The Dangote Oil Refinery has urged Nigeria’s upstream oil regulator to enforce laws requiring local crude oil producers to supply domestic refineries. The call comes as the refinery, which boasts a capacity of 650,000 barrels per day and was built at a cost of $20bn by billionaire Aliko Dangote, faces challenges in securing adequate crude supplies from Nigerian producers. The refinery’s struggles are exacerbated by issues such as vandalism and low investment in the country’s oil sector, which have reduced oil production and increased operational costs.
In a statement released on Friday, Dangote Refinery expressed concern that the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) has not been effectively enforcing the Domestic Crude Supply Obligation (DCSO), a provision of Nigeria’s 2021 Petroleum Industry Act. The DCSO mandates that crude oil producers allocate a portion of their production to local refineries. However, Dangote Refinery claims that many international oil companies are not complying with this requirement, forcing the refinery to purchase crude at a premium on the international market.
‘Our concern has always been that while the NUPRC is trying to enforce the rules, international oil companies are not following the instructions,’ said Anthony Chiejina, a spokesperson for Dangote Refinery. He explained that as a result, the refinery often has to buy Nigerian crude from international traders at an additional $3-$4 per barrel, which translates to an extra $3-$4 million per cargo.
Since beginning operations in January, Dangote Refinery has required 325,000 barrels per day (bpd) of crude oil to function optimally. However, data from the regulator indicates that the refinery has been receiving only about half of this amount, leading to increased operational difficulties.
In response to the refinery’s concerns, the NUPRC acknowledged that some oil producers are facing operational challenges, while others have pledged most of their output to oil traders who provided financing for their drilling activities. The regulator also indicated that forcing producers to divert more crude to local refineries could violate existing contracts.
The DCSO law was established to ensure that local refineries receive a steady supply of crude oil, but enforcement has proven challenging due to declining oil production and the Nigerian National Petroleum Corporation (NNPC) allocating much of its crude to service loans backed by oil.
In addition to its challenges with securing sufficient crude supplies, the Dangote Oil Refinery has also faced difficulties with Nigeria’s downstream regulator regarding fuel imports, as it navigates a complex and competitive market environment.
Africabriefing
