The Federal Government of Nigeria has emphasized the need for the country to move away from an economy centered on crude oil exports and focus on domestic refining, petrochemicals, and related industrial activities. This strategic shift aims to capture more value from the oil industry and ensure national energy security. The Minister of State for Petroleum Resources (Oil), Senator Heineken Lokpobiri, stated this through his Technical Adviser on Regulation, Umar Gwandu, at the third Nigeria Oil Refining Summit in Lagos.
According to Lokpobiri, Nigeria has for decades produced crude oil on a significant scale but remains heavily dependent on imported petroleum products. He stressed that expanding domestic refining is a strategic priority for the government. To achieve this, the government is strengthening the Domestic Supply Obligation (DSO) to ensure local refineries have reliable access to crude. This policy is critical to national energy security and aims to strengthen the linkage between the upstream and downstream sectors.
The government's position comes as refiners and upstream producers raise concerns over whether Nigeria can provide sufficient crude to meet rapidly increasing domestic refining demand. Lokpobiri mentioned that the Nigerian Upstream Petroleum Regulatory Commission had developed a DSO framework in consultation with key stakeholders, including the Nigerian National Petroleum Company Limited and the Crude Oil Refiners Association of Nigeria (CORAN). The framework must evolve into a reliable, transparent, and commercially bankable crude supply system capable of supporting domestic refineries.
CORAN Chairman, Momoh Oyarekhua, noted that some domestic refineries continue to face difficulties accessing crude on commercially viable terms despite Nigeria's abundant resources. He called for the full institutionalization of the naira-for-crude arrangement, stronger enforcement of the DSO under Section 109 of the Petroleum Industry Act, and crude swap arrangements that would allow refineries located close to producing assets to access nearby crude. Oyarekhua also urged the government to develop a domestic crude pricing template that reflects crude quality and delivery points.
The scale of the emerging supply challenge was highlighted by Adegbite Falade, chairman of the Independent Petroleum Producers Group (IPPG). He stated that domestic refineries could require more than 1.5 million barrels per day of crude in the medium term as existing facilities are rehabilitated, expanded, and new modular refineries come on stream. Falade noted that Nigeria's liquid production stood at 1.68 million barrels per day in August 2026, based on NUPRC's August production report.
Falade warned that if refinery demand approaches 1.5 million bpd while production remains around 1.6 million bpd, there would be limited room for exports, government revenue requirements, crude-backed financing, joint-venture offtake, production disruptions, OPEC commitments, and infrastructure constraints. He argued that the solution cannot simply be to redistribute existing crude volumes among domestic refineries and called for increased exploration, faster field development, marginal-field growth, and improved access to capital.
Falade also emphasized the need for modernization of pipelines, terminals, storage facilities, jetties, and marine logistics, alongside the creation of a domestic crude market capable of aggregating volumes, blending grades, and facilitating transparent swaps and substitutions. He added that DSO compliance had improved to approximately 97.4 percent in the second quarter of 2026 from about 41 percent in the first quarter, citing NUPRC data.
Key points
- The Federal Government aims to strengthen the Domestic Supply Obligation to ensure local refineries have reliable access to crude.
- Domestic refineries may require more than 1.5 million barrels per day of crude in the medium term.
- Nigeria's current liquid production stands at 1.68 million barrels per day.
