Oil producers reject directive to sell crude to local refineries

Oil producers, under the aegis of the Independent Petroleum Producers Group, have warned against being forced to sell crude oil to the Dangote Refinery and other local ones in Nigeria.

The IPPG also called on the Nigerian National Petroleum Company Limited to re-direct its allocated crude oil volumes to Dangote Refinery and other local refineries to mitigate the current crude supply shortage being experienced by the local refiners that is impacting local product availability in many parts of Nigeria.

The Chairman of IPPG, Abdulrazak Isa, in a letter dated August 16, 2024, and addressed to the Chief Executive of the Nigerian Upstream Petroleum Regulatory Commission, Gbenga Komolafe, said the NNPC should utilise its allocated 445,000 barrels per day intervention crude oil volume to salvage the current situation as it did in many instances in the past.

Isa said some IPPG members already owned and or were supplying crude oil to local refineries but insisted that the NNPC was in a good position to mitigate the current crude supply shortfall faced by local refiners by leveraging its statutory crude allocation for meeting local domestic consumption.

“Historically, NNPC has always had an intervention crude oil volume (445kbopd) meant to satisfy the nation’s domestic consumption. This volume has always been used, under various swap mechanisms, to import refined products for domestic consumption.

“Since there is now domestic refining capacity to meet consumption, this dedicated volume should be reserved for all domestic refineries under a price hedge mechanism that can be provided by a suitable financial institution such as Afrexim Bank,’’ he stated.

Isa, however, maintained that, “Any national production above this allocated volume should be treated strictly as export volumes, adhering to the willing buyer, willing seller framework of the international market especially since the refiners will need to export excess products that surpass domestic demand thus boosting FX earnings.’’

The group expressed concerns over certain recent developments including the domestic crude oil refining requirements and crude oil production forecast for the second half of 2024, announced by NUPRC, as well as the request to all producing companies for their monthly quotations for crude oil supply to licensed refineries in Nigeria.

Specifically, IPPG said some of its members had received letters from the Dangote Refinery for crude supply nominations for October, and faulted the approach as bringing them under an obligation, saying it conflicted with the spirit of the willing-buyer, willing-seller framework prescribed by the Petroleum Industry Act 2021.

He asserted that the objective of enhancing the country’s petroleum value chain should be done within the confines of the law and existing obligations, expressing the confidence that an amicable solution could be reached by all stakeholders without jeopardising the existing commercial agreements, economic interests and business models of each segment of the oil and gas sector.

“While we fully support and commend the efforts of Nigerian entrepreneurs to enhance domestic refining capacity, it is important that no private sector business is unduly pressured into arrangements that may effectively subsidise another within the oil and gas value chain under any guise whatsoever.

“Under this willing-buyer, willing-seller framework, it is essential for refiners to negotiate and execute long-term crude oil Sales and Purchase Agreements with producers and their marketing agents. These agreements should follow industry best practices, with typical tenures ranging from one to five years,’’ the IPPG chairman said.

He added that some of them had also received allocation letters from NUPRC for the supply of specific volumes of crude oil to the domestic market for the second half of 2024, expressing concerns about its potential implications for the economy, especially the foreign exchange earnings through royalties and taxes.

The group noted, “We understand that the current allocation methodology appears to be based on a matrix of production forecasts by producers, issued technical allowable rates as well as crude oil requirements of domestic refineries, rather than actual local consumption needs. This raises significant concerns as it suggests that allocations are being determined based on the demands of refiners, which may exceed what is needed for domestic consumption.

“Such an approach could lead to inefficiencies and unfairly disadvantage producers. Therefore, it is crucial that refineries with excess capacity beyond local consumption do not exploit the Domestic Crude Oil Supply Obligations to the detriment of oil producers and other stakeholders, including the Government.’’

Isa called for transparency in how the allocations to oil producers were determined and requested NUPRC to provide clear details on the allocation criteria and methodology, while he sought an opportunity for IPPG to make input into the production forecast to ensure it accurately reflects operational realities.

It will be recall that Dangote and other local refineries have repeatedly accused international oil companies of not selling crude to them.

President Bola Tinubu later directed the NNPC to sell feedstock to the local refineries in naira

On Monday, the Federal Government announced that the deal would commence in October

The Publicity Secretary of the Crude Oil Refiners Association of Nigeria, Eche Idoko, told our correspondent last week that a meeting was held to that effect.

He disclosed that CORAN is asking for a crude supply contract with refineries that are operating and a conditional crude supply contract with those who are currently at ATC (Authority To Construct) and construction stages to enable the close out on their final investment decisions and bring their refineries to full operation.

The CORAN spokesperson has earlier stated that the supply of crude to local refineries in naira would bring down the cost of petrol and strengthen the naira against the dollar.

Recently, the management of Dangote Group insisted that the IOCs were still frustrating crude supply to the 650,000-capacity refinery.

In a statement, the group alleged that the IOCs insisted on selling crude oil to its refinery through their foreign agents, saying the local price of crude will continue to increase because the trading arms offer cargoes at $2 to $4 per barrel, above NUPRC official price.

The group also alleged that the foreign oil producers seem to be prioritising Asian countries in selling the crude they produce in Nigeria.

Dangote refinery had days ago engaged in an exchange of words with the NUPRC over the alleged supply of 29 million barrels of crude oil to the refinery.

The Dangote Group had accused the NUPRC of failing to effectively enforce the Domestic Crude Supply Obligations regulations, saying the refinery had yet to get enough crude locally.

Reacting, the NUPRC debunked the claim, stating that it facilitated the supply of over 29 million barrels of crude oil to Dangote from January to June 2024.

The NUPRC argued that it had facilitated the domestic supply of crude oil to Dangote refinery and other refineries using the monthly production curtailment platform.

But in a swift response, the Dangote Group also denied receiving 29 million barrels of crude from any source.

Spokesperson for the Dangote Group, Anthony Chiejina, said, “We received NUPRC’s statement that they have facilitated the allocation of 29 million barrels of crude oil to the Dangote Petroleum Refinery and Petrochemicals, we would like to thank them for this allocation but at the same time, we wish to let them know that we are yet to receive these cargoes.

“Aside from the term supply we bilaterally negotiated with NNPCL, so far NUPRC has only facilitated the purchase of one crude cargo from a domestic producer. The rest of the cargoes we have processed were purchased from international traders.”

Chiejina added that all the refinery was asking for was for refineries in Nigeria to buy crude directly from the companies that produce it in Nigeria rather than from international middlemen

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