Producers Declined to Sell 460,000 bpd of Crude to Dangote Refinery.
Oil producers, represented by the Independent Petroleum Producers Group (IPPG), have raised significant concerns regarding the pressure to sell crude oil to the Dangote Petroleum Refinery and other local refineries in Nigeria. This warning reflects the broader apprehensions within the industry about market dynamics and the implications of forced sales on their operations and profitability.
According to the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), the IPPG is responsible for producing approximately 30% of Nigeria’s total crude oil output. This substantial share underscores the group’s importance in the national energy landscape and highlights its potential influence on local refining activities and supply chains.
Recent production data released by the NUPRC revealed that Nigeria’s total oil production, which includes both crude oil and condensates, reached an impressive 1,533,698 barrels in July. When calculating the IPPG’s contribution based on its 30% share, it becomes evident that the group should be producing around 460,000 barrels per day (bpd) of crude oil. This figure not only emphasizes the group’s role in the market but also raises questions about the distribution and allocation of crude oil resources.
In light of the current situation, the IPPG has strongly urged the Nigerian National Petroleum Company Limited (NNPC) to reallocate its designated crude oil volumes specifically to the Dangote refinery and other local facilities. This strategic move aims to alleviate the ongoing crude supply shortages that local refiners are grappling with, which have been adversely affecting product availability in numerous regions across Nigeria. The urgency of this request reflects the critical need for a stable supply to ensure that local refineries can operate effectively.
In a formal letter dated August 16, 2024, addressed to Gbenga Komolafe, the Chief Executive of the NUPRC, IPPG Chairman Abdulrazak Isa articulated the group’s position. He emphasized that NNPC should utilize its allocated intervention crude oil volume of 445,000 bpd to address the current crisis. Isa pointed out that this intervention is not just a suggestion but a necessary action, as NNPC has successfully implemented similar measures in various instances in the past.
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Isa further highlighted that several members of the IPPG are already involved in owning and supplying crude oil to local refineries. This involvement positions them uniquely to understand the challenges faced by local refiners and reinforces their call for NNPC to take decisive action. He insisted that NNPC is well-equipped to mitigate the current supply shortfall by leveraging its statutory crude allocation to meet the pressing demands of domestic consumption.
Historically, NNPC has maintained an intervention crude oil volume of 445,000 bpd, specifically intended to satisfy the nation’s domestic consumption needs. This volume has been strategically utilized under various swap mechanisms to facilitate the importation of refined products for local use. The established precedent of using this intervention volume emphasizes the importance of such measures in ensuring energy security and stability in local markets.
With the current increase in domestic refining capacity, which has the potential to meet local consumption requirements, Isa argued that this dedicated volume should be reserved exclusively for all domestic refineries. He proposed that this allocation be supported by a price hedge mechanism, which could be provided through suitable financial arrangements. This approach would not only stabilize the supply chain but also ensure that local refineries can operate competitively and effectively within the market.
