Don’t divert crude oil meant for local refineries

The diversion of crude oil meant for domestic refining has largely contributed to the neglect of our local refineries. It has also undermined efforts to achieve self-sufficiency in the supply of petroleum products. Arising from the inimical development, the federal government has wielded the big stick against crude oil producers in the country that export crude oil allocated to domestic refineries. They will henceforth be heavily sanctioned. Having functioning refineries will reduce the import of refined petroleum products and curb the current intense pressure on foreign exchange supply. Many crude oil producers have been accused of routinely flouting the Domestic Crude Supply Obligation (DCSO) as provided in the Petroleum Industry Act (PIA) 2021.

DCSO is a regulatory requirement that mandates oil producers to supply a portion of their crude oil to domestic refineries. It is intended to ensure that local refineries have enough crude oil to meet the country’s energy needs. In a letter addressed to exploration and production companies and their equity partners, the Chief Executive Officer, Nigerian Upstream Petroleum Commission (NUPRC), Gbenga Komolafe, warned that diverting crude oil meant for local refineries is a violation of the extant laws and defaulters will have their operating licences revoked. 

The directive followed complaints from local refineries, including Dangote refinery, over operational difficulties in securing adequate crude supplies. This has raised concerns about Nigeria’s energy self-sufficiency goal. In this regard, we advise crude oil producers to ensure strict compliance with the law relating to their operations. They should not flout the conditions stated in the DCSO policy without obtaining permission from the NUPRC. Similarly, local refiners should at all times adhere to international best practices, especially in procurement and operations matters. 

Until now, about 500,000 barrels of crude oil per day allocated to local refineries were reportedly diverted to the international market. Producers and their equity partners have been accused of short-changing the policy guidelines.

According to the NUPRC, for many years, the exportation of crude oil has taken the shape of a huge racketeering scheme, with oil producers and traders prioritizing quick Forex proceeds over local refining. At a recent meeting organised by the NUPRC, both refiners and oil producers traded blames over the inconsistencies in the implementation of DCSO. Section 109 of the Petroleum Industry Act (PIA) 2021 specifically aims to ensure stable supply of crude oil to domestic refineries and strengthen the nation’s energy security. 

If the ban is strictly enforced, it will have a positive impact on the economy as crude oil refined locally will enrich domestic petrochemical industries, the agricultural sector and reduce inequalities in income. It will also enable Nigeria to transition from being a raw material supplier to a value-added product supplier. The Petroleum Products Retail Outlets Owners Association of Nigeria (PETROAN) has argued that that if the NUPRC effectively implements the relevant laws and reins in defaulting oil companies; it will sanitize the oil and gas industry. It will also ensure adequate supply of refined petroleum products, lower prices and improve the economic condition of Nigerian consumers.                        

This will boost the government’s naira-for-crude programme, which is aimed at ensuring that local refineries receive crude oil in naira and sell refined products to marketers in local currency. According to the NUPRC, eight local refineries, including Dangote refinery, require at least 770,500 barrels of crude per day in the first half of 2025. This will ensure effective utilisation of the nation’s domestic refineries and constant supply of crude oil. The 770, 500 bpd represents about 37 per cent of daily average production of 2,066,940 bpd needed in the first half of the year.   

In all, banning the exportation of crude oil meant for domestic refineries comes on the heels of the Organisation for Petroleum Exporting Countries (OPEC) intention to monitor member countries’ compliance to their crude oil quota. However, OPEC quota does not include condensate. The federal government has set daily oil target of 2.7 million for 2025. In December, 2024, Nigeria’s daily oil output reached a year high of 1.67mbpd, of which 1.48mbpd was crude.

The Special Adviser on Energy to the President, Olu Verheijeh, who disclosed this, said the increase in oil production became possible because of improved security around oil production sites. The removal of fuel subsidy may have yielded huge revenue to the government, but we call for transparency and accountability. Our local refineries need government incentives to function optimally.