How FG, IOCs Agreement Limits Crude Allocation to Local Refiners
The Minister of State for Petroleum Resources (Oil), Senator Heineken Lokpobiri, has revealed the reason why International Oil Companies are finding it difficult to allocate crude to domestic refiners, including the Dangote Petroleum Refinery under the Domestic Crude Oil Supply Obligation framework.
He said a pre-production agreement signed by most IOCs to secure offtake of crude products with long-term customers is the reason local refiners are not getting needed allocations.
Lokpobiri disclosed this while speaking at the ongoing Nigeria Energy International Summit on Wednesday in Abuja.
Recently, local refiners accused the regulator of failure to allocate sufficient crude oil to local refineries, preventing domestic refiners from reaching their full production potential. They accused the regulators of preferring to issue licences to import petrol.
This came as the downstream regulator said the country’s three major operational refineries contribute less than 50 per cent of the nation’s daily petrol consumption.
However, the refiners argued that the sole reason why local refiners were not operating at full capacity was because the government refused to allocate sufficient crude to these facilities.
It was gathered that for more than six months, local refineries did not receive a single barrel of crude, neither through the DSCO nor any special arrangement.
But the oil minister speaking to the issue on Wednesday in Abuja, said the only solution was to increase crude production.
He stressed the need for more investments to boost crude oil production, ensuring that both domestic and external obligations are met.
“Today, we have a challenge with domestic crude oil supply obligation, which is provided for in the Petroleum Industry Act, but we cannot keep what we do not produce. But you can’t keep what you don’t produce. You can’t keep what you have already committed.
“I do know that most of you know the companies operating in Nigeria had commitments when they were raising funds for investment. But if we increase our production, we’ll be able to get more volumes, satisfy both our domestic obligation and also satisfy our external obligations.”
He said this challenge faced by companies operating in Nigeria’s upstream sector is responsible for the underperformance of the country’s oil and gas industry.
He emphasised that poor performance in the upstream sector has negatively impacted local refineries, making it difficult for them to access crude oil feedstock for operations.
“The reason why we are struggling in the entire sector is because the upstream is underperforming. And once the upstream succeeds, the midstream will succeed, and the downstream will succeed. I believe the only way we can increase our upstream development is by investments. And these investments will not come for less,” he said.
