They said this is especially since the refiners would need to export excess products that surpass domestic demand thus boosting foreign exchange earnings.
Oil producers, under the aegis of the Independent Petroleum Producers Group (IPPG) have advocated that the Nigeria National Petroleum Corporation Limited (NNPCL) should utilise its allocated 445,000 barrels per day intervention crude oil volume to salvage the domestic consumption as it has done in many instances in the past.
This, the group said, will enhance the petroleum value chain within the Nigerian economy within the confines of the law and existing obligations, while suggesting that any national production above NNPCL allocated volume should be treated strictly as export volumes, which they said must adhere to the "willing buyer, willing seller framework" of the international market.
They said this is especially since the refiners would need to export excess products that surpass domestic demand thus boosting foreign exchange earnings.
The IPPG Chairman, Abdulrazak Isa, offered the suggestion in a letter dated August 16, 2024, and addressed to the Chief Executive of the Nigerian Upstream Petroleum Regulatory Commission, Gbenga Komolafe.
SaharaReporters reported that IPPG cautioned Nigerian authorities against being compelled to sell crude oil to the Dangote Refinery and other local refineries in Nigeria.
A press statement dated July 31, 2024 by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) had unveiled the domestic crude oil refining requirements and crude oil production forecast for the second half of 2024, and the request to all producing companies for monthly quotations for crude oil supply to licensed refineries in Nigeria.
NUPRC in a letter dated August 16, 2024, addressed to the NUPRC Chief Executive stated that it was done under the provisions of s.109(4) of the Petroleum Industry Act, 2021 (PIA).
By the directive, petroleum producers are mandated to allocate crude volumes to the local refineries for the second half of 2024 – July to December – in line with the Domestic Crude Oil Supply Obligations (DCSO) guideline issued by the NUPRC in an ongoing effort to avoid shortage of supply to domestic refineries.
However, the IPPG said the directive from NUPRC compelling them to supply certain volumes to local refineries may “inevitably lead to economic damage and self-sabotage of the Nigerian economy”.
The oil producers, however, suggested that solution to the current economic situation can be reached if parties confine to the law and existing obligations by respects existing commercial agreements, economic interests and business models of each sector.
"Specifically, we are proposing the following: NNPC Limited re-directs allocated crude oil volumes to domestic refineries - 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. Since there is now domestic refining capacity to meet consumption, this dedicated volume should be reserved for domestic refineries under a price hedge mechanism that can be provided by a suitable financial institution such as Afrexim Bank.
"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.
"Execution of long-term crude oil sales and purchase agreements - under the willing buyer, willing seller framework, Refiners should negotiate and execute long term crude oil Sales and Purchase Agreements with Producers and their marketing agents. In line with industry best practices, these agreements would have tenures of between 1 and 5 years.
"IPPG, as a critical industry stakeholder and the bedrock of the oil value chain, should be strongly represented on any implementation committee or taskforce set up by the Government for the purpose of addressing the domestic crude oil supply (and associated) issues."
The group further suggested that the Commission should set up a working group of all stakeholders to meet and agree on market-based solutions to further address these issues. "To this extent, we request you to use your good office to broker a meeting among all relevant local refineries, the IPPG and other relevant stakeholders, some of whom are copied in this letter.
"Notably, IPPG companies have established successful arrangements with domestic refineries based on the willing buyer, willing seller principle and remains open to doing business with domestic refineries on similar principles as set out in s109 of the PIA. We trust that this clarifies our position and demonstrates our commitment to national energy security and our support for Nigeria’s economic growth."
They, however, pledged their commitment to work with the Authorities to find a solution within the confines of the law and existing obligations.
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