• Tuesday, July 23, 2024
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FG agrees deal with oil producers on local refinery supply

FG agrees deal with oil producers on local refinery supply

The federal government, through the Nigeria Upstream Petroleum Regulatory Commission (NUPRC), has reached an agreement with producers to permit the sale of crude oil to domestic refiners at market prices.

This resolution ends a supply dispute that has strained relations with international oil companies.

The producers under the aegis of the Oil Producers Trade Section (OPTS) of the Lagos Chamber of Commerce Industry (LCCI) at the instance of the NUPRC agreed to concede to a framework that would be mutually beneficial with a focus on ensuring that the local refineries are not strangulated with off-the-curve prices.

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The parties made the commitment at a virtual meeting convened by Gbenga Komolafe, chief executive of NUPRC with the OPTS on the status review of the Framework for Seamless Operationalisation of Domestic Crude Oil Supply Obligation Template on Thursday.

The meeting was part of efforts to effectively implement key sections of the Petroleum Industry Act, especially pricing and crude supply to the domestic refineries.

Komolafe while speaking at the event said President Bola Tinubu is fully committed to providing a level playing ground for producers and refiners to do business in the industry.

He said there is need to have a rule of engagement to ensure that the pricing model from the oil producers is not seen to be strangulating the domestic refineries.

He directed producers and refiners to henceforth provide the regulator with cargo price quote on crude supply and delivery to effectively monitor and regulate transactions among parties.

“We need to have the price quotes on a monthly basis” he directed.

The Domestic Crude Oil Supply Obligation (DCOSO) has a convergence with the nation’s energy security. The NURPC boss said his administration is re-engineering its regulatory processes.

“We allow all our processes to be transparent. While the Federal Government targets implementation of the regulation, all parties must concede to the rules of engagement as a guide for operation,” he said.

The regulator said it is committed to driving the issue of willing buyer/willing seller.

“We need to discuss pricing especially as parties have committed to respecting their domestic crude oil obligation. For us as the regulator, we don’t want the upstream sector to be operated sub-optimally through cost under-recovery.

” So, the regulator is very alive to that. In crude pricing, we will never allow price strangulation to dis-incentivize our domestic refining capacity optimization. The regulator does not support cost under-recovery in the upstream sector, and we will continue to work to ensure that crude supply profiteering as a negative factor that can strangulate our domestic refining capacity optimization is disallowed.”

Komolafe further stated that the NUPRC is truly committed to attraction of needed investments to boost upstream development and optimization of the hydrocarbon resources in the country.

According to him, the government is seeking sustainability of domestic energy supply in the midstream and downstream sector.

NUPRC, last April, mandated all oil companies in Nigeria to supply crude oil to domestic refineries that are unable to source it locally. Only after meeting these domestic supply obligations are producers allowed to export crude oil.

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The Petroleum Industry Act (PIA) mandates that international oil companies must first meet local demand by supplying crude oil to domestic refineries before exporting any surplus.

However, last month, Devakumar Edwin, the vice president of oil and gas at Dangote Industries Limited (DIL), accused International Oil Companies (IOCs) in Nigeria of deliberately attempting to undermine the Dangote Oil Refinery and Petrochemicals.

Edwin asserted that the IOCs are intentionally obstructing the refinery’s efforts to purchase local crude by inflating premium prices above market rates. This forces the refinery to import crude from distant countries such as the United States, resulting in significantly higher costs.

Nigerians expected the 650,000 barrels Dangote refinery to significantly or end the country’s petrol import dependence in the era of post-subsidy removal.