Oil producers, under the umbrella of the Independent Petroleum Producers Group have issued a warning against being pressured to sell their crude oil to the Dangote Refinery and other local refineries.
The IPPG further demanded that the Nigerian National Petroleum Company Limited reallocate the volumes of its allocated crude oil to Dangote Refinery and other local refineries in order to alleviate the current shortage of crude oil that local refiners are facing, which is affecting the availability of local products in several 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, according to The Punch.
Isa stated that several IPPG members, already owned or supplied crude oil to local refineries but insisted that the NNPC was in a good position to alleviate 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, insisted 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 voiced concerns about a number of recent occurrences, such as the NUPRC’s announcement of the crude oil production estimate for the second half of 2024 and the requirements for domestic crude oil refining, as well as the request that all producing companies submit monthly quotations for crude oil supply to licensed refineries in Nigeria.
IPPG specifically stated that some of its members had received letters from the Dangote Refinery regarding nominations for crude supply for October. They criticized the approach, claiming it went against the spirit of the willing-buyer, willing-seller framework stipulated by the Petroleum Industry Act 2021 and put them under obligation.
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.
Recall that Dangote and other local refineries have repeatedly accused international oil companies of not selling crude to them.
President Bola Tinubu later instructed the NNPC to sell feedstock to the local refineries in naira.
The Federal Government declared on Monday that the agreement would go into effect in October.
