Dangote claims IOCs are still hindering crude supply to his refinery. Find out more about the challenges and potential impacts.
Dangote Industries Limited’s management maintains that international oil companies continue to impede the delivery of crude to its refinery, which has a capacity of 650,000.
Despite praising the Nigerian Upstream Petroleum Regulatory Commission for its efforts in fulfilling the oil company’s crude supply requests from IOCs and creating Domestic Crude Supply Obligation guidelines to promote transparency within the industry, management made this statement.
The Dangote Group claimed on Wednesday that the IOCs had demanded to sell crude oil to its refinery through their overseas agents. As per their claim, trading arms are offering cargoes at $2-$4 per barrel over the NUPRC official price leading to a continual increase in local prices of crude.
The group claimed that the foreign oil producers were giving priority to Asian countries while selling the crude they produced in Nigeria.
According to Mr. DVG Edwin, Vice President of Oil & Gas at Dangote Industries Limited, diligent enforcement of the Domestic Crude Supply Obligation guidelines would facilitate direct dealings between our company and Nigerian crude oil producers as specified by the Petroleum Industry Act.
Edwin maintained that the IOC’s active in Nigeria had continuously obstructed their pleas for locally-sourced crude as raw material used in refining.
Arms are being traded by IOCs.
According to him, the trading arms occasionally offered cargoes to the oil company at a premium of $2 to $4 (per barrel) compared with the NUPRC’s official price.
In April, we purchased a cargo of Bonga crude grade for $96.23 per barrel (excluding transport), consisting of a dated Brent price of $90.15 plus an NNPC premium and trader premium totaling to $5.08 and $1 respectively. During the same month, we procured WTI at a dated Brent price with added trader premium inclusive of transportation costs. After Nigerian National Petroleum Company Limited decreased its premiums due to market feedback on high pricing, certain traders requested up to an additional NSP amounting to $4m for Bonny Light shipments from us.
Edwin pointed out that the pricing offered to them is significantly higher than what’s being tracked by platforms like Platts and Argus. He stated that they had already raised this issue with NUPRC, urging them to re-examine the matter of pricing.
Edwin responded to a comment made by Gbenga Komolafe, the Chief Executive of NUPRC, during an interview on national TV. In his statement, Mr. Komolafe claimed that it is wrong to suggest that International Oil Companies are denying local refiners access to crude oil since the Petroleum Industry Act requires both parties be willing buyers and sellers in any transaction involving this resource.
Edwin acknowledged the commission’s support for the Dangote refinery, as it had made multiple interventions to secure crude supply. Nevertheless, he expressed doubt that NUPRC’s boss was accurately quoted in his claim that IOCs didn’t decline our purchase requests.
In order to clarify, we want to review the following facts. Apart from the NNPCL, our crude oil procurement has been limited exclusively to Sapetro as a local producer. All other producers redirect us to their global trading entities which act as intermediaries without providing any added value and generate profits derived solely from Nigerian-produced and consumed resources while remaining outside of Nigerian legal jurisdiction and tax obligations for their unjustifiable margins earned.
Edwin stated that the trading division of an IOC declined our direct purchase request and suggested we locate a third party who would buy from them at a margin before selling to us. We engaged in discussions with them for nine months but ultimately had to involve NUPRC, which assisted in resolving the matter.
He continued, stating that during their attempt to purchase crude for August, they were informed by international trading entities that their Nigerian cargoes had already been submitted to a Pertamina tender and would need to wait until the conclusion of said tender before determining what was still on offer. This occurrence is far from unique as often times, specific types of crude oil desired are sold off early to Indian or other Asian refineries even prior to allocation at NUPRC’s curtailment meeting.
Multiple times, he emphasized that transactions must be based on a mutually agreed price and encouraged the NUPRC to re-examine their approach towards pricing.
According to him, in order for this to be successful, there has to exist adequate market liquidity with multiple buyers and sellers active at the same time. However, when it comes to a refinery requiring a specific crude grade delivery during a certain timeframe, only one entity typically participates on either end of the transaction without enough overall market activity.
Edwin explained that the domestic gas supply obligation requires a volume quota per producer and transparent pricing formula to prevent price gouging in an illiquid market. He argued that despite gaps in the definition of the domestic crude supply obligation within PIA, wise decision-making should still be employed.
During a tour of the refinery, The PUNCH reported that editors were informed by Alhaji Aliko Dangote, President of the Dangote Group, that its petrol would be launched in August 2024. This was made possible as they resolved their crude oil supply issues through collaboration with Nigeria National Petroleum Company Limited and Federal Government assistance.
A few days after the NUPRC announced that Nigerian crude oil producers had committed to ensuring a sustainable supply of crude oil to Dangote and other local refineries at market-based prices, Dangote made a comment.
The commitment made by both parties aimed to guarantee that the crude oil producers conducted their business efficiently without depriving feedstock from the refineries.
The Nigeria Upstream Petroleum Regulatory Commission has instructed oil refineries to submit quotes on the cost of crude supply every month.
IOCs have been accused by refiners.
Additionally, the Crude Oil Refiners Association of Nigeria has claimed that International Oil Companies (IOCs) operating within the country have been utilizing their trading agents in Europe to sell crude oil to CORAN members instead of engaging in direct sales with domestic refineries.
Despite expressing hope that the recent involvement of the Federal Government would bring an end to the practice, CORAN denounced it as a prohibited activity necessitating urgent government intervention.
During an interview with The PUNCH, Eche Idoko, the Publicity Secretary of CORAN stated that despite regulations set forth by the Nigerian Upstream Petroleum Regulatory Commission on Domestic Crude Supply Obligation, oil companies continue to partake in this activity.
The NUPRC has established the Domestic Crude Supply Obligation as a means of compelling crude producers to provide for the Nigerian market, which is a fair measure on behalf of the Federal Government.
As I converse with you, the IOCs continue to strive for ways in which they can mitigate the impact of the DCSO guideline. This directive requires them to sell crude oil to Nigeria through a willing-buyer, willing-seller arrangement that is advantageous towards Nigerians.
According to Idoko, the IOCs are advocating for an agreement between refineries and their trading agencies rather than with themselves. However, the Petroleum Industry Act stipulates that it should be signed directly with them. The reason behind this push is because many of these European-based trading partners hold associations with these companies.
