The Federal Government (FG) is weighing critical changes to the pricing of its crude oil and rules of allocation to give domestic refiners, including the 650,000-barrel-per-day Dangote Refinery, better and cheaper access to feedstock.
A statement by the Crude Oil Refinery-owners Association of Nigeria (CORAN), stated that the proposed reforms to the Domestic Crude Supply Obligation (DCSO), are expected to be tabled for discussions this week during a regulator-led review.
This is as industry players insist that the main bottleneck is not crude availability, but pricing.
Dangote Refinery has previously stated that Nigeria’s current structure adds between $3 and $4 per barrel to feedstock costs, saying that this is owing to the fact that crude purchases are often routed through the trading arms of international oil companies (IOCs), instead of being supplied directly.
However, spokesperson of CORAN, Mr. Eche Idoko explained that the new proposals is aimed at fixing it.
Accordingly, under one of the proposals, producers linked to IOCs would be allowed to deliver crude directly to nearby refineries and have the volumes reconciled at export terminals later.
According to Idoko; “This arrangement would reduce reliance on trunkline infrastructure and bring crude closer to refining facilities”.
In the same vein, the second proposal would be expected to allow refiners lifting crude directly from production sites to receive discounts which would reflect freight and handling costs built into Brent-linked pricing, but not incurred under direct deliveries.
Idoko further said; “This could be a win-win for both the producers and refiners”.
Meanwhile, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), on Monday, said that producer compliance with the DCSO framework rose to over 90 per cent, up from less than 43 per cent in the previous quarter.
The NUPRC however, clarified that the figure measures actual deliveries against volumes allocated to producers, and not the proportion of total refinery demand met.
Under the current framework, producers are required to offer allocated crude volumes to local refiners just as transactions are concluded on a willing-buyer, willing-seller basis.
A senior official of the NUPRC said the proposals are being considered largely in response to requests from inland refiners.
However, the official cautioned that implementation would require resolving technical issues around crude quality differences and pricing adjustments.
Information pieced together indicated that if approved, the changes could go a long way to raise output at the Dangote Refinery which has at times struggled to secure adequate crude supplies from local producers despite the DCSO policy.
