Dangote refinery: Oil majors blame theft, low production for poor crude supply

Dangote Refinery

Major oil companies have lamented the impact of oil theft and pipeline vandalism on the availability of crude for local refineries.

The Director-General of the Lagos State Chamber of Commerce and Industry, Dr Chinyere Almona, while speaking on behalf of the companies identified crude oil theft and pipeline vandalism as factors hindering the oil majors’ inability to meet their daily quotas.

Almona also explained that modular refineries were finding it hard to get enough crude.

She also identified low crude oil production in Nigeria as a factor limiting international oil companies’ capacity to supply crude to the Dangote Petroleum Refinery, and other modular refineries.

Nigeria produces 1,281,478 barrels of crude oil daily (excluding condensates), according to the most recent data from the Nigerian Upstream Petroleum Regulatory Commission for April 2024.

The country had produced 1,426,574 barrels per day in January this year, but this was not sustained as it dropped to the position seen in April.

The $20bn Dangote refinery in Lagos has the capacity to refine 650,000 barrels per day, while Nigeria’s 25 modular refineries, when fully functional, can take about 200,000 barrels of crude daily.

IOCs and the Nigerian National Petroleum Company Limited, on behalf of the Federal Government, export crude oil to raise foreign exchange. Crude is an international product, priced in United States dollars.

Oil theft, pipeline vandalism and other challenges in the upstream oil sector have plagued Nigeria’s crude production for several years.

This has led to low oil production in Nigeria, a development which the Oil Producers Trade Section in Nigeria, a subgroup of the Lagos Chamber of Commerce and Industry, blamed for the inability of IOCs to provide adequate crude oil to Dangote Refinery and other local refineries.

In April, the Speaker of the House of Representatives, Abbas Tajudeen, said that Nigeria loses N1.29trn annually to oil theft, pipeline vandalism and other forms of criminality.

Tajudeen, who spoke through the Chairman, House of Representatives Committee on Defence, Babajimi Benson, at the commissioning of the Nigerian Navy Training Command at Eleme, Rivers State, said that Nigeria loses about 300,000 barrels of crude oil per day to theft.

He said the trend was a challenge to the Nigerian Navy to rise to its mandate of contributing to the survival of the national economy.

The President of Dangote Group, Aliko Dangote, had raised the alarm that IOCs in Africa preferred to export crude, instead of serving countries on the continent.

According to him, the international oil companies were used to exporting crude for foreign exchange, adding that they were not ready to stop.

Dangote said though NNPC was doing its best to supply feedstock to the refinery, the IOCs wanted to sell outside the country.

“The NNPC is doing its best, but some of the IOCs, they are struggling to give us crude. Everybody is used to exporting, and nobody wants to stop,” Dangote told CNN recently.

When contacted to get the explanation of the IOCs through the OPTS, the Director-General of the chamber, Almona, explained that the low production of crude in Nigeria was a challenge.

“We realised that due to the low crude production level and other constraints, there might be challenges at the beginning. We can all learn from these teething issues to enrich our regulation of the oil and gas sector for better performance,” she stated.

Almona added that members of the OPTS were also going through their own challenges such as oil theft, which remained a major factor responsible for low crude oil production in the country over the years.

“The issue of oil theft, pipeline vandalism, and policy concerns, among others, are all contributory factors,” she explained to Sunday PUNCH during a telephone interview.

The LCCI DG also pointed out that issues around pricing and supply contracts between the Dangote refinery and IOCs should be granted a “soft landing” by the government through NNPC and NUPRC.

She said, “The issue of IOCs supplying crude oil to Dangote Refinery is a subject of our ongoing conversations around what information is in the public, and our preliminary engagements with some parties.

“Based on public information from Dangote Group, it has been confirmed that some IOCs have been supplying crude to the Dangote refinery. The efforts of the government in ensuring crude supply to Nigerian refineries, including Dangote Refinery, are reasonable.

“However, we call on the NNPC and NUPRC to do more in granting a soft landing to the new refinery if there are any issues around pricing and supply contracts between the two parties.”

The chamber called for a conducive business environment, because crude was an international commodity with international pricing.

Forex struggles

Meanwhile, modular refiners have been pushing for the sale of crude oil in naira, against the usual practice of trading the commodity in dollars.

Their call received some level of response recently, as the government allowed them to pay for the product both in dollars and the naira equivalent based on agreed terms with crude producers, who are primarily IOCs.

The LCCI DG said IOCs would be excited to sell crude to local refineries, but pointed out that the commodity was priced internationally.

“We appreciate the fact that crude is an international commodity traded on open trade terms in international markets, but we can always advocate for a business environment that is supportive of indigenous ventures to encourage more private sector participation in the oil and gas sector.

“Crude oil pricing is based on international reference, and payment guarantees are in place in line with international practice, hence there should be no reason for Nigerian producers, including IOCs, not to be excited about selling to local refineries,” she stated.

Modular refiners affected

Operators of modular refineries have raised concerns severally about their inability to access crude from IOCs.

They also stated that because of this, all functional modular refineries in Nigeria were currently refining below capacity and making losses daily.

Modular refineries are simplified refineries requiring significantly less capital investment than traditional full-scale refineries. The initial process, or Crude Distillation Unit, allows for the simple distillation of crude oil into low-octane naphtha, diesel, kerosene and residual fuel oil.

In Nigeria, modular refineries are crude oil processing facilities with capacities of up to 30,000 barrels per day, and are being built as part of plans to curb oil theft and promote peace in the oil-producing region of the Niger Delta.

Nigeria’s full-scale refineries in Port Harcourt, Warri and Kaduna, under the management of the Nigerian National Petroleum Company Limited, have all been dormant for ages, despite several assurances by the government to fix the plants.

The Deputy Chairman, Crude Oil Refinery Owners Association of Nigeria, Dolapo Kotun, recently explained that modular refineries were finding it tough to get enough crude.

CORAN is a registered association of modular and conventional refinery companies in Nigeria.

Nigeria currently has 25 licensed modular refineries. Five of them are operating and producing diesel, kerosene, black oil and naphtha.

About 10 are under various stages of completion, while the others have received licences to establish.

Operators of modular refineries earlier told our correspondent that aside from the five that are in operation currently, the remaining plants were embattled due to the major challenge of crude oil unavailability, adding that it was a development that had stalled funding from financiers.

“Only about five of our members have completed their refineries. The others are having a major challenge. This challenge is that the people who are supposed to finance them have not disbursed financing for construction because they want some level of guarantee.

“A guarantee that if they finish the refinery, they are going to get feedstock, which, of course, is crude oil,” the Publicity Secretary, CORAN, Eche Idoko, stated.

Regulations

However, the Chief Executive Officer, NUPRC, Gbenga Komolafe, while responding to an enquiry on this matter, insisted that the commission had developed regulations that would ensure crude oil supply to indigenous refiners.

“This still borders on the implementation of the domestic crude oil obligation. First, let me make it clear that establishing a refinery of whatever capacity, whether it is a modular refinery or the bigger sized refinery, is a commercial engagement.

“So, the commission can’t come in to give any form of guarantee. I need to make that clear.

“However, the regulator will only implement the provisions of the PIA given that all the regulatory activities of the commission are expected to comply with the provisions of the law. So, as it relates to guaranteeing feedstock to refiners, that is enshrined under section 109 of the PIA.

“What we have just done in furtherance of that provision is that we have put in place a regulation that has to do with domestic crude oil obligation. In the implementation of that provision, we receive the figures on the domestic refining capacity from the Nigerian Midstream and Downstream Petroleum Regulatory Authority.

“Once we receive that, our development and production department factors the numbers against the capacities of the various producers within the upstream sector and makes it obligatory for them (crude producers) to meet those numbers, thereby guaranteeing that volume of supply to existing licensed and operating refineries, not refineries that have not come into existence,” he stated.

The NUPRC boss stressed that “we do not guarantee crude for financing of refineries that have not come into existence.”

The commission had recently promised to ensure that crude oil was supplied to domestic refiners.

It stated that in compliance with the provisions of Section 109(2) of the Petroleum Industry Act 2021, the NUPRC in a landmark move had developed a template guiding the activities of Domestic Crude Oil Supply Obligation.

“The commission in conjunction with relevant stakeholders from NNPC Upstream Investment Management Services, representatives of Crude Oil/Condensate Producers, Crude Oil Refinery-Owners Association of Nigeria, and Dangote Petroleum Refinery came up with the template for the buy-in of all.

“This is in a bid to foster a seamless implementation of the DCSO and ensure consistent supply of crude oil to domestic refineries,” Komolafe had stated.

• Additional report by GODFREY GEORGE