With over 1.2 million barrels per day of oil refinery capacity expected in the country, the loggerheads between oil producers and refinery owners in the nation, especially Dangote Refinery, over crude supply will go from bad to worst amid lack of due diligence by refinery owners and the inability of the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) to enforce Domestic Crude Oil Supply Obligations (DCSO).
With the recent outcry by Dangote Refinery, backed by Crude Oil Refinery Owners Association of Nigeria (CORAN), that International Oil Companies (IOCs) operating in the country were frustrating local operators, stakeholders are beginning to raise concerns over the approval process of refineries in Nigeria, especially the contractual agreement that should have existed for a guaranteed feedstock before refineries are completed considering that the oil sector operates with a future business model.
They also questioned why the Federal Government permitted the Nigerian National Petroleum Company Limited (NNPCL) to take the African Export-Import Bank (Afreximbank) syndicated $3.3 billion crude oil loan where the state oil company would pay back a total of 164.25 million barrels of crude oil, which is worth $14.6 billion going by the price of Nigeria’s Brass River and Qua Iboe grade of crude, which sold at $89.49 per barrel yesterday.
While Nigeria’s crude oil was about two million barrels per day in 2013 when Dangote was announcing financial facilities to build its refinery, the nation’s oil production declined to a meagre 1.2 million bpd, of which if NNPC alone takes out the 445,000 bpd meant for its refineries, which are being repaired, the nation would not guarantee 650,000 bpd to Dangote not to mention the upcoming BUA Refinery and other modular refiners.
The Vice President of Oil and Gas at Dangote Group, Devakumar Edwin, had said the IOCs were struggling to give crude to the refinery.
Speaking to S&P Global Commodity Insights on June 24, Edwin alleged that the IOCs active in Nigeria want extra $6 on every barrel compared to market price.
“The IOCs are deliberately and willfully frustrating our efforts to buy the local crude. They are either asking for ridiculous/humongous premium (s), or they simply state that crude is not available,” he said.
Edwin’s assertion came barely three weeks after the chairman of Dangote Group, Aliko Dangote, voiced out the company’s frustration in getting crude oil from the IOCs during a programme on CNN.
“The NNPC is doing its best, but some of the IOCs are struggling to give us crude; everybody is used to exporting and nobody wants to stop exporting,” he said.
Renowned energy companies expert, Ademola Adigun, however said there were indications that the IOCs were not frustrating refining locally.
“The issue is that Nigeria’s crude is insufficient to meet needs at the moment. The simple solution is to produce more crude,” Adigun said, adding that while the DCSO in the Petroleum Industry Act (PIA) is robust, the NUPRC needs to properly implement it.
While Nigeria produces one of the best grades of crude oil, mainly light, which is better than the heavy crude from the U.S., Nigeria’s grade is usually about $10 higher than U.S.’ WTI and slightly higher than the UK’s Brent. Most stakeholders, however, believe that Dangote’s modern refinery with configuration for different crude would prioritise price optimisation and profitability even as the imported heavier crude could be cheaper than Brass River and Qua Iboe or Bonny Light.
