The Federal Government and crude oil producers in Nigeria have pledged their commitment to collaborating towards ensuring a consistent supply of crude oil to local refineries, operating within a market-driven pricing mechanism.

The objective of this commitment, as stated by both parties, is to guarantee that while the operators (crude oil producers) conduct their business effectively, the refineries do not experience a shortage of feedstock.

As per the directive issued by the industry regulator, the Nigeria Upstream Petroleum Regulatory Commission, oil refiners operating within the country are now required to furnish monthly price quotations for crude oil supply.

This development coincides with reports indicating that the Dangote Petroleum Refinery, a $20 billion project, is significantly increasing its crude oil imports from the United States, as reported by Bloomberg on Thursday.

In an official statement released on Thursday in Abuja, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) announced that oil producers affiliated with the Oil Producers Trade Section of the Lagos Chamber of Commerce and Industry have reached an agreement during a meeting convened by NUPRC. The consensus reached aims to establish a mutually beneficial framework that ensures the sustainability of local refineries by addressing concerns related to off-the-curve pricing.

The meeting convened by the Commission Chief Executive, Gbenga Komolafe, centered on reviewing the current status of the Framework for Seamless Operationalisation of Domestic Crude Oil Supply Obligation Template.

“It was part of efforts to effectively implement key sections of the Petroleum Industry Act (PIA) 2021, especially the issue of pricing and crude supply to the domestic refineries,” the commission stated.

In his statement, Mr. Komolafe emphasized President Bola Tinubu’s unwavering commitment to fostering a conducive business environment for both producers and refiners within the industry. He underscored the importance of establishing clear rules of engagement to ensure that the pricing model adopted by oil producers does not pose any obstacles to the operations of domestic refineries.

He instructed producers and refiners to furnish the NUPRC with cargo price quotations on crude supply and delivery for efficient monitoring and regulation of transactions between parties. “We need to have the price quotes monthly,” he directed.

The NUPRC Chief, emphasized the strong correlation between the Domestic Crude Oil Supply Obligation (DCO) and the nation’s energy security. He indicated that the NUPRC is actively engaged in re-engineering its regulatory processes to effectively address the challenges and ensure compliance with the DCO.

“We allow all our processes to be transparent. While the Federal Government targets the implementation of the regulation, all parties must submit to the rules of engagement as a guide for operation,” Komolafe stated.

The Nigerian Upstream Petroleum Regulatory Commission is dedicated to implementing the willing buyer/willing seller provision.

“We have to discuss pricing, especially as parties have committed to respecting their domestic crude oil obligation. As the regulator, we don’t want the upstream sector to be operated sub-optimally through cost under-recovery.

“So, the regulator is very alive to that. In crude pricing we will never allow price strangulation to disincentivise our domestic refining capacity optimisation. The regulator does not support cost under-recovery in the upstream sector, and we will continue to work to ensure that crude supply profiteering as a negative factor that can strangulate our domestic refining capacity optimisation is disallowed,” Komolafe declared.

Dangote expresses concern

Recently, Devakumar Edwin, the Vice President of Oil and Gas at Dangote Industries Limited, expressed concerns regarding the potential actions of International Oil Companies in Nigeria. He suggested that these companies may be attempting to hinder the success and survival of the newly established Dangote Petroleum Refinery.

It has come to our attention that the IOCs have been intentionally and purposefully obstructing the refinery’s attempts to procure local crude by raising the cost beyond the prevailing market price. This has compelled the refinery to import crude from distant countries such as the United States, resulting in significant additional expenses.

“Recall that the NUPRC recently met with crude oil producers as well as refineries’ owners in Nigeria, in a bid to ensure full adherence to Domestic Crude Oil Supply Obligations as enunciated under section 109(2) of the Petroleum Industry Act. It seems that the IOCs’ objective is to ensure that our petroleum refinery fails. It is either they are deliberately asking for a ridiculous/humongous premium or they simply state that crude is not available.

“At some point, we paid $6 over and above the market price. This has forced us to reduce our output as well as import crude from countries as far as the US, increasing our cost of production. It appears that the objective of the IOCs is to ensure that Nigeria remains a country which exports crude oil and imports refined petroleum products.

“They (IOCs) are keen on exporting the raw materials to their home countries, creating employment and wealth for their countries, adding to their Gross Domestic Product, and dumping the expensive refined products into Nigeria – thus making us to be dependent on imported products. It is the same strategy the multinationals have been adopting in every commodity, making Nigeria and Sub-Saharan Africa to be facing unemployment and poverty, while they create wealth for themselves at our expense,” Edwin had stated.

However, on Thursday, NUPRC underscored the critical importance of appropriate pricing mechanisms to facilitate willing buyer-willing seller transactions. This emphasis aligns with the guided Fiscal Oil Price published by the commission, which complies with the provisions outlined in the Petroleum Industry Act (PIA).

“NUPRC is committed to attracting the needed investments to boost upstream development and optimisation of our hydrocarbon resources just as we want sustainability of domestic energy supply in the midstream and downstream sector.”

Importation of crude oil

On Thursday, Bloomberg reported that Nigeria’s Dangote mega-refinery is increasing its importation of crude oil from the United States. The Lagos-based refinery has established a new flow of long-haul crude from the US, and inflows of American feedstock are expected to rise further.

The report Indicated that the Dangote mega-refinery has been consistently importing increasing volumes of US crude oil, necessitating the transportation of these barrels across the Atlantic Ocean.

According to data compiled by Bloomberg, Dangote has procured over 16 million barrels of West Texas Intermediate crude oil during the current year.

In August and September, the proportion of Nigerian barrels that will be supplied to the US may decrease, as indicated by recent tenders for new supply that were reviewed by Bloomberg.