The Independent Petroleum Producers Group (IPPG), representing indigenous oil and gas companies, has rejected President Bola Tinubu’s directive for mandatory crude oil sales to Dangote Refinery and other local refineries in naira.
The IPPG also urged the Nigerian National Petroleum Company Limited (NNPCL) to direct its allocated crude oil volumes to Dangote Refinery and other domestic refineries to address the current crude supply shortage affecting local product availability across Nigeria.
In a letter dated August 16, 2024, addressed to the Chief Executive of the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), IPPG Chairman Mr. Abdulrazak Isa expressed his members’ concerns. He suggested that NNPCL should utilize its allocated 445,000 barrels per day (bpd) of intervention crude oil to alleviate the current supply shortfall, as it has done in the past.
Isa noted that while some IPPG members already supply crude to local refineries, NNPCL is in a better position to mitigate the current supply issues by leveraging its statutory crude allocation for domestic consumption. He highlighted that historically, NNPC has reserved a 445,000 bpd volume to meet domestic consumption needs, often using it under various swap mechanisms to import refined products. Now that there is sufficient domestic refining capacity, Isa proposed that this volume be reserved for all domestic refineries under a price hedge mechanism, potentially provided by a financial institution like Afrexim Bank.
He also emphasized that any national production beyond this allocated volume should be treated as export volumes, adhering to the international market’s willing-buyer, willing-seller framework. This approach, he argued, would allow refiners to export excess products and boost foreign exchange earnings.
The IPPG also raised concerns over recent developments, including NUPRC’s domestic crude oil refining requirements and crude oil production forecast for the second half of 2024. Isa pointed out that some members had received letters from Dangote Refinery for crude supply nominations for October, which he felt conflicted with the willing-buyer, willing-seller framework outlined in the Petroleum Industry Act (PIA) 2021.
Isa asserted that the goal of enhancing Nigeria’s petroleum value chain should be achieved within legal boundaries and existing commercial agreements. He stressed that no private sector business should be unduly pressured into arrangements that may effectively subsidize another within the oil and gas value chain.
He advocated for long-term crude oil Sales and Purchase Agreements between refiners and producers, adhering to industry best practices, with tenures ranging from one to five years. Isa also voiced concerns about the allocation methodology for the second half of 2024, suggesting it might be based on refiners’ demands rather than actual local consumption needs, which could lead to inefficiencies and disadvantage producers.
The IPPG called for greater transparency in the allocation process and requested that NUPRC provide clear criteria and methodology for these allocations. Isa also sought the opportunity for IPPG to contribute to the production forecast to ensure it accurately reflects operational realities.
Leave a Comment