The Independent Petroleum Producers Group (IPPG) has voiced strong opposition to any attempts to compel its members to sell crude oil to local refineries, including the Dangote Refinery.
The group, representing several indigenous oil producers, has called on the Nigerian National Petroleum Company Limited (NNPC) to fulfill its responsibility of supplying local refineries from its allocated crude volumes, which would help address the ongoing shortages that have impacted domestic product availability across the country.
In a letter dated August 16, 2024, addressed to the Chief Executive of the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), Gbenga Komolafe, IPPG Chairman Abdulrazak Isa urged the NNPC to use its allocated 445,000 barrels per day to meet domestic supply needs.
This allocation, which has traditionally been used by the NNPC to satisfy domestic consumption through various swap mechanisms, could now be directed towards local refineries as Nigeria’s refining capacity increases.
Isa emphasised that while some IPPG members are already supplying crude to local refineries, the NNPC is in the best position to handle the bulk of domestic supply requirements.
He suggested that the NNPC should reserve its allocated volume for local refineries under a price hedge mechanism, potentially facilitated by financial institutions such as Afrexim Bank. This strategy, Isa argued, would not only meet domestic demand but also stabilize the market.
However, the IPPG firmly opposed any mandate that would force oil producers to divert additional crude oil to local refineries beyond the NNPC’s allocated volumes.
The group insists that any crude production above this allocation should be available for export under a “willing buyer, willing seller” framework, consistent with international market practices. This approach would allow refiners to export any excess products, thus boosting Nigeria’s foreign exchange earnings.
The IPPG expressed concerns that compelling oil producers to sell crude to local refineries under pressure could distort the market and effectively result in one segment of the oil and gas value chain subsidizing another.
“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,” Isa stated.
The group emphasised that any crude oil sales to local refiners should be based on transparent, long-term agreements negotiated between producers and refiners. Such agreements, Isa said, should follow industry best practices, with terms typically ranging from one to five years. This would ensure a stable and transparent supply of crude oil within the domestic market, protecting the interests of both producers and refiners.
The IPPG also raised concerns about recent announcements from the NUPRC regarding domestic crude refining requirements and the crude production forecast for the second half of 2024.
The group criticised the request for monthly crude supply quotations from producers for local refineries, describing it as a deviation from the market-oriented principles outlined in the Petroleum Industry Act (PIA).
Isa called for greater transparency in how crude oil allocations are determined and requested that the IPPG be involved in production forecasting to ensure that these forecasts reflect the actual operational realities of Nigeria’s oil and gas sector.
The group stressed the importance of respecting existing commercial agreements and business models, warning that any attempt to undermine these could have negative consequences for the industry.
The IPPG’s stance comes amid ongoing tensions between local refineries and international oil companies (IOCs). The Dangote Group, which operates a 650,000-barrel capacity refinery, has accused IOCs of prioritizing foreign markets over domestic needs, frustrating crude supply to its facility.
The Dangote Refinery, one of the largest in Africa, has been seen as a key player in Nigeria’s efforts to reduce its reliance on imported refined products. However, securing a stable supply of crude oil remains a critical challenge.
In response to these challenges, President Bola Tinubu recently directed the NNPC to begin selling crude to local refineries in naira, with this new policy expected to commence in October 2024.
This directive is part of the government’s broader strategy to support the growth of domestic refining capacity and reduce the country’s dependence on imported fuels.
As Nigeria works to increase its domestic refining capacity, the IPPG’s position highlights the delicate balance between meeting local supply needs and participating in the global oil market. While there is broad support for enhancing domestic refining, there is also a strong desire to ensure that the market remains free and competitive, without undue pressure on any segment of the value chain.
