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Nigeria Mandates Crude Oil Producers To Supply Local Refineries Before Exporting

Nigeria Mandates Crude Oil Producers To Supply Local Refineries Before Exporting

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The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) on Wednesday met with crude oil producers in the country in its renewed bid to ensure that local crude oil refineries get undisrupted feedstock, especially with the expected commencement of operations of the 650,000 Dangote refinery.
The Chief Executive of the NUPRC, Mr Gbenga Komolafe, told the scores of crude oil producers in attendance at the meeting in Abuja that the move was in line with the Petroleum Industry Act (PIA), which mandates the oil producers to fulfil their domestic obligations to local refineries.
Komolafe insisted that it will be a national shame if Nigeria is not able to supply the modular refineries as well as the upcoming Dangote refinery enough feedstock for their operations.
“This meeting has to do with an issue of importance to us as an oil-producing nation. Recall that Nigeria is the single largest oil producer in Africa, the seventh in OPEC and in the world, we are seen as a nation with huge oil reserves of about 38 billion barrels.
“So, we are blessed as a nation. But ironically, despite all these abundant reserves, paradoxically we are a net importer of refined products and from the data, we are all aware that our inability to meet our domestic refining obligations, has impacted negatively on our economy.
“If we’re able to meet our domestic refining obligations, we’ll be able to impact largely on some of the costs in pricing of refined product. So, it behoves on us all as an industry to find a way to make Nigeria a net exporter of refined products.
“And that is the issue that we have gathered here today to address as an industry. Good enough, the PIA has a provision that mandates this. As a commission, it is part of our work to engage the industry as we try to implement this legal provision of the PIA on domestic crude obligation as enshrined in the provisions of the PIA,” he said.
Quoting relevant parts of the PIA, Komolafe stated that it was in contemplation of this that Section 109 of the new law introduced the Domestic Crude Supply Obligation (DCSO) to Nigeria’s oil industry in a bid to ensure that domestic refineries have enough crude supply for their operations.
Komolafe reiterated that the law currently stipulates that the supply of crude oil to the domestic market shall be on a “willing buyer and willing seller” basis, wherein the Nigerian Midstream and Downstream Petroleum Regulatory Agency (NMDPRA) shall report to the commission where there is inadequate supply to the refineries.
Where there is a reported crude supply shortage from the Authority, the commission, he said, is under obligation to issue a Request for Quotation (RFQ) to producers asking for submission of quotations for bridging the deficit and subsequently contact affected refineries to facilitate contract negotiations between the stakeholders.
He described the domestic supply obligation as the requirement imposed by the government on oil producers to allocate a certain portion of their production for domestic consumption.
This, he pointed out, is done to ensure stable and reliable supply of products for the country’s domestic needs. Going by the PIA, he stated that the NUPRC has the mandate to ensure that that obligation to local refineries is met.
However, he stated that the law provides that crude oil can only be supplied to companies with active licenses and are currently in operation. He stated that this shall be done having regard to the prevailing international oil prices.
Accordingly, Komolafe stated that all producers have been requested to provide information on their outstanding purchase agreement with refiners, noting that the commission shall take steps to sanction violators of the rules.
The NUPRC chief executive explained that a company that fails to comply with its domestic supply obligation will not be granted export permit for crude oil for the lease area.
While imploring the oil producers to take the provision seriously, he stated that it was in the interest of the nation that the provision is implemented, but said that sanctions and penalties were not a priority of the provision.
He added that the meetings were to sensitise the attendees on the need to begin the application of the law as it relates to the domestic supply obligation to Nigerian refineries.
“This is part of the nation’s attempt to step up domestic refining capacity with new refineries coming up. Before now, we had some refineries that were in operation and the commission has been meeting the feedstock for the modular refineries.
“Good enough, we have the largest refinery in Africa, that is the Dangote refinery which is ready to commence operations. We have received a request for the 650,000 barrels refinery to guarantee feedstock. So, we believe that it will be a shame if we cannot meet the feedstock of the refinery.
“So, this meeting was conveyed, at least for us to collectively put heads together to address the feedstock of our domestic refineries so that at the end of the day, the objective is for us to take the nation to a level where our nation is a net exporter of refined products as against net exporter of crude, without value addition.
However, the oil companies raised issues on the currency of transaction, the differences in the kind of crude that certain refineries can process and issues surrounding making information on contracts with refiners available to the NUPRC since they have a non-disclosure clause in the contracts.
But Komolafe in response, noted that since it’s a “willing buyer, willing seller” market, parties to crude supply contracts can agree on the currency of transaction, whether naira or dollar.
He stated that in cases where there are disagreements on such issues, the NUPRC will always step in to find amicable resolutions.
On the matter of making data available to the NUPRC on crude supply contracts, Komolafe stated that there must be back-up information, rather than just raw figures. He added that the commission was more interested in the obligations to the refiners, rather than prices.
He also said that the commission will take into consideration the different capacities of the refineries to process only certain kinds of crude oil in making overall decisions.

Lucky Kenedy

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