By Faith Eze
Nigeria’s plan to increase local oil refining is facing another major challenge as several modular refineries are reportedly finding it difficult to buy domestic crude because of high prices and unfavourable commercial conditions. The issue is creating a serious gap between the country’s desire to refine more crude locally and the reality faced by refinery operators. Nigeria is one of Africa’s major crude oil producers, yet local refineries continue to struggle to obtain enough crude at commercially workable prices. Recent reports show that crude producers offered large volumes to domestic refiners, but much of the crude was not lifted because of pricing disagreements and other commercial difficulties. In the first quarter of 2026, producers reportedly made about 68.7 million barrels available to domestic refiners, but only about 28.5 million barrels were lifted. The situation shows that simply making crude available does not automatically mean that local refineries can afford or agree to purchase it.
The problem is particularly important for modular refineries because many of them operate on a much smaller scale than major facilities such as the Dangote Refinery. These smaller refineries need a reliable and affordable supply of crude to remain operational and produce petroleum products. According to industry reports, some modular refineries that depend on crude from third-party producers have struggled because of the prices and commercial conditions attached to available crude. Some operators believe that the terms make it difficult for them to compete with imported crude or refined petroleum products. This has contributed to low production levels and, in some cases, temporary shutdowns. Waltersmith and Aradel have a different advantage because they can obtain crude from their affiliated oil fields, giving them more stable access to feedstock. However, several other modular refineries do not have this type of arrangement and therefore depend heavily on external suppliers.
The situation also raises questions about Nigeria’s Domestic Crude Supply Obligation, a policy created to ensure that operating local refineries have access to crude oil. Under the Petroleum Industry Act, oil producers are required to make crude available for domestic refining, while the actual sale is still based on commercial agreements between producers and refinery operators. This means that although there is a regulatory obligation to make crude available, the price and other terms still matter greatly. Recent data show that oil producers offered about 58.8 million barrels to domestic refineries in the second quarter of 2026, above the 55.1 million barrels allocated under the domestic supply framework. However, the existence of these offers has not completely solved the problem because some refiners say the commercial terms remain difficult. Stakeholders have therefore called for discussions between the Nigerian Upstream Petroleum Regulatory Commission, crude producers and refinery operators to find a more workable solution.
The difficulty is also connected to Nigeria’s wider crude supply problem. Despite producing large quantities of crude oil, Nigerian refineries have had to source crude from other countries when domestic supplies are unavailable or commercially unsuitable. Data reported by The PUNCH showed that Nigerian refineries imported crude worth about N5.734 trillion in 2025, despite the Federal Government’s naira-for-crude policy. Industry representatives have argued that local refiners, particularly modular refineries, have not received enough crude under the existing arrangements. Some operators reportedly received little or no allocation, forcing them to look elsewhere for feedstock or reduce production. This creates an unusual situation in which Nigeria exports crude oil while some of its own refineries import crude to keep operating. The problem is therefore not simply about whether Nigeria has crude oil; it is also about access, pricing, transportation, quality and commercial conditions.
The effect of the problem can be seen in the relatively low contribution of modular refineries to Nigeria’s petroleum supply. Data from the Nigerian Midstream and Downstream Petroleum Regulatory Authority showed that modular refineries supplied an average of about 2.37 per cent of Nigeria’s diesel demand between November 2025 and January 2026. Only Waltersmith, Edo Refinery and Aradel were reported to be operating during that period, while OPAC and Duport were shut down. Industry stakeholders, however, argue that modular refineries could contribute much more if they receive adequate crude supplies. The Crude Oil Refineries Association of Nigeria has said modular refineries have the potential to provide more than 10 per cent of the country’s diesel needs if their feedstock challenges are properly addressed. This is important because diesel is widely used by businesses, farmers, transport operators and manufacturers, meaning increased local production could help strengthen economic activity and reduce dependence on imports.
The current situation shows that Nigeria needs a more practical approach to domestic crude supply. It is not enough for government agencies to announce crude allocations if refinery operators cannot purchase the crude under workable commercial conditions. At the same time, oil producers must be able to operate profitably and recover their costs, meaning any new pricing arrangement must balance the interests of both producers and refiners. A transparent pricing system, reliable supply agreements, better transportation infrastructure and stronger enforcement of the Domestic Crude Supply Obligation could help reduce the problem. The government could also consider how the naira-for-crude arrangement can better include smaller modular refineries. If these issues are resolved, more modular refineries could remain operational, Nigeria could reduce its dependence on imported crude and refined products, and more value could be created locally. The bigger goal should be to ensure that Nigeria’s crude resources support domestic industries, create jobs, improve energy security and eventually help reduce the pressure of fuel costs on Nigerians.
