The Independent Petroleum Producers Group (IPPG), which accounts for roughly 30% of Nigeria’s crude oil production, has voiced strong opposition to any move that would compel them to sell their output to the Dangote Petroleum Refinery and other local refineries in Nigeria. The group, comprising indigenous oil producers, argues that such a mandate could undermine the spirit of free market principles and jeopardize the economic interests of producers, refiners, and the nation at large.
Nigeria’s total oil production stood at approximately 1.53 million barrels per day (bpd) in July, according to data from the Nigerian Upstream Petroleum Regulatory Commission (NUPRC). The IPPG, responsible for around 460,000 bpd, plays a significant role in the country’s energy sector. The group’s latest concerns were raised in a letter dated August 16, 2024, addressed to Gbenga Komolafe, the Chief Executive of the NUPRC, by the Chairman of the IPPG, Abdulrazak Isa.
Isa’s letter emphasizes that the Nigerian National Petroleum Company Limited (NNPC) should utilize its allocated crude oil volumes—traditionally earmarked for domestic consumption under various swap mechanisms—to address the current crude supply shortages affecting local refineries. He pointed out that the NNPC has previously managed such situations by leveraging its statutory allocation of 445,000 bpd to import refined products.
“Given the existing domestic refining capacity, this allocated volume should be reserved for all domestic refineries under a price hedge mechanism, potentially supported by financial institutions like Afrexim Bank,” Isa suggested. This, he believes, would ensure that local refineries receive the necessary crude oil supplies without coercing independent producers into unfavourable deals.
The IPPG’s stance underscores a broader debate about the balance of power within Nigeria’s oil industry, particularly in the wake of the Dangote Refinery’s impending dominance. With a refining capacity of 650,000 bpd, the Dangote Refinery is poised to become a critical player in Nigeria’s oil and gas sector. However, the IPPG and other stakeholders fear that the refinery’s emergence could lead to an unhealthy concentration of power, effectively creating a monopoly that could dictate terms to smaller producers.
Isa highlighted that several IPPG members already supply crude to local refineries on their terms, adhering to the ‘willing-buyer, willing-seller’ framework prescribed by the Petroleum Industry Act (PIA) 2021. He argued that any attempt to force producers into sales arrangements with specific refineries would conflict with the spirit of this framework.
“Enhancing the country’s petroleum value chain should be pursued within the confines of the law and existing commercial agreements,” Isa stated, calling for a fair and transparent process that respects the business models and economic interests of all stakeholders.
The IPPG’s concerns extend beyond immediate business interests to broader economic implications. The group warned that any directive requiring producers to supply crude to local refineries based on a matrix of production forecasts, rather than actual domestic consumption needs, could lead to inefficiencies and distortions in the market.
“Allocations determined by refinery demands, rather than actual consumption, risk creating a surplus that could unfairly disadvantage producers and undermine the government’s foreign exchange earnings through royalties and taxes,” the IPPG cautioned. This, they argue, could also lead to a scenario where refiners with excess capacity exploit domestic crude supply obligations to the detriment of producers and the broader economy.
Isa called for greater transparency in how crude oil allocations to producers are determined and requested that the NUPRC provide clear details on the allocation criteria and methodology. The IPPG also expressed a desire to have input into the production forecast process to ensure it accurately reflects operational realities.
The NUPRC has so far remained silent on the IPPG’s position, declining to respond to inquiries about the group’s concerns. This silence, coupled with recent government actions, has only deepened the unease among independent producers.
Tensions have been further heightened by the fact that several IPPG members have received letters from the Dangote Refinery requesting crude supply nominations for October. The IPPG has interpreted these requests as an attempt to bring producers under an obligation that conflicts with the voluntary nature of the ‘willing-buyer, willing-seller’ model.
The government’s role in these developments cannot be overlooked. President Bola Tinubu has already directed the NNPC to sell crude to local refineries in naira, a move that will begin in October. This decision, while aimed at boosting domestic refining capacity and reducing Nigeria’s reliance on imported refined products, has sparked fears of favouritism and the potential sidelining of smaller refineries.
Adding to the complexity of the situation is the reaction from Nigeria’s modular refinery operators. These smaller, often independently-owned refineries have expressed concerns that the government’s focus on the Dangote Refinery could marginalize their operations. The Crude Oil Refiners Association of Nigeria (CORAN) has warned that prioritizing Dangote in crude allocations risks creating a de facto monopoly, stifling competition and innovation within the sector.
Eche Idoko, the Publicity Secretary of CORAN, voiced these concerns in a recent interview, stating that while the decision to sell crude to the Dangote Refinery in naira was welcome, it should not come at the expense of other refineries. “Dangote is not the only refinery in Nigeria,” Idoko asserted, “We have consistently urged the government to ensure that whatever benefits are extended to Dangote should also be available to other refineries.”
Idoko’s warning reflects broader fears that the government’s policies could inadvertently create a monopolistic environment that stifles competition and innovation. This concern is particularly relevant as Nigeria seeks to expand its domestic refining capacity to meet local demand and reduce its dependence on imported refined products.
The ongoing debate over crude oil allocations and the potential dominance of the Dangote Refinery has brought to the forefront the need for a balanced approach that ensures fairness and competition within Nigeria’s oil and gas sector. The IPPG’s call for adherence to market principles, transparency in allocation processes, and respect for existing commercial agreements is a plea for an equitable solution that benefits all stakeholders.
As Nigeria navigates these challenges, the government faces the delicate task of balancing its desire to boost domestic refining capacity with the need to maintain a competitive and diverse oil sector. Ensuring that no single entity dominates the market is crucial for fostering innovation, protecting the interests of smaller producers, and ultimately achieving the broader goals of economic growth and development.
In the months ahead, the actions taken by the NUPRC, the NNPC, and other key players will be closely watched by industry stakeholders. The outcome of this debate will not only shape the future of Nigeria’s oil sector but also set a precedent for how the country manages the delicate balance between encouraging investment and maintaining fair competition.
For now, the message from Nigeria’s independent oil producers is clear: any attempts to force them into unfavourable sales arrangements will be met with resistance. Their pushback against compulsory crude sales to the Dangote Refinery is a stand for market fairness, transparency, and the long-term health of Nigeria’s oil and gas industry.
