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.