude supplied in this manner could subsequently be reconciled at the relevant export terminal. The arrangement could also reduce dependence on trunk pipelines and bring crude supplies closer to refiners.

A second proposal being considered involves giving a pricing discount to refiners that collect crude directly from production facilities.

Under the existing pricing structure, Nigerian crude is generally benchmarked against international prices such as Brent, which may incorporate freight, transportation and handling costs. Industry stakeholders argue that a refinery collecting crude directly from a Nigerian production location should not necessarily pay for logistics costs that were never incurred.

The proposal could therefore allow such refiners to receive a discount reflecting the avoided transportation and handling expenses. CORAN believes the arrangement could benefit both crude producers and refinery operators.

The issue has become particularly important for the 650,000-barrel-per-day Dangote Petroleum Refinery, which has at different times struggled to secure sufficient volumes of Nigerian crude despite the country being a major oil producer.

Dangote has previously argued that purchasing Nigerian crude through producers’ trading operations can add about $3 to $4 per barrel to its feedstock costs. Those additional costs can affect refinery economics and, ultimately, the competitiveness of locally refined petroleum products.

The latest proposals come as compliance with Nigeria’s domestic crude allocation policy appears to be improving substantially.