The state-owned Nigerian National Petroleum Company (NNPC) Limited is under increasing scrutiny as tensions rise between Dangote Industries Limited, the owner of the Dangote Refinery, and International Oil Companies (IOCs) operating in Nigeria.
The question of crude oil feedstock for the Dangote Refinery, which is slated to become Africa’s largest single-train refinery, is at the centre of the dispute.
In 2022, NNPC Limited paid around $2.76 billion to buy a 20 percent share in the Dangote Refinery.
Information about the transaction leaked from NNPC Ltd.’s audited financial report for 2022 revealed that the state-owned business committed to repaying the debt with 300,000 barrels of crude oil per day (bpd).
The News Chronicles learned from some sources that NNPC has needed help fulfilling its commitment to supply 300,000 barrels per day (bpd) of crude oil in order to purchase a 20 percent share in the Dangote Refinery.
Economist Kelvin Emmanuel, who is based in Lagos, told TNC that “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.”
He went on, “The truth is that the IOCs have sold Dangote more oil than the NNPCL since the refinery’s founding. If they are selling at a $6 premium to platts, they must break forwards in order to offer places.”
According to Mansfield Energy, Platts benchmark prices serve as benchmarks for pricing both financial and physical contracts.
Emmanuel claims that the majority of Nigeria’s current budgetary problems are solely the result of the NNPCL’s inefficiency and transparency.
“It is difficult for Nigerians to experience the comparative advantage that a refinery of that size brings,” Emmanuel continued, “if you do not provide your commercial refiner with crude feedstock.”
The “cash for crude” agreements NNPCL has with some of its business partners are impacting the delivery of petroleum to nearby refineries, according to a senior source in the crude trading industry who begged to remain anonymous.
He mentioned that Nigeria’s economy is being heavily impacted by one of the loans known as “Project Gazelle.”
A $3.3 billion emergency crude repayment loan was obtained by the NNPC on August 16, 2023, to calm the foreign currency market and strengthen the naira.
According to the production sharing contracts (PSCs) with the oil companies, the NNPC claimed it would sell 90,000 barrels of Nigeria’s offshore crude oil share each day forward to pay back the debt.
In response to what appears to be an unwillingness to supply the Dangote refinery, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) has taken steps to coerce the industry’s investors.
The NUPRC announced on March 26 that it intended to enact a “Domestic Crude Oil Supply Obligation,” which would require Nigerian crude producers to ship their goods to regional refiners prior to authorizing exports.
Vice president of Dangote, Devakumar Edwin, stated in a speech on June 24 that although the clause is included in the 2021 Petroleum Industries Act, it does not have a price component.
He stated, “The local refineries must be prepared to purchase the crude at the international price. The crude producer is free to export if they can obtain a higher export price.”
There was no “absolute requirement” under the mandate to send crude to the domestic market if doing so would not be economically prudent, an oil trader told S&P Global.
This crackdown is occurring at the same time that most IOCs, including TotalEnergies, ExxonMobil, and Eni, are preparing to leave Nigeria. The sale of onshore and shallow water assets to Nigerian players is presently underway for all three corporations, even though most have encountered obstacles, objections, and even legal difficulties.
The refinery and Chevron, which is still in operation, have maintained their supply connections. A firm representative gave a speech on June 10th, expressing support for the policy.
“Chevron backs the Nigerian Upstream Petroleum Regulatory Commission’s (NUPRC) endeavours to guarantee the provision of crude oil to nearby refineries in a transparent and economically sustainable manner,” the statement read.
