Refiners may cut logistics and related acquisition costs by $3-$4 per barrel under proposed framework
Nigeria’s domestic refineries could save between $246.6m and $328.8m over six months if a proposed crude oil swap arrangement succeeds in eliminating additional logistics and related acquisition costs, industry stakeholders have said.
The potential savings are based on the 82.2 million barrels of crude supplied to domestic refineries between January and June 2026 under the Domestic Crude Supply Obligation and an estimated $3-$4 reduction in the cost of securing each barrel under the proposed framework.
The projected savings are not money already realised. The swap arrangement was not operational during the first half of the year and the figures represent what could have been saved if the proposed system had been in place.
The initiative is being developed by the Nigerian Upstream Petroleum Regulatory Commission in consultation with refiners, crude producers and other industry stakeholders. It is intended to reduce the cost of transporting crude from distant terminals to refineries while improving the volume of crude ultimately delivered to local processors.
How the savings could work
The Nigerian Upstream Petroleum Regulatory Commission data showed that domestic refineries received 28.5 million barrels in the first quarter of 2026 and another 53.7 million barrels in the second quarter, bringing the six-month total to 82.2 million barrels.
At a saving of $3 per barrel, the H1 volume would have generated potential savings of $246.6m. At $4 per barrel, the saving would rise to $328.8m.
The first-quarter supply of 28.5 million barrels translates to potential savings of $85.5m at $3 per barrel or $114m at $4 per barrel.
In the second quarter, the 53.7 million barrels supplied would translate to $161.1m in savings at $3 per barrel and $214.8m at $4 per barrel.
Combined, the 82.2 million barrels supplied during the six months represented average deliveries of about 454,144 barrels per day.
If a similar volume is supplied in the second half of the year and the proposed swap consistently eliminates $3-$4 in additional costs from every barrel, domestic refiners could therefore record comparable savings.
Dangote among potential beneficiaries
The proposed arrangement could benefit large-scale plants such as the Dangote Petroleum Refinery as well as modular and other domestic refineries.
The National Publicity Secretary of the Crude Oil Refiners Association of Nigeria, Eche Idoko, told The PUNCH that the biggest advantage would come from reducing the cost of moving crude over long distances.
He explained that a refinery would be able to obtain crude from a nearby terminal rather than physically transport the exact crude allocated to it from a distant location.
“Yes, the crude swap will save around $3-$4 per barrel,” Idoko said.
He added, “The logistics costs of taking crude from afar are hovering between $3 and $4. If they are trucking it, it is between $3-$4 extra. So, the swap eliminates this. It would no longer apply. Sometimes, it is more, like $5. If you are doing barging like Dangote, it is as high as $12. A swap saves this amount in logistics.”
Under the arrangement, the international price of crude would remain unchanged. The expected savings would instead come from eliminating or reducing additional logistics expenses associated with moving the commodity from distant supply points.
“In terms of pricing, the international price still remains the same. It won’t change. But what we have argued is that there are other components associated with it that, if removed, would give cheaper crude and comparative advantage in the market. The government acknowledged, producers also acknowledged and decided to deal with comparative logistics costs,” Idoko said.
How the swap will work
The proposed system would allow crude to be exchanged between producers so that a refinery can receive an equivalent volume from the closest available export terminal.
For example, if a refinery is allocated crude belonging to a producer whose supply is located far away, but another producer has suitable crude at a terminal closer to the refinery, the nearby producer could supply the refinery.
The two parties would then reconcile the equivalent volumes at the original export terminal.
Idoko explained, “The swap simply means you can swap crude for refineries as a crude producer. With this method, refineries can pick product from the closest crude export terminal, and then reconciliation can be made between the supplier and the owners of the crude; the person who swapped the crude with them. So the swap back will be at the export terminal.”
He gave a hypothetical example involving Shell and Aradel, saying that if Shell was required to supply Aradel from Bonny but another producer had crude closer to Aradel, the nearby producer could deliver the crude while the companies later reconciled the volumes at Bonny.
The arrangement would involve the refinery, the company facilitating the swap and NUPRC.
“So, the framework is still being developed, and I am sure that once the platform is ready for trading, all those guidelines will be clearly set out,” Idoko said.
Trading platform planned
The crude swap is part of a wider effort to reform how domestic refineries access locally produced crude.
Idoko disclosed that stakeholders had agreed to establish a crude trading platform through which local refiners could access crude supplies.
“Yes, we are involved in the conversation. We had a roundtable on Thursday where we agreed, and far-reaching decisions were made on how we can collaborate on how we can improve access to crude for local refineries. Part of what was agreed was to set up a crude trading platform for local refineries in Nigeria where we can get crude. Another fallout from that was the crude swap arrangements too,” he said.
He said the platform would bring buyers and sellers together rather than leaving crude transactions to isolated arrangements between individual companies.
“NUPRC is working vigorously. So they are working on it. It is a whole lot of process. Before, crude processing was done in silos between buyers and sellers. But now, they are setting up a platform that brings everyone together,” Idoko said.
Regulators to collaborate
The proposed trading framework will operate within the existing Domestic Crude Supply Obligation, under which NUPRC allocates crude to domestic refineries.
However, the reform is expected to involve closer coordination between the upstream and downstream petroleum regulators.
Idoko said NUPRC would oversee crude supply, while the Nigerian Midstream and Downstream Petroleum Regulatory Authority would provide information on refinery demand.
“This is different from every other organisation for two reasons. The two major regulators are working together on this. The PIA allows it. Volume traded through DCSO will be deployed for it. NMDPRA will request the numbers, and NUPRC will see to the supply. That collaboration is needed, and we have gotten it,” he said.
According to him, producers and refiners, including the Oil Producers Trade Section, CORAN and the Independent Petroleum Producers Group, have expressed support for the proposed arrangement.
“The body language is positive. In a few months, we will see a complete change in the supply and trading framework,” he added.
Closing the supply gap
The proposed reform comes amid persistent complaints from domestic refiners over both the availability and cost of crude.
The figures from the first quarter illustrate the problem. NUPRC said 61.9 million barrels were allocated to domestic refineries, while producers offered 68.7 million barrels. However, only 28.5 million barrels were actually supplied.
The large gap between crude allocated, offered and ultimately delivered has remained a major challenge for domestic refiners, particularly as Nigeria seeks to increase local refining and reduce dependence on imported petroleum products.
The crude swap arrangement is therefore being positioned as more than a logistics-cost reduction mechanism.
By allowing refineries to obtain crude from the nearest suitable terminal and subsequently reconciling the volumes between producers, the proposed framework is expected to reduce transportation expenses, improve supply efficiency and make it easier for domestic refineries to access crude.
For refiners, the potential impact could be significant. On the 82.2 million barrels supplied during the first six months of 2026 alone, eliminating $3-$4 in additional costs per barrel would have translated into between $246.6m and $328.8m.
Whether those savings materialise will depend on how quickly the proposed trading platform is established, how transparently the swap system operates and, ultimately, whether producers can consistently deliver sufficient crude to meet the needs of Nigeria’s growing refining capacity.