Nigeria’s national oil company, NNPCL is preparing to sign its largest crude-for-cash deal yet, a $4.7bn financing with Saudi Aramco that would refinance an earlier $3.3bn facility known as Project Gazelle. After two years of negotiation, the agreement promises immediate liquidity, steadier production and a temporary salve for Nigeria’s chronic dollar shortage. It also revives old questions about how far a country should mortgage tomorrow’s barrels to pay today’s bills.
Project Gazelle is a familiar instrument in commodity finance: a forward sale of future crude, routed through a special-purpose vehicle that raises money from banks against oil yet to be pumped. NNPC Limited sells a pre-agreed volume of crude in advance, receives dollars upfront, and repays the facility from export proceeds when the oil is eventually sold. The conservative assumptions are the point. The benchmark price is set at $65 a barrel – below recent spot prices – to cushion volatility; up to 90,000 barrels a day are earmarked to ensure repayment even if prices wobble.
For Nigeria, the attractions are obvious. Cash arrives quickly, helping to stabilize the naira and bolster reserves without waiting years for greenfield projects to mature. The facility also allows NNPC to prepay taxes and royalties, smoothing fiscal cash flows and signaling a measure of commercial discipline under the Petroleum Industry Act (PIA), which recast NNPC as a limited liability company. International lenders like the structure; ratings agencies tend to tolerate it, provided volumes pledged remain modest relative to output.
The Aramco deal goes further by scale and symbolism. It would refinance Gazelle and add fresh money, making it NNPC’s largest crude-backed transaction to date. Supporters argue that the size still sits comfortably within Nigeria’s production envelope and that conservative pricing limits downside risk. If oil prices rise, repayment accelerates and surplus cash flows back to NNPC. In a benign market, the gazelle runs swiftly.
But the risks are neither theoretical nor small. Forward sales trade flexibility for certainty. Should oil prices fall decisively below the $65 benchmark for a sustained period, repayments slow, barrels remain pledged for longer, and NNPC’s discretionary cash tightens just when the macroeconomy is weakest. In an extreme slump, the company could face pressure to pledge additional volumes or refinance again -turning a liquidity bridge into a habit.
There is also a domestic wrinkle. The PIA prioritizes supply to local refineries, a provision that has gained urgency with the start-up of the 650,000 bpd Dangote refinery. If significant volumes are pre-committed offshore under crude-for-loan structures, domestic refiners may cry foul. Dangote has already signaled a willingness to litigate to block future export-tied shipments that, it argues, should be offered at home first. A court fight would test the hierarchy between commercial financing contracts and statutory domestic-supply obligations; and could complicate drawdowns just as the facility comes onstream.
More broadly, the deal exposes Nigeria’s structural bind. Crude-backed finance can smooth cycles and buy time, but it does not fix the underlying ailments: underinvestment, theft, pipeline vandalism, and regulatory uncertainty that keep output below potential. Nor does it resolve the political temptation to spend windfalls quickly while pledging future revenues quietly. The FAQs emphasize that Gazelle’s size is small relative to national output; history suggests that such assurances erode as fiscal pressures mount.
Aramco’s presence adds credibility and could help standardize execution, pricing and governance. Yet the asymmetry remains. Nigeria bears price risk and delivery risk; lenders and offtakers secure collateral. The conservative benchmark mitigates default risk, but at the cost of selling insurance cheaply when markets are buoyant. If oil markets remain firm, the arrangement will look prudent: reserves steadier, production financed, repayments orderly. If prices sag, the virtues of conservatism may be tested by the arithmetic of pledged barrels and the politics of domestic supply. Gazelles are swift, not stubborn. Whether Nigeria’s latest dash across the savannah ends in safe pasture or another refinancing sprint will depend less on the elegance of the structure than on the hard work of lifting output, supplying local refineries, and resisting the urge to mortgage tomorrow twice.
