Oil Producers Warn Against Forced Crude Sales to Local Refineries
Nigeria’s Independent Petroleum Producers Group (IPPG), which accounts for roughly 30% of the nation’s crude oil production, has issued a strong warning against any attempts to coerce its members into selling crude oil to local refineries, including the Dangote Petroleum Refinery. This follows recent concerns over the allocation of crude volumes to domestic refineries amid a nationwide supply shortage.
According to data from the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), Nigeria’s total crude and condensate production stood at 1,533,698 barrels per day in July 2024. The IPPG, responsible for approximately 460,000 barrels per day, has raised objections to directives that could see their output redirected to meet local refining demands, arguing that such measures should not undermine the principles of a free market.
Abdulrazak Isa, Chairman of the IPPG, outlined these concerns in a letter dated August 16, 2024, addressed to Gbenga Komolafe, Chief Executive of the NUPRC. Isa emphasized that while the Nigerian National Petroleum Company Limited (NNPC) is well-positioned to alleviate the current crude supply shortfall affecting local refineries, it should do so by utilising its dedicated 445,000 barrels per day allocation, historically used to satisfy domestic consumption through various swap mechanisms.
“Historically, NNPC has always had an intervention crude oil volume (445,000bpd) 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,” Isa stated. He further suggested that this volume should now be reserved for all domestic refineries under a price hedge mechanism facilitated by financial institutions like Afrexim Bank.
The IPPG has also expressed concerns about recent communications from the Dangote Refinery requesting crude supply nominations for October, which the group believes conflicts with the market-driven, willing-buyer, willing-seller framework prescribed by the Petroleum Industry Act 2021. Isa warned that private sector businesses should not be unduly pressured into arrangements that effectively subsidise others within the oil and gas value chain.
“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,” he asserted.
The IPPG has also raised alarms over the methodology used in allocating crude oil volumes for domestic refining, suggesting that it may be based more on the demands of refiners than on actual local consumption needs. This approach, the group argues, could lead to inefficiencies and unfairly disadvantage producers, while also impacting foreign exchange earnings through royalties and taxes.
The controversy comes amid broader industry tensions, with the Federal Government recently directing the NNPC to commence selling crude oil to the Dangote refinery in naira starting in October. This decision has sparked concerns among modular refinery operators, who fear being sidelined in favour of larger players like Dangote.
As the debate over crude allocations continues, the IPPG is calling for greater transparency in the process and an opportunity to provide input into production forecasts to ensure they reflect operational realities. Meanwhile, the NUPRC has yet to respond to these concerns, leaving the future of Nigeria’s domestic refining landscape uncertain.
The situation remains fluid as stakeholders navigate the complex dynamics of ensuring adequate local supply while protecting the interests of Nigeria’s oil producers and the broader economy.
