Onome Amuge
Nigeria’s crude oil exports have fallen to their weakest level in a year, exposing once again the fragility of Africa’s largest producer’s upstream sector and its continued vulnerability to infrastructure failures. Exports of Nigerian crude shipped abroad are averaging about 1.2 million barrels a day so far this month, according to industry estimates, sharply lower than earlier in the year after an explosion on the Escravos–Lagos pipeline disrupted flows in early December.
The setback comes at a sensitive moment for Nigeria, which is struggling to stabilise output, shore up foreign exchange earnings and rebuild investor confidence after years of underinvestment, theft and operational outages. Crude oil remains the backbone of the country’s public finances and its single largest source of hard currency, even as successive governments have pledged to diversify the economy.
The impact of the pipeline explosion has rippled through export schedules, compounding an already difficult market environment for Nigerian grades. Traders say demand has been unusually subdued, leaving as many as 20 January-loading cargoes unsold out of a planned 48. The backlog underscores Nigeria’s weakening position in an increasingly competitive Atlantic Basin market, where buyers have more options and are pressing sellers on price and quality.
Yet amid the export slump, an unlikely counterweight has emerged at home. The 650,000 barrels-a-day Dangote refinery, Nigeria’s first large-scale, privately owned refining complex and currently the country’s only operational refinery of significance, has stepped in to absorb domestic crude at an unprecedented scale. The plant has imported about 1.7 million tonnes of Nigerian crude so far this month, the highest volume on record, effectively redirecting barrels that might otherwise have struggled to find buyers overseas.
For upstream producers, Dangote’s growing appetite has provided a rare lifeline. Years of reliance on exports have left Nigeria exposed to external shocks, logistical bottlenecks and volatile demand. The refinery’s ability to mop up local grades is beginning to alter crude flows, offering producers an alternative outlet at a time when exports are faltering.
“This is the first time in decades that domestic refining has had a material impact on Nigeria’s upstream market. Without Dangote taking these barrels, the export situation would look far worse,” said one Lagos-based oil executive.
Still, the broader production picture remains troubling. Official data from the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) show that crude output slipped to around 1.4 million b/d in September and October, down from a peak of 1.54 million b/d recorded in January. The decline reflects persistent challenges, including pipeline vandalism, crude theft, ageing infrastructure and delayed investment by international oil companies.
The Escravos–Lagos pipeline explosion has once again highlighted the systemic risks embedded in Nigeria’s energy infrastructure. Pipelines criss-crossing the Niger Delta have long been plagued by sabotage and illegal tapping, forcing producers to shut in output or divert crude through more expensive and less efficient routes. Each incident chips away at Nigeria’s credibility as a reliable supplier and raises costs for operators already grappling with fiscal and security pressures.
Nigeria’s difficulties come at a time when global oil markets are finely balanced. Slowing demand growth, particularly in China, has softened buying interest for some medium and heavy sour grades, while new supply from the Americas has intensified competition. In that context, Nigerian crude, once prized for its quality and consistency, has struggled to command premiums, leaving sellers vulnerable when disruptions occur.
The Dangote refinery’s role in absorbing surplus barrels has therefore taken on outsized significance. Since beginning phased operations, the plant has gradually ramped up crude intake, prioritising Nigerian grades in line with government policy aimed at reducing exports and conserving foreign exchange.
Yet the refinery’s growing influence is also reshaping power dynamics within Nigeria’s oil sector. Dangote’s ability to dictate terms, by virtue of being the dominant domestic buyer, has unsettled parts of the industry, particularly regulators and state-linked institutions accustomed to exerting control over pricing, allocation and policy.
Some market participants see a connection between Dangote’s expanding role and the recent shake-up at Nigeria’s upstream and downstream regulatory bodies. Both regulators were ousted following public criticism of Aliko Dangote, Africa’s richest man and the driving force behind the refinery project. While officials have framed the changes as routine leadership adjustments, industry insiders note the tensions reflect deeper disagreements over market structure, pricing and regulatory authority.
“The refinery has exposed contradictions in Nigeria’s oil policy. On the one hand, the government wants private capital to fix decades of failure. On the other hand, it is uneasy about losing control to a single, powerful player,” said a former regulator.
The controversy showcases a dilemma facing Nigeria’s energy sector. For years, state-owned refineries have been a drain on public finances, absorbing billions of dollars in rehabilitation spending while producing little or no fuel. The Dangote refinery was conceived as a private-sector solution to that dysfunction, backed by government support but largely independent of the national oil company.
Its success, however, raises uncomfortable questions. As Dangote becomes the anchor customer for domestic crude, upstream producers may increasingly orient sales towards the refinery rather than exports. That could reduce foreign exchange inflows in the short term, even as it strengthens domestic value addition. It also concentrates market power in a single buyer, potentially distorting pricing and investment incentives if not carefully regulated.
For now, the immediate priority for Abuja is to restore export capacity. The Escravos–Lagos pipeline outage has amplified concerns about Nigeria’s ability to meet its Opec quota and deliver barrels to international markets consistently. Repairing damaged infrastructure, improving security and restoring investor confidence will be critical if production is to recover towards the government’s targets.
The slump in exports also has fiscal implications. Oil revenues underpin Nigeria’s budget, and any sustained decline in export volumes threatens to widen deficits and strain public finances. While domestic refining reduces the need for fuel imports, it does not fully compensate for the loss of hard currency earned from crude sales abroad, at least not in the short term.
At the same time, the persistence of unsold cargoes highlights a more structural challenge. This is as Nigeria’s crude is no longer as competitive as it once was. Quality issues linked to contamination from theft, coupled with logistical uncertainties, have made some buyers wary. Addressing these concerns will require sustained investment and regulatory reform; areas where progress has been uneven.
According to analysts, Dangote’s intervention may buy time, but it is not a panacea. The refinery itself depends on stable crude supply and predictable policy. Any deterioration in relations between the government, regulators and private operators could undermine the fragile gains made so far.
There is also the question of scale. Even at full capacity, analysts opine that Dangote cannot absorb all of Nigeria’s crude output. They also pointed out that exports will remain essential for the foreseeable future, particularly as the country seeks to maximise revenues from its hydrocarbon resources before the global energy transition accelerates.
As the year draws to a close, Nigeria’s oil sector stands at a crossroads. The export slump triggered by the pipeline explosion has laid bare longstanding vulnerabilities, even as the Dangote refinery demonstrates what private capital can achieve when projects are executed at scale. According to analysts, whether Nigeria can harness that momentum, while restoring confidence in exports and repairing relations with investors, will shape the country’s economic fortunes in the years ahead.
For now, Nigeria is relying on a single refinery to cushion the blow from a faltering export machine. That reliance speaks volumes about both the promise and the precarity of the country’s oil economy.
