A brewing standoff has intensified in Nigeria’s oil sector, as domestic refiners have reportedly rejected over 11 million barrels of crude oil supplied under the government’s domestic supply scheme, citing pricing, quality, and logistical disputes.
The development threatens to derail efforts to revive local refining, reduce fuel import dependence, and enforce the Domestic Crude Supply Obligation (DCSO) embedded in the Petroleum Industry Act (PIA) a mechanism meant to compel producers to allocate crude for local refineries before exporting.
Sources reveal several key reasons why refineries declined the crude:
Pricing disagreements: Refiners argue the crude offered by producers is priced above competitive international benchmarks, making local refining less profitable.
Crude quality / grade mismatch: Some of the supplied crude grades do not align well with the refineries’ optimal feedstock specifications, leading to operational inefficiencies or higher processing costs.
Logistics & delivery issues: Constraints in pipeline transport, vandalism, and poor upstream logistics have made timely, quality delivery uncertain, exacerbating tension between producers and refiners.
According to the Punch, eight out of the cargoes in question were turned away specifically because of differences over pricing and preference for certain crude grades.
Under the PIA, the DCSO mandates that producers allocate a portion of their crude output to local refineries before exporting.
Earlier in 2025, regulators gave notice that export permits would be denied to producers failing to meet this domestic supply requirement.
However, producers have pushed back by citing unfavorable pricing by refiners and existing export contracts that do not factor in DCSO allocations.
Dangote Refinery, for example, has publicly called for stronger enforcement of crude supply obligations, arguing that lax compliance is forcing it to procure feedstock abroad at a premium.
The rejection of 11 million barrels of crude poses several risks:
Refining paralysis: Refiners may scale back operations or idle units due to insufficient feedstock, compromising Nigeria’s push to process more petroleum product domestically.
Increased import reliance: Without adequate crude supply, the country could rely more heavily on importing refined products, worsening the foreign exchange burden.
Market distortions & shadow supply chains: Producers and refiners may resort to informal arrangements or gray markets to trade crude, undermining transparency.
Regulatory credibility at stake: The government’s ability to enforce rules like DCSO will be tested; failure may weaken policy frameworks across the energy sector.
Officials from the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), producers, and refineries are reportedly preparing to hold crisis talks to renegotiate pricing terms, supply protocols, and enforcement timelines.
Industry watchers expect that compromises will need to be made such as formula-based crude pricing tied to market benchmarks, better coordination of delivery logistics, and phased enforcement to ease adjustment pressures.
Dangote and other refineries have warned that continued non-compliance by producers could force them to import crude or shutdown domestic refining slots temporarily.
The crude rejection crisis exposes a deep fissure in Nigeria’s attempt to realign its oil value chain. While the DCSO theoretically binds producers to local supply, practical disputes over price, quality, and logistics threaten to undermine its effectiveness. If not resolved quickly, the rejection of 11 million barrels may set back Nigeria’s refining ambitions and keep the nation vulnerable to fuel imports.
