Oil Producers Reject Mandate to Supply Crude to Local Refineries

Oil producers in Nigeria, represented by the Independent Petroleum Producers Group (IPPG), have voiced strong opposition to a potential mandate requiring them to sell crude oil to the Dangote Refinery and other local refineries. The group has called on the Nigerian National Petroleum Company Limited (NNPC) to utilize its allocated crude volumes to alleviate the crude supply shortages affecting local refineries.

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 highlighted the NNPC’s previous interventions in addressing domestic crude supply challenges. He urged the NNPC to use its allocated 445,000 barrels per day for local consumption, as has been done in the past, to stabilize the situation.

Isa emphasized that while some IPPG members are already supplying crude to local refineries, the NNPC is better positioned to address the current shortfall by leveraging its statutory crude allocation. He also warned against any moves to compel oil producers to supply crude to local refineries, stressing that such measures could undermine the willing-buyer, willing-seller framework outlined in the Petroleum Industry Act (PIA) 2021.

The IPPG expressed concerns over recent developments, including NUPRC’s domestic crude oil refining requirements and production forecasts for the second half of 2024. The group also criticized the approach of the Dangote Refinery, which had requested crude supply nominations from IPPG members for October, arguing that this could create undue obligations for producers.

Isa called for transparency in the crude allocation process and requested that IPPG be allowed to contribute to production forecasts to ensure they reflect operational realities. He stressed the importance of maintaining the integrity of existing commercial agreements and business models within the oil and gas sector.

The issue of crude supply to local refineries has been contentious, with the Dangote Group and other refineries accusing international oil companies (IOCs) of refusing to sell crude to them. The Federal Government recently announced plans to commence crude sales to local refineries in naira, a move supported by the Crude Oil Refiners Association of Nigeria (CORAN), which believes it will lower petrol costs and strengthen the naira.

However, tensions have escalated, with Dangote Group accusing IOCs of prioritizing foreign buyers and inflating crude prices through middlemen. The NUPRC has denied these claims, asserting that it has facilitated the supply of over 29 million barrels of crude oil to Dangote and other refineries this year. Dangote Group, however, refuted this, stating they have only received one cargo from a domestic producer, with the rest purchased from international traders