• NUPRC blows hot, pushes for tougher implementation
• Proper pricing, legal backing key to domestic crude supply, says Iledare
Dangote Refinery and other local refiners may continue to import crude oil, as the implementation of the Domestic Crude Supply Obligation (DCSO) law totters on complex industry crises.
Although the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), yesterday, in Abuja warned that it would deny defaulting operators export permits, crude oil producers and stakeholders told The Guardian that the regulator would only bring more crisis and litigation too hot for the country to handle.
While Nigeria commenced a deal on October 1, 2024, hoping to supply about 400,000 barrels of crude oil per day to Dangote Refinery and 50,000 barrels per day to others, Dangote has returned to crude oil importation.
However, energy scholar, Prof Wunmi Iledare, emphasised the need for proper pricing and legal backing in the implementation of Nigeria’s DCSO. Going by recent import data, there are indications that the refiner may import about 140 million barrels of crude oil from the United States (U.S.) and other places before the end of 2024.
Producers, who spoke with The Guardian, noted that the domestic crude market, unless sanitised, might remain a mirage, stressing that the naira-for-crude deal, willing buyer/willing seller clause, compulsory off-take arrangement and existing future contracts, which may last for over three years, including crude-for-loan deal, would continue to frustrate prevailing attempts.
The Commission Chief Executive of NUPRC, Gbenga Komolafe, emphasised that diverting crude oil meant for local refineries “is a violation of the law”. He stated that any change to cargoes designated for domestic refining must receive express approval from the commission.
During a meeting, at the weekend, attended by over 50 key industry players, both refiners and producers traded blame over the inconsistencies in implementing the DCSO policy. While refiners accused producers of prioritising exports over local supply, forcing them to seek alternative feedstock, producers argued that refiners often failed to meet commercial and operational terms, necessitating the sale of crude in external markets to avoid financial losses and operational disruptions.
According to Komolafe, the commission has already taken regulatory actions to enforce compliance, including the introduction of the Production Curtailment and Domestic Crude Oil Supply Obligation Regulation 2023 and a DCSO framework to guide implementation.
“The diversion of crude cargo designated for domestic refineries is a contravention of the law, and the commission will, henceforth, disallow export permits for designated crude cargoes meant for domestic refining,” Komolafe warned.
A crude oil producer, speaking anonymously, criticised the regulatory approach, arguing that crude oil contracts require certainty
“Crude oil is not pure water that you pick on the shelves. It is a forward up-take contract.
Refiners must prioritise forward off-take. Some producers have more than three off-take contracts. Crude oil is not a naira business but a dollar business. If there is no dollar, we need a letter of credit. We can’t invest and get stuck,” he said. The government, he further noted, collects royalties in dollars but expects producers to operate under different conditions.
“NUPRC has access to all contracts before granting export permits. If they go ahead with this threat, they will only create a series of litigations across the world over the sanctity of contracts,” he added.
Energy expert, Ademola Adigun, acknowledged the importance of the DCSO, but cautioned against regulatory threats while calling for crude oil to continue to sell in naira.
“I don’t think there should be a reversal. All partners must work together to increase crude oil production. The DCSO is a great initiative despite the challenges. However, revoking export permits will only worsen the situation. Threats are no way to regulate a sector,” he said.
President of the Nigerian Economic Society (NES), Prof Adeola Adenikinju, urged the government to ensure compliance with the DCSO, noting that any additional allocation required from private producers outside their DCSO obligations must be subject to negotiation.
ILEDARE stated that while DCSO is necessary, its success depends on clear adherence to pricing and quantity agreements. He noted that NUPRC must accurately estimate domestic crude requirements and ensure that payments reflect verifiable international market prices.
“The implementation of the DCSO comes with the caveat of pricing and quantity. No difficulties arise as long as the law is followed. There must be a proper estimation of the DCSO by the petroleum authorities, and the appropriate price must be paid for the crude,” Iledare said.
He warned that NUPRC must provide legal justification before enforcing any restrictions on crude exports, stressing that there must be clear evidence of violations of the willing buyer/willing seller principle, as well as fairness in crude allocation mechanisms.
On the issue of payment in naira for domestic crude, Iledare suggested that it might apply only to government equity oil rather than private transactions. He maintained that crude oil is traditionally traded in dollars due to exchange rate stability, and any shift to naira should be negotiated rather than imposed.
“It may make political sense to ask for naira payments for an input of production in a domestic economy; but economically, you are bound to follow the established international route. Negotiation, rather than executive pronouncements without legal backing, should determine the mode of payment,” he added.
