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Nigeria mandates oil sales to domestic refineries

Nigeria mandates oil sales to domestic refineries

Nigeria, Africa’s largest oil exporter, is shaking up its oil industry by mandating oil firms to supply a portion of their crude oil to domestic refineries before exporting it.

This new policy, outlined by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), aims to boost domestic refining capacity and reduce reliance on imported petroleum products.

According to Gbenga Komolafe, the Commission Chief Executive of NUPRC who disclosed this during a press briefing in Abuja on Monday, the move was in alignment with Nigeria’s commitment to bolster its domestic refining capacity and ensure the sustainability of its oil industry.

He explained that as of January 1st, 2024, Nigeria’s crude oil and condensate reserves were at 31.56 billion barrels and 5.94 billion barrels respectively, amounting to a total of 37.50 billion barrels while the Associated Gas and Non-Associated Gas reserves were at 102.59 Trillion Cubic Feet (TCF) and 106.67 TCF respectively, resulting in total Gas reserves of 209.26 TCF.

“The Reserves Life Index is 68.01 Years and 97.99 years for Oil and Gas respectively, positive gross addition to oil and gas reserves of 1.087 billion barrels and 2.573 trillion cubic feet respectively were recorded.”

He explained that in compliance with the provisions of Section 109(2) of the Petroleum Industry Act (PIA), 2021, the Commission has developed a template guiding the activities for Domestic Crude Oil Supply Obligation (DCSO).

As contained in the template, among the procedure for implementation of domestic crude oil supply obligations (DCSO), is the supply of crude oil requirements of refineries in operation to the Commission adding that where shortages or inadequate supply conditions occur, it must be reported accordingly.

It also indicated that the payment shall be in either United States Dollar ($) or Naira (N) or both, adding that where the payment is in both currencies, the payment split shall be as agreed in the SPA between the Producer and the Refine

The template indicated that “Crude oil produced by a lessee shall be subject to DCSO imposed by the Commission, provided that the lessee shall be entitled to export any volume of crude oil more than its domestic crude oil supply obligation. The Commission shall publish on its official website and in three national newspapers the domestic crude refining requirements of operating refineries in Nigeria based on information provided to the Commission by the NMDPRA on the crude oil requirements of refineries in operation in Nigeria pursuant to section 109 (3) of the PIA 2021.

“Where a refinery is not successful at independently sourcing crude oil supply from lessees based on available information, the refinery’s crude preferences should be sent to the Commission before the 15th Business Day of the third month.

“All DCSO allocated cargoes must be discharged into the Refinery facility they are programmed for and shall not be diverted or swapped; utilization of any DCSO allocation by any refiner for any purpose other than domestic processing, without a written approval by the Commission shall attract suspension from DCSO allocation for a period determined by the Commission in addition to any other administrative penalty that may be imposed by the Commission.

“In the occurrence of a default in payment by the Refiner, the Commission shall not allocate DCSO to the defaulter for a period to be determined by the Commission in addition to the penalty contained in the Sales Agreement between the refiner and the Lessee.

“In the event of failure to lift within the scheduled laycan (or delivery window) by the Refiner, resulting in tank top/production curtailment, the defaulting refiner shall be suspended by the Commission from receiving DCSO allocation for a period to be determined by the Commission; and will be liable to pay a fine equivalent to the delayed royalty from the deferred volume in addition to other failure to lift penalties.”

It also stated that where the lessee failed to supply the allocated DCSO resulting in shortages for the refinery (except in the event of force Majeure as defined in the SPA), the defaulting lessee will be liable to administrative penalty to be determined and imposed by the Commission.