By Ali Elias
Dangote Industries Limited (DIL) has praised the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) for its efforts in facilitating the company’s crude supply requests from International Oil Companies (IOCs) and for issuing the Domestic Crude Supply Obligation (DCSO) guidelines to promote transparency in the oil industry.
DVG Edwin, Vice President of Oil & Gas at DIL, stated, “If the Domestic Crude Supply Obligation (DCSO) guidelines are diligently implemented, we can directly deal with the companies producing crude oil in Nigeria as outlined by the PIA.” Edwin emphasized that IOCs operating in Nigeria have consistently obstructed the company’s attempts to obtain locally produced crude for its refining process.
He highlighted that when cargoes are offered to the oil company by the trading arms, it is sometimes at $2-$4 (per barrel) premium above the official price set by NUPRC. “As an example, we paid $96.23 per barrel for a cargo of Bonga crude grade in April (excluding transport). The price consisted of $90.15 dated brent price + $5.08 NNPC premium (NSP) + $1 trader premium. In the same month we were able to buy WTI at a dated brent price of $90.15 + $0.93 trader premium including transport. When NNPC subsequently lowered its premium based on market feedback that it was too high, some traders then started asking us for a premium of up to $4m over and above the NSP for a cargo of Bonny Light”
“Data on platforms like Platts and Argus shows that the price offered to us is way higher than the market prices tracked by these platforms. We recently had to escalate this to NUPRC”, Edwin said, and urged the regulatory commission to take a second look at the issue of pricing.
Edwin responded to a statement by NUPRC CEO Engr. Gbenga Komolafe, who said on ARISE News TV that it is “erroneous” to claim IOCs are refusing to supply crude oil to domestic refiners, citing the Petroleum Industry Act’s (PIA) “willing buyer-willing seller” stipulation.
Edwin clarified, “The NUPRC has been very supportive, intervening multiple times to help Dangote Refinery secure crude supply. However, the NUPRC Chief Executive’s statement might have been misinterpreted. To clarify, we want to restate the facts
“Aside from Nigerian National Petroleum Corporation Limited (NNPCL), to date we have only purchased crude directly from only one other local producer (Sapetro). All other producers refer us to their international trading arms.
“These international trading arms are non-value adding middlemen who sit abroad and earn margin from crude being produced and consumed in Nigeria. They are not bound by Nigerian laws and do not pay tax in Nigeria on the unjustifiable margin they earn.
“The trading arm of one of the IOCs refused to sell to us directly and asked us to find a middleman who will buy from them and then sell to us at a margin. We dialogued with them for 9 months and in the end, we had to escalate to NUPRC who helped resolve the situation,” Edwin stated.
According to him, “When we entered the market to purchase our crude requirement for August, the international trading arms told us that they had entered their Nigerian cargoes into a Pertamina (the Indonesia National Oil Company) tender, and we had to wait for the tender to conclude to see what is still available.
“This is not the first time. In many cases, particular crude grades we wish to buy are sold to Indian or other Asian refiners even before the cargoes are formally allocated in the curtailment meeting chaired by NUPRC.
“However, we would like to urge NUPRC to take a second look at the issue of pricing. NUPRC has severally asserted that transactions should be on willing seller / willing buyer basis. The challenge however is that market liquidity (many sellers / many buyers in the market at the same time) is a precondition for this. Where a refinery needs a particular crude grade loading at a particular time then there is typically only one participant on either side of the market.
“It is to avoid the problem of price gouging in an illiquid market that the domestic gas supply obligation specifies volume obligation per producer and a formula for transparently determining pricing. The fact that the domestic crude supply obligation as defined in the PIA has gaps is no reason for wisdom not to prevail”, Edwin stated.