Large oil firms have expressed regret about the effect that pipeline damage and oil theft have on the supply of petroleum for nearby refineries.
Speaking on behalf of the corporations, Dr. Chinyere Almona, Director-General of the Lagos State Chamber of Commerce and Industry, named pipeline vandalism and crude oil theft as the main obstacles preventing the oil majors from meeting their daily quotas.
Almona added that it was difficult for modular refineries to obtain enough oil.
She also mentioned that the Dangote Petroleum Refinery and other modular refineries are unable to get crude from international oil corporations due to Nigeria’s poor crude oil production.
The Nigerian Upstream Petroleum Regulatory Commission’s latest recent data for April 2024 shows that the country produces 1,281,478 barrels of crude oil per day (excluding condensates).
In January of this year, the nation produced 1,426,574 barrels per day; however, this was not sustained, as the production fell to the level observed in April.
When completely operational, Nigeria’s 25 modular refineries can process around 200,000 barrels of crude oil per day, compared to the $20 billion Dangote refinery in Lagos, which can refine 650,000 barrels per day.
In order to raise foreign cash, the Federal Government exports crude oil through IOCs and the Nigerian National Petroleum Company Limited. Crude is a global commodity with a US dollar price tag.
Nigeria’s crude production has been beset for a number of years by issues in the upstream oil sector, including pipeline vandalism and oil theft.
Nigeria’s oil production has decreased as a result, and the Oil Producers Trade Section in Nigeria, a branch of the Lagos Chamber of Commerce and Industry, attributed this trend to IOCs’ incapacity to supply sufficient crude oil to Dangote Refinery and other nearby refineries.
According to Abbas Tajudeen, the Speaker of the House of Representatives, Nigeria loses N1.29 trillion a year to criminal activity such as pipeline destruction and oil theft.
During the inauguration of the Nigerian Navy Training Command in Eleme, Rivers State, Tajudeen, speaking through Babajimi Benson, the Chairman of the House of Representatives Committee on Defense, stated that around 300,000 barrels of crude oil are stolen from Nigeria every day.
According to him, the pattern presents a problem for the Nigerian Navy to fulfill its mission of ensuring the survival of the country’s economy.
Aliko Dangote, the president of the Dangote Group, had voiced concerns about the fact that IOCs in Africa were more interested in exporting crude than in helping the continent’s nations.
He added that the multinational oil firms were not prepared to quit exporting crude for foreign cash because they were accustomed to doing so.
Despite NNPC’s best efforts to supply feedstock to the refinery, according to Dangote, the IOCs desired to sell their products abroad.
While the NNPC is making every effort, some of the IOCs are finding it difficult to supply us with crude. No one wants to quit exporting since everyone is accustomed to it, Dangote recently told CNN.
In response to a request for an explanation of the IOCs through the OPTS, the chamber’s director general, Almona, stated that one difficulty was Nigeria’s poor crude production.
We recognized that there might be difficulties initially because of the low amount of crude production as well as other limitations. “These teething problems are something we can all learn from to improve the way we regulate the oil and gas industry for better results,” the speaker said.
Almona continued by saying that the OPTS members were facing other difficulties, such as oil theft, which has been a significant contributing element to the nation’s poor crude oil production over time.
She clarified to Sunday PUNCH over the phone that “the issue of oil theft, pipeline vandalism, and policy concerns, among others, are all contributory factors.”
The LCCI DG further noted that the government, via NNPC and NUPRC, ought to provide a “soft landing” for matters concerning pricing and supply agreements between the Dangote refinery and IOCs.
“We are having discussions about what information is available to the public and our initial interactions with certain parties regarding the matter of IOCs providing crude oil to Dangote Refinery,” she stated.
It has been established that certain IOCs have been providing crude to the Dangote refinery, according to information made available to the public by the Dangote Group. The government is making reasonable measures to guarantee that Nigerian refineries, such as Dangote Refinery, have a steady supply of crude oil.
“However, in the event that there are any disagreements regarding pricing and supply contracts between the two parties, we call on the NNPC and NUPRC to do more in providing a soft landing to the new refinery.”
Because crude had international price and was an international product, the chamber demanded a business-friendly atmosphere.
Modular refiners, on the other hand, have been advocating for the selling of crude oil in naira as an alternative to the standard dollar exchange rate.
Recently, the government granted their request to purchase the product in both dollars and naira equivalent, in accordance with the parameters set forth by the crude producers, who are mostly IOCs. This indicates that their demand was heard to some extent.
IOCs would be happy to sell crude to nearby refineries, according to the LCCI DG, but the commodity was priced globally.
In order to promote greater private sector involvement in the oil and gas industry, we can always fight for a business climate that is favorable to indigenous endeavors. We recognize that petroleum is an international commodity traded on open trade terms in international markets.
Nigerian producers, especially IOCs, should be enthusiastic about selling to local refineries because “crude oil pricing is based on international reference and payment guarantees are in place in line with international practice,” the spokesperson said.
Concerns over their inability to obtain crude from IOCs have been voiced by operators of modular refineries on multiple occasions.
They added that as a result, Nigeria’s operational modular refineries were currently refining below capacity and losing money every day.
Compared to conventional full-scale refineries, modular refineries are more straightforward and need a substantially smaller initial expenditure. The first step, known as the Crude Distillation Unit, makes it possible to simply distill crude oil into residual fuel oil, diesel, kerosene, and low-octane naphtha.
Modular refineries, which can process up to 30,000 barrels of crude oil per day, are being constructed in Nigeria as part of initiatives to reduce oil theft and advance peace in the Niger Delta, the country’s oil-producing region.
Despite repeated promises from the government to repair the facilities, Nigeria’s full-scale refineries at Port Harcourt, Warri, and Kaduna—all operated by the Nigerian National Petroleum Company Limited—have lain idle for an extended period of time.
Dolapo Kotun, the Deputy Chairman of the Crude Oil Refinery Owners Association of Nigeria, recently provided an explanation of why modular refineries were experiencing difficulties obtaining sufficient crude.
Nigerian modular and conventional refinery firms are recognized as members of CORAN.
There are now 25 licensed modular refineries in Nigeria. Black oil, naphtha, kerosene, and diesel are produced by five of them now in operation.
Ten or so are at various stages of completion, while the remaining ones have been granted licenses to open.
Earlier, modular refinery operators told our correspondent that, except from the five that are currently operating, the remaining facilities were struggling because of the significant issue of crude oil scarcity. They further stated that this development had caused funding from financiers to stall.
Just roughly five of our members have finished building their refineries. The others are facing significant difficulties. The problem is that the folks who are meant to provide the funding have withheld it from construction because they require some sort of assurance.
The CORAN Publicity Secretary, Eche Idoko, said, “a guarantee that if they finish the refinery, they are going to get feedstock, which, of course, is crude oil.”
In response to a question on the subject, NUPRC Chief Executive Officer Gbenga Komolafe stated that the commission had created rules that would guarantee the supply of crude oil to local refiners.
“This is still very close to enforcing the domestic crude oil obligation. It is important to note that building a refinery, regardless of its size—a modular refinery or a larger refinery—is a business endeavor.
Therefore, the commission is unable to provide any kind of assurance. I must be clear about that.
On the other hand, as all of the commission’s regulatory actions are required to adhere to legal requirements, the regulator will only carry out the PIA’s rules. Therefore, section 109 of the PIA enshrines the assurance of feedstock to refiners.
We recently implemented a regulation pertaining to the requirement for domestic crude oil, which is what we did to further that provision. The Nigerian Midstream and Downstream Petroleum Regulatory Authority provides us with data on the domestic refining capacity in order to carry out that provision.
“After we receive that, our development and production department compares those figures to the capacities of the different upstream producers and requires them (crude producers) to meet those figures, ensuring that volume of supply goes to licensed and operating refineries that are already in operation—not to refineries that haven’t been established yet,” he said.
“We do not guarantee crude for financing of refineries that have not come into existence,” the head of NUPRC emphasized.
Recently, the commission pledged to make sure that domestic refiners received crude oil.
It added that the NUPRC has, in a historic gesture, created a template directing the activities of the Domestic Crude Oil Supply Obligation in accordance with the terms of Section 109(2) of the Petroleum Industry Act 2021.
The template for everyone’s buy-in was developed by the commission in collaboration with pertinent stakeholders including NNPC Upstream Investment Management Services, representatives of Crude Oil/Condensate Producers, Crude Oil Refinery-Owners Association of Nigeria, and Dangote Petroleum Refinery.
“This is an attempt to guarantee a steady supply of crude oil to domestic refineries and promote a smooth implementation of the DCSO,” Komolafe had said.
