Petroleum Producers Reject Tinubu’s Directive to Sell Crude Oil to Local Refineries, Wants NNPC Allocation Utilised

The Independent Petroleum Producers Group has notified against any move compelling the sale of crude oil to local refineries, including the Dangote Refinery.

In a letter addressed to the Chief Executive of the Nigerian Upstream Petroleum Regulatory Commission, Gbenga Komolafe, on August 16, 2024. IPPG Chairman Abdulrazak Isa pressed the Nigerian National Petroleum Company  (NNPC) Limited to focus on using its allocated crude volumes to stem continuous supply shortages hitting Nigeria’s domestic market.

According to Isa, the statutory allocation of the NNPC should be channelled solely to the local refiners, 445,000 b/d, using similar models deployed before to get the products to domestic consumers.

He underlined that while some members already supply crude oil to local refiners, the NNPC is better positioned to surmount the supply deficit with its statutory allocation, particularly under a price hedge mechanism likely to be arranged by financial institutions such as Afrexim Bank.

The IPPG, however, explained that crude oil volumes above what the NNPC was allowed to produce should be kept for export based on willing buyer/willing seller principles. This is standard international market practice. According to Isa, the refiners would export surplus products to help Nigeria earn foreign exchange.

“While we fully support and commend the efforts of Nigerian entrepreneurs to enhance domestic refining capacity, it is important that no private sector business is unduly pressured into arrangements that may effectively subsidise another within the oil and gas value chain under any guise whatsoever,” Isa said in the letter.

On another note, IPPG expressed its misgivings over recent developments in the sector, notably the domestic crude refining requirements and crude production forecast for the second half of 2024, as announced by the NUPRC.

The group criticised the commission for demanding monthly crude supply quotations from producers for local refineries, calling the move a deviation from the market-oriented principles enshrined in the Petroleum Industry Act.

In its letter, it called for transparency in determining crude oil allocations. It urged that the group be consulted in production forecasts to see that they capture operational realities.

Against the backdrop of growing tensions between indigenous refineries and IOCs, following allegations by the Dangote Group that the IOCs were giving more attention to foreign markets to the detriment of crude oil supply to its 650,000-barrel capacity refinery, the IPPG insisted that there should be long-term crude oil sales agreements.

The agreement, the group said, “must be negotiated on fair terms” with global best practices for a stable and transparent domestic supply of crude oil.

Recall that President Bola Tinubu recently ordered the NNPC to sell crude to local refineries in naira, which is set to take off in October 2024.

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