However,the Vice President of Oil & Gas, Dangote Industries Limited, Mr. DVG Edwin,stated that “If the Domestic Crude Supply Obligation (DCSO) guidelines are diligently implemented, this will ensure that we deal directly with the companies producing the crude oil in Nigeria as stipulated by the PIA.”
He then added that IOCs operating in Nigeria have consistently frustrated the company’s requests for locally produced crude as feedstock for its refining process.
Edwin therefore disclosed 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.
According to him,” As an example, we paid $96.23 per barrel for a cargo of Bonga crude grade in April (excluding transport).
He hinted that “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.
He however stated that”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.
Edwin also disclosed that” Data b
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.
However,Edwin’s response came against the background of a statement by the Chief Executive Officer of NUPRC, Engr. Gbenga Komolafe, who in an interview on ARISE News TV said that “it is ‘erroneous’ for one to say that the International Oil Companies (IOCs) are refusing to make crude oil available to domestic refiners, as the Petroleum Industry Act (PIA) has a stipulation that calls for a willing buyer-willing seller relationship.”
“The NUPRC has been very supportive of the Dangote Refinery as they have intervened several times to help us secure crude he said
“However, the NUPRC Chief Executive was probably misquoted by some people hence his statement that IOCs did not refuse to sell to us. To set the records straight, we would like to recap the facts below.
“Aside from Nigerian National Petroleum Corporation Limited (NNPCL), to date, we have only purchased crude directly from 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 would 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.
“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.
He then hinted that”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 a willing seller / willing buyer basis.
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.
Edwin therefore disclosed that
“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.
According to him,” It i 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.