Nigeria has released new rules that will compel its oil producers to sell crude to domestic refineries in a bid to reverse the country’s reliance on imported refined products.
This is a major highlight of a comprehensive template for guiding the implementation of Domestic Crude Oil Supply Obligation (DCSO) in accordance with the Petroleum Industry Act (PIA) of 2021, unveiled by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC).
Under the new template, oil producers are only entitled to export crude after meeting their domestic supply obligations, according. This is expected to see the new, giant Dangote Refinery getting more of its crude locally.
NUPRC chief executive, Gbenga Komolafe, who made this known, yesterday, said the new DCSO guidelines was a collaborative effort involving key stakeholders from NNPC Upstream Investment Management Services, Crude Oil/Condensate Producers, Crude Oil Refinery-Owners Association of Nigeria (CORAN), and Dangote Petroleum Refinery, and aims to streamline the supply of crude oil to domestic refineries and enhance the sustainability of Nigeria’s oil industry.
“Crude oil produced by a lessee shall be subject to DCSO imposed by the Commission, provided that the lessee shall be entitled to export any volume of crude oil more than its domestic crude oil supply Obligation,” the template stipulated.
Komolafe also released the current status of the Nigerian crude oil and gas reserves, which showed the combined Crude Oil and Condensate reserves 37.50 billion barrels, and associated gas/non-associated gas reserves of 209.26 trillion cubic feet (TCF) as at January 1, 2024.
He said crude oil and condensate reserves stood at 31.56 billion barrels and 5.94 billion barrels respectively, amounting to a total of 37.50 billion barrels while associated gas and non-Associated gas reserves stood at 102.59TCF and 106.67 TCF respectively, resulting in total gas reserves of 209.26 TCF at January 1, 2024.
According to him, the Reserves Life Index is 68.01 years and 97.99 years for Oil and Gas respectively.
Komolafe further disclosed that NUPRC has developed and unveiled a template to ensure seamless domestic crude oil supply obligation, stressing that the guidelines which have become functional covers all relevant areas of operations in the sector.
Areas which the template dealt with, according to the NUPRC CCE, include Legal Framework, Procedure For Implementation of Domestic Crude Oil Supply Obligations (DCSO), Procedures for crude oil requirement and allocation, Payment Instrument, Currency of payment, logistics scheduling, Continuous obligation, Crude oil diversion, and Defaults,among others.
“The NUPRC, as the industry regulator, has since inception been working to achieve fundamental goals which are in line with the President’s aspirations through diligent operationalisation of the Petroleum Industry Act, 2021 and implementation of the Regulatory Action Plan 2024 and Near Term.
“Let me reiterate that the Commission is committed to improving the country’s oil and gas reserves as well as the successful completion of all strategic initiatives that would enhance the sector’s productivity including the Nigerian Gas Flare Commercialisation Plan (NGFCP), which will drive the attainment of Nigeria’s pledge to end routine gas flaring within this decade and contribute to the reduction of global emissions, and the Domestic Crude Oil Supply Obligation (DCSO), to meet demands of local refineries,” he said.
According to the CCE, the newly unveiled template aligns with the strategic objectives of the current administration and President Bola Ahmed Tinubu’s vision of a business-ready Nigeria.
The template for DCSO compliance outlines a structured approach to domestic crude oil supply obligations, emphasising transparency, collaboration, and accountability among stakeholders.
Key provisions include: Legal framework under Sections 109 and 231 of the Petroleum Industry Act 2021
Procedures for implementing DCSO obligations, including reporting requirements and publication of refinery needs
Guidelines for Request For Quotation (RFQ) processes, Sales and Purchase Agreements (SPA), and Bank Guarantees
Penalties for defaults, including failure to respond to RFQs, enter into contracts, lift crude oil, or offtake allocated volumes
Ensuring Compliance and Sustainability
The template emphasises continuous obligation, strict adherence to delivery windows, and penalties for deviations such as crude oil diversion or payment defaults. By promoting adherence to DCSO requirements and fostering a culture of accountability, the Commission aims to enhance the efficiency and reliability of domestic crude oil supply to refineries, thereby supporting Nigeria’s goal of bolstering domestic refining capacity and ensuring a sustainable oil industry.
Komolafe said that with the introduction of this template, the second half of 2024 is poised to witness enhanced synergy between local refineries and producing companies, paving the way for a more resilient and self-sufficient energy sector in Nigeria.