NUPRC must act on crude oil diversions

Recent reports indicating that about 60 million barrels of crude oil meant for local refineries have been stranded in the high seas and unsold has once again highlighted the challenges being faced by the Nigerian oil and gas sector in meeting the domestic need for the product. As reported in various newspapers, International Oil Companies […]

Recent reports indicating that about 60 million barrels of crude oil meant for local refineries have been stranded in the high seas and unsold has once again highlighted the challenges being faced by the Nigerian oil and gas sector in meeting the domestic need for the product.

As reported in various newspapers, International Oil Companies (IOCs) which are obligated under the Petroleum Industry Act (PIA) to supply the domestic refineries under the Domestic Crude Supply Obligations (DCSO) have been accused of diverting the crude oil to foreign traders in the far East, Mediterranean and Southern Africa. Such crude oil is then resold to Nigerian oil traders at up to price of 5 to 6 dollars above the normal price stated by the law. Invariably, this means local refineries are placed at a disadvantage in their bid to satisfy the domestic market with petroleum products.

Concerned by this breach of the PIA provisions, the Chief Executive of the Nigeria Upstream Petroleum Regulatory (NUPRC), Gbenga Akomolafe, stated that, “The diversion of crude oil cargoes designated for domestic refineries is a contravention of the law.

“The commission will henceforth disallow export permits for such cargoes.”

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Nigerian refiners, which are the victims of this round tripping of crude oil cargoes, are justifiably aghast at this development. The Crude Oil Refinery Owners Association (CORAN) in a statement issued through its spokesman, Eche Idoko, said crude oil supply shortages and high cost have stalled the progress of at least seven local refineries. Idoko further stated that, “The major challenge is availability of crude. Until recently, Nigeria was not even meeting its OPEC production quotas. For refineries to reach Final Investment Decision (FID) stages, they need guaranteed feedstock. The situation right now is not helping our case.”

Both CORAN and industry analysts have placed the blame on this development squarely on the NUPRC, the regulator. They believe that the breach of extant rules by the IOCs is a threat to the economic and security interests of Nigeria. The development amounts to unfair competition as it is a coordinated effort to undermine the survival of Nigerian refineries. It also poses a distinct threat to the government’s enduring efforts to ensure energy security for Nigeria.

Against these developments, we cannot agree more with the positions of CORAN and the analysts. The NUPRC is the body set up and recognised by law to check these trends in the industry. In this regard, it is mandated to protect the interest of the country and ensure the objectives of the government in growing the industry through local participation are met.

It is instructive that the NUPRC chief executive has issued a warning to the IOCs on this development. But Nigerians are, however, disappointed that the NUPRC, which ought to be vigilant in preventing these practices, has proven ineffective in checking the sharp activities of foreign oil companies which is detrimental to Nigeria’s interests. It is even more disappointing that the IOCs that are operating under Joint Venture Agreement with the Nigerian National Petroleum Company Limited (NNPCL) on crude oil production have been allowed to get away with this glaring breach of both the terms of the JV agreement and the PIA without sanction. This is especially as the IOCs have their operating expenses covered under the cash call provisions under the JV agreements. Why then should the IOCs that are adequately compensated under the JV agreements be allowed to deny our local refineries the product for which they are paid upfront to explore and produce?

The NUPRC should know that Nigerians are not happy that the crude oil produced in the country and which by law should be allocated to local refineries are being denied them and instead rerouted to foreign refineries which then sell the product back to Nigeria at higher prices. This is one of the principal reasons for the perennial unavailability and unaffordability of petroleum products in the country as it denies local refineries that have been licensed to meet the domestic supply have not been able to meet up.

Going forward, these calls for the NUPRC to raise the bar on its statutory oversight functions on the upstream sub sector of the petroleum industry as required. Nigerians will not continue to tolerate a situation where foreign companies pay to produce crude oil meant for the domestic market to divert such products to foreign refineries which then resell back to the country at higher prices.