CBN Bets Big On Local Refining To Save FX & Build Reserves

By FIDELUS ZWANSON

The Refining Factor: From Inflow Dependency to FX Savings

NIGERIA’S path to the projected $51.04 billion reserves in 2026 introduces a strategic shift: reserve growth by lowering FX demand, rather than relying solely on inflows. The CBN ties this to domestic refining expansion, especially the Dangote Refinery, expected to scale to 700,000 bpd in 2025, with a longer-term goal of 1.4 million bpd.

By displacing imported petrol demand, increased local refining could dramatically cut FX obligations tied to fuel imports, which historically consumed billions in reserve support. This reframes reserves as a function of import substitution economics, not just oil receipts.

Macro-FX Impact: NFEM–BDC Premium and Market Confidence

FX reforms, including rate unification and improved price discovery, are expected to:

• Boost transparency and efficiency in the FX market

• Narrow NFEM–BDC premium, reducing arbitrage distortions

• Stabilise exchange rate expectations, aiding reserve accumulation

• Restore foreign investor confidence, supporting bond-led FX inflows

However, investigations into previous FX reform outcomes reveal that market confidence sticks only when FX supply matches policy signals. The 2026 outlook assumes reforms continue uninterrupted—a key vulnerability if implementation weakens.

Sustainability Check: Capacity vs. Output

A critical gap remains between installed refining capacity and actual output. Analysts warn that reserves will only benefit if refinery throughput stays high, pipelines are secure, and crude feedstock supply is steady. Capacity announcements alone won’t move reserves—barrels refined locally will.