Crude oil supply: Dangote Refinery couldn’t agree price with IOCs

Gbenga Akomolafe, the Chief Executive Officer of the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), shared critical insights on Monday regarding the ongoing challenges in securing crude oil supply for domestic refineries, including the Dangote Refinery.

Akomolafe, who spoke during an appearance on Arise TV’s The Morning Show, stressed that the Petroleum Industry Act permits willing buyer, willing seller principle for the procurement of crude oil by refineries.

Regulatory Framework and Obligations

Akomolafe emphasised the regulatory framework established under Section 109 of the Petroleum Industry Act (PIA). This section mandates the enforcement of domestic crude oil applications, ensuring that oil producers supply crude to domestic refiners.

The NUPRC, as the technical and commercial regulator, collaborates with the Nigeria Mid and Downstream Petroleum Regulatory Agency to determine domestic crude requirements and allocate these volumes to various producers.

Willing Buyer, Willing Seller Principle

One of the key provisions of the PIA is the “willing buyer, willing seller” principle. This principle guides the NUPRC in facilitating agreements between crude oil producers and refiners.

However, according to Akomolafe, despite initial engagements involving all major refineries, including the Dangote Refinery, challenges arose when parties did not adhere to agreed terms.

International Market Dynamics

Akomolafe highlighted that crude oil is an international commodity, and its supply follows global market principles. To address the discrepancies, the NUPRC implemented a rule of engagement to ensure compliance. This rule is now enforced and accessible on the NUPRC website.

Pricing Disputes

A significant issue that emerged was pricing. Domestic refiners, including the Dangote Refinery, raised concerns about crude oil prices. The NUPRC, adhering to the “willing buyer, willing seller” principle, reviewed these concerns.

Also Read: Dangote accuses international oil companies of sabotaging refinery operations

According to Akomolafe, the commission’s statutory obligation includes publishing the fiscal oil price, as prescribed in the PIA, which is based on best practices and international standards.

Avoiding Subsidy Pitfalls

Akomolafe cautioned against the pitfalls of mismanaging upstream pricing, drawing parallels to the under-recovery and subsidy challenges faced in the downstream sector.

Akomolafe further said the NUPRC aims to prevent similar issues in the upstream sector, ensuring that pricing remains transparent and aligned with market realities.

As some commentators have said, implies that Dangote Refinery wants the IOCs to sell crude oil to it at subsidised rates.

Also, a source privy to the issue said Dangote Refinery is offering to pay for crude oil in Naira. This, according to the source, is not economically viable for the IOCs owing to the rate of the Naira to the dollar.

The inability of Dangote Refinery to reach a pricing agreement with international oil companies (IOCs) highlights the challenges faced by domestic refiners. The NUPRC’s proactive measures and adherence to best practices aim to navigate these challenges, ensuring a stable and transparent supply chain for Nigeria’s refining industry.

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