Oil producers under the Independent Petroleum Producers Group (IPPG) have issued a stern warning against any attempts to force them into selling crude oil to the Dangote Refinery and other local refineries in Nigeria.
The group emphasized the importance of maintaining a willing-buyer, willing-seller framework in line with the Petroleum Industry Act 2021, expressing concerns over recent pressures and developments within the industry.
In a letter dated August 16, 2024, addressed to the Chief Executive of the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), Gbenga Komolafe, IPPG Chairman Abdulrazak Isa called on the Nigerian National Petroleum Company Limited (NNPCL) to redirect its allocated crude oil volumes to local refineries, including Dangote, to alleviate the ongoing crude supply shortage. This shortage, according to Isa, is impacting product availability across Nigeria.
Isa pointed out that the NNPCL has historically managed a 445,000 barrels per day (bpd) intervention crude oil volume to satisfy domestic consumption needs, often through various swap mechanisms.
He argued that with the current domestic refining capacity, this dedicated volume should be reserved for all local refineries under a price hedge mechanism facilitated by financial institutions such as Afrexim Bank.
“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,” Isa asserted.
The IPPG also expressed concerns over the NUPRC’s crude oil production forecast for the second half of 2024, and the requests sent to producing companies for monthly crude oil supply quotations to licensed Nigerian refineries.
Some IPPG members have reportedly received crude supply nominations from the Dangote Refinery for October, a move Isa criticized as conflicting with the spirit of free market operations.
“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,” Isa cautioned.
The group further emphasized that any crude oil supply agreements between refiners and producers should be negotiated under long-term contracts, with tenures ranging from one to five years, and based on industry best practices.
The IPPG also called for transparency from the NUPRC regarding the allocation criteria and methodology used in determining crude supply to the domestic market.
This issue comes amid ongoing tensions between Dangote Group and the NUPRC, with Dangote accusing international oil companies (IOCs) of frustrating crude supply to its 650,000 bpd refinery.
Despite NUPRC’s claims of facilitating the supply of 29 million barrels of crude oil to Dangote from January to June 2024, the refinery has denied receiving these cargoes, further complicating the situation.
The Federal Government, on Monday, announced that the deal for local refineries to purchase crude in naira would commence in October.
The Crude Oil Refiners Association of Nigeria (CORAN) has also requested crude supply contracts for operational refineries and conditional contracts for those still under construction to finalize their investment decisions and achieve full operation.
With the oil industry at a critical juncture, stakeholders are calling for a balanced approach that respects existing commercial agreements and supports the country’s broader economic interests.