The Independent Petroleum Producers Group (IPPG) has voiced strong opposition to the notion of being compelled to sell crude oil to local refineries, including the Dangote Refinery.
The group insists that the Nigerian National Petroleum Company Limited (NNPCL) should instead utilize its allocated crude oil volumes to address the current supply shortages affecting domestic refineries.
In a letter dated August 16, 2024, addressed to Gbenga Komolafe, Chief Executive of the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), IPPG Chairman Abdulrazak Isa suggested that the NNPC should use its allocated 445,000 barrels per day to mitigate the supply shortfall, a strategy employed in previous instances.
Isa noted that while some IPPG members already supply crude to local refineries, the NNPC is better positioned to manage the current shortage by leveraging its statutory crude allocation.
Isa proposed that this dedicated volume should be reserved for domestic refineries under a price hedge mechanism, possibly supported by a financial institution like Afrexim Bank.
He emphasized that any national production above this allocation should be treated as export volumes under a willing-buyer, willing-seller framework, especially since refiners may need to export excess products to boost foreign exchange earnings.
The IPPG expressed concerns about recent developments, including domestic crude refining requirements and the NUPRC’s crude oil production forecast for the latter half of 2024.
The group also criticized the recent approach taken by the Dangote Refinery in requesting crude supply nominations from IPPG members for October, arguing that this undermines the willing-buyer, willing-seller principle established by the Petroleum Industry Act 2021.
Isa stressed that while the IPPG supports efforts to enhance domestic refining capacity, no private sector entity should be pressured into arrangements that could effectively subsidize another within the oil and gas value chain.
He called for long-term Sales and Purchase Agreements between refiners and producers, adhering to industry best practices.
The group also raised concerns about the NUPRC’s allocation methodology, which they believe is based on refinery demands rather than actual local consumption needs, potentially leading to inefficiencies.
Isa urged for transparency in the allocation process and requested that the IPPG be allowed to contribute to the production forecast to ensure it reflects operational realities.
This pushback comes amid ongoing tensions between local refineries and international oil companies (IOCs) over crude supply.
Despite a directive from President Bola Tinubu for the NNPC to sell feedstock to local refineries in naira, the management of the Dangote Group has accused IOCs of frustrating crude supply efforts by insisting on selling through foreign agents.
The controversy escalated when the NUPRC claimed to have facilitated the supply of over 29 million barrels of crude oil to Dangote from January to June 2024, a claim the Dangote Group has denied, stating that it has only received one crude cargo facilitated by the NUPRC.
The IPPG’s stance highlights the complexities and competing interests within Nigeria’s oil sector as the country seeks to balance local refining capacity with the need to maximize foreign exchange earnings.
