In a significant development, the Federal Government of Nigeria and the nation’s crude oil producers have pledged to ensure a sustainable supply of crude oil to local refineries under a market-determined pricing regime. This commitment aims to balance optimal business operations for producers while preventing feedstock shortages for refineries.
The Nigeria Upstream Petroleum Regulatory Commission (NUPRC) has directed oil refiners to provide monthly price quotes for crude supply, a move aligned with the $20bn Dangote Petroleum Refinery’s ongoing crude imports from the United States, as reported by Bloomberg on Thursday.
In a statement issued in Abuja, NUPRC highlighted that oil producers, represented by the Oil Producers Trade Section of the Lagos Chamber of Commerce and Industry, agreed to a framework designed to ensure local refineries are not disadvantaged by disproportionate pricing.
“The focus of the meeting, convened by Commission Chief Executive Gbenga Komolafe, was on reviewing the Framework for Seamless Operationalisation of Domestic Crude Oil Supply Obligation Template,” the statement read. This initiative is part of the broader implementation of the Petroleum Industry Act (PIA) 2021, addressing pricing and crude supply for domestic refineries.
Komolafe assured that President Bola Tinubu is committed to fostering a fair business environment for both producers and refiners. He emphasized the necessity of a pricing model that does not impede domestic refining operations. Producers and refiners have been instructed to submit monthly cargo price quotes to the NUPRC for effective monitoring and regulation.
Komolafe also underscored the importance of transparent processes, stating, “The Federal Government targets the implementation of the regulation, and all parties must adhere to the established rules of engagement.”
The NUPRC chief reiterated the commission’s support for the willing buyer, willing seller provision, ensuring that pricing disputes do not undermine domestic refining capacity. He cautioned against practices that could lead to cost under-recovery in the upstream sector, stating, “We will not allow price strangulation to disincentivise our domestic refining capacity optimisation.”
Challenges Faced by Dangote Refinery
Last month, Devakumar Edwin, Vice President of Oil and Gas at Dangote Industries Limited, accused International Oil Companies (IOCs) of attempting to undermine the Dangote Petroleum Refinery by inflating local crude prices. Edwin claimed that the IOCs’ tactics forced the refinery to import crude from distant markets like the US, thus escalating production costs.
The NUPRC reaffirmed its commitment to attracting investment for upstream development and optimising Nigeria’s hydrocarbon resources, while also ensuring a sustainable domestic energy supply. The regulator emphasized that appropriate pricing, guided by the Fiscal Oil Price published by the commission, is crucial for maintaining a healthy domestic energy sector.
Bloomberg’s report on Thursday indicated that the Dangote mega-refinery is significantly increasing its importation of US crude oil. Data compiled by Bloomberg revealed that Dangote has purchased over 16 million barrels of West Texas Intermediate crude oil this year, indicating a substantial shift towards long-haul crude imports to meet its refining needs.
As Nigeria navigates these complexities, the coordinated efforts between the government, oil producers, and refiners aim to stabilize the local refining sector, ensuring it thrives under a fair and transparent pricing system.
