…warns of rising local crude oil Prices as trading arms offer cargoes above official price
Business a.m.
Dangote Industries Limited (DIL) has commended the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) for its recent interventions in the company’s crude supply requests from International Oil Companies (IOCs). The Management of DIL also commended NUPRC for publishing the Domestic Crude Supply Obligation (DCSO) guidelines, which it believes will bring greater transparency to the oil industry.
DVG Edwin, vice president of oil & gas at Dangote Industries Limited, underscored the significance of the DCSO guidelines, saying that if they are implemented with due diligence, it will empower DIL to engage directly with the crude oil producers in Nigeria as mandated by the Petroleum Industry Act (PIA).
Edwin insisted that IOCs operating in Nigeria have consistently frustrated the company’s requests for locally produced crude as feedstock for its refining process.
He highlighted that when cargoes are offered to the oil company by the trading arms, it is sometimes at a $2-$4 (per barrel) premium above the official price set by NUPRC. “As an example, we paid $96.23 per barrel for a cargo of Bonga crude grade in April (excluding transport). 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. 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”
“Data 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, urging the regulatory commission to take a second look at the issue of pricing.
Edwin’s comment on the Domestic Crude Supply Obligation guidelines was in response to a statement by Gbenga Komolafe, the chief executive officer of NUPRC on ARISE News TV, where the latter stated that it is incorrect to suggest that the International Oil Companies are refusing to provide crude oil to domestic refiners.
Edwin noted that, “The NUPRC has been very supportive to the Dangote Refinery as they have intervened several times to help us secure crude supply. 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 only 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 will 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 noted that when Dangote attempted to purchase its crude oil requirement for August, the international trading arms informed the company that the crude oil cargoes from Nigeria had already been submitted to a tender by Pertamina, the Indonesia National Oil Company. This meant that Dangote would have to wait until the tender was concluded to know if any crude oil was still available for purchase.
“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 willing seller / willing buyer basis. 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.
“It is 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. 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.
