Despite having a refining capacity of about 445,000 barrels per day, its plants have been underperforming for years, making Africa's biggest oil producer almost wholly dependent on imports to meet its domestic gasoline and diesel needs.
Under the agreement, the NNPC provides monthly crude oil lifting in return for the delivery and supply of Nigerian standard specification of petroleum products equivalent in value to the Crude Oil received from NNPC subject to general terms and conditions as would be advised in the term sheet.
The corporation adopted the DSDP arrangement as a replacement for the previous crude oil swap arrangement. This was the successor to the subsidy scheme whereby the government pays marketers the price difference between the landing price for petrol and the market price. The scheme was scrapped, however, following a large-scale fraud.
Subsidy itself became prominent as Nigeria's 4 major refineries (owned by the corporation) are unable to meet current demand. The government is unwilling to let petrol sell at market prices, but has preferred to periodically increase pump prices to lower subsidy costs.
The last quarter of the year tends to witness severe fuel scarcity. Last year's scarcity led to a shut down of economic activities in the country, with President Muhammadu Buhari attributing this to sabotage. The corporation may have taken this move to forestall a re-occurrence of that.
Minister of State for Petroleum Resources Ibe Kachikwu, after the scarcity that took place last year, stated that some of the players lacked the capacity to import fuel, but brought in diesel instead. Neither the minister nor the NNPC gave an update to sanctions for the firms involved.
The increase in global crude oil prices could lower the budget deficit for the government and enhance foreign exchange liquidity. On the flip side, the Nation's reliance on imported products means higher petrol prices and "under recovery" costs.