Nigerian oil producers, represented by the Independent Petroleum Producers Group (IPPG), have expressed concerns about being forced to sell crude oil to local refineries, including the Dangote Refinery. In a letter to the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), IPPG Chairman Abdulrazak Isa suggested that the Nigerian National Petroleum Company Limited (NNPC) redirect its allocated crude oil volumes to local refineries to address the current supply shortage.
Isa emphasized that while some IPPG members already supply crude oil to local refineries, the NNPC should utilize its intervention crude oil volume to mitigate the shortage. He also raised concerns about recent developments, including the domestic crude oil refining requirements and production forecast for the second half of 2024.
“Historically, NNPC has always had an intervention crude oil volume (445kbopd) meant to satisfy the nation’s domestic consumption. This volume has always been used, under various swap mechanisms, to import refined products for domestic consumption.
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“Since there is now domestic refining capacity to meet consumption, this dedicated volume should be reserved for all domestic refineries under a price hedge mechanism that can be provided by a suitable financial institution such as Afrexim Bank,’’ he stated.
Isa, however, maintained that, “Any national production above this allocated volume should be treated strictly as export volumes, adhering to the willing buyer, willing seller framework of the international market especially since the refiners will need to export excess products that surpass domestic demand thus boosting FX earnings.’’
The IPPG objects to being obligated to supply crude oil to refineries, citing the willing-buyer, willing-seller framework prescribed by the Petroleum Industry Act 2021. The group supports domestic refining capacity enhancement but opposes undue pressure on private sector businesses.
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Isa called for transparency in allocation determination and requested an opportunity for IPPG to contribute to the production forecast. He emphasized the need for long-term crude oil sales and purchase agreements following industry best practices. The IPPG seeks an amicable solution that balances commercial agreements, economic interests, and business models without jeopardizing existing obligations.
