NNPC’s crude woes fingered in Dangote-IOCs spat

State-owned Nigerian National Petroleum Company (NNPC) Limited is facing intense scrutiny as tensions flare between Dangote Industries Limited, owners of the Dangote Refinery, and International Oil Companies (IOCs) operating in Nigeria.

At the heart of the controversy lies the issue of crude oil feedstock for the Dangote Refinery, poised to become Africa’s largest single-train refinery.

The NNPC Limited, in 2022, acquired a 20 percent stake in the Dangote Refinery worth about $2.76 billion.

Details of the deal soured from NNPC Ltd.’s audited financial report for 2022 showed the state-owned company pledged 300,000 barrels of crude oil per day (bpd) as repayment for the loan.

Sources told BusinessDay that NNPC has struggled to meet its 300,000 barrels per day (bpd) of crude oil obligation to acquire a 20 percent stake in the Dangote Refinery.

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“NNPC has not honoured the 300k barrels per day in feedstock for an equity contribution of $1.7bn it owes, but somehow, the blame is placed on IOCs that usually lock in five-to seven–year contracts with European refineries well ahead of time,” Kelvin Emmanuel, a Lagos based economist, told BusinessDay.

He added, “The reality is that since the inception of the refinery, the IOCs have sold more oil to Dangote than the NNPCL. If they are selling at a $6 premium to platts, they have to break already forwards to provide spots.”

Platts benchmark prices are used as reference points for pricing physical and financial contracts, Mansfield Energy says.

According to Emmanuel, the inefficiencies and opaqueness of NNPCL are single-handedly the cause of most of the fiscal woes that Nigeria is facing today.

“Not providing your commercial refiner with crude feedstock makes it difficult for Nigerians to experience the comparative advantage that a refinery of that size brings,” Emmanuel further said.

A senior source in the crude trading business, who pleaded anonymity, said NNPCL’s ‘cash for crude’ deals with some of its business partners are affecting supply to local refineries.

He noted that one of the loans, dubbed ‘Project Gazelle,’ is having a high burden on Nigeria’s economy.

Read also: Dangote accuses IOCs of plotting refinery’s downfall

“I am not a fan of resource-backed loans, and this forward sales agreement that is akin to the financialisation of future oil and gas assets. It is an anomaly in statecraft,” the source said.

On August 16, 2023, the NNPC secured a $3.3 billion emergency crude repayment loan to support the naira and stabilise the foreign exchange market.

To make the repayment, the NNPC said it would carry out a forward sale of 90,000 barrels per day of Nigeria’s share of offshore crude oil under the production sharing contract (PSCs) with the oil companies.

“Local refineries like the Dangote refinery or modular refineries are crude-starved due to Nigeria’s current oil production woes and mortgaging 30 percent of Nigeria’s output for cash deals,” Charles Ogbeide, energy analyst with a Lagos-based investment bank, said.

An apparent reluctance to supply Dangote refinery has been met with efforts by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) to force the hand of IOCs.

On March 26, the NUPRC announced intentions to implement a ‘Domestic Crude Oil Supply Obligation,’ which would oblige Nigerian crude suppliers to deliver products to local refiners before allowing exports.

Read also: Fire erupts at Dangote Refinery

Speaking on June 24, Devakumar Edwin, Dangote’s vice president, said that the provision is enshrined in the 2021 Petroleum Industries Act, yet does not include any price component.

“The local refineries have to be ready to buy the crude at the international price,” he said. “If the crude producer can get a higher price for export, they are free to export.”

An oil trader told S&P Global that the mandate included no “absolute requirement” to deliver crude to the domestic market if it was not commercially prudent.

The crackdown coincides with a planned withdrawal from Nigeria by the majority of IOCs, including TotalEnergies, ExxonMobil and Eni. All three companies are currently in the process of selling onshore and shallow water assets to Nigerian players, though most have faced delays, opposition and even court challenges.

Chevron, which remains active, has continued to forge supply links with the refinery. Speaking June 10, a spokesperson for the company expressed its support to the policy.

“Chevron supports the efforts of the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) to assure the supply of crude oil to local refineries on a transparent and commercially viable basis,” he said.