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Dangote refinery: Crude supply crisis threatens oil investments, operators warn FG.

27th June 2024

Dangote refinery
Dangote refinery

The domestic crude oil supply crisis that recently led to accusations and denials in the oil sector may warrant an investment plunge in the industry, operators declared on Wednesday.

According to operators at the Lagos Chamber of Commerce and Industry, the crisis may damage the confidence of International Oil Companies and investors in refineries.

This came as a section of the 650,000-capacity Dangote Petroleum Refinery caught fire on Wednesday, sparking reactions on social media as videos of the incident went viral.

The management of the facility, however, allayed fears about the incident, as it stated that the situation had been put under control, adding that no one was harmed by the fire outbreak.

Meanwhile, the LCCI charged the Federal Government to prevent any form of blackmail and victimisation of IOCs and local refiners by quickly resolving the issues around oil supply contracts, higher crude cost in Nigeria above international prices, and the cost of logistics.

The Director-General, LCCI, Chinyere Almona, disclosed this while responding to enquiries by our correspondent on the views of IOCs concerning the recent accusations against them by a senior official of the Dangote Petroleum Refinery.

IOCs operating in Nigeria such as Shell, ExxonMobil, TotalEnergies, and Nigeria Agip Oil Company, among others, are under the Oil Producers Trade Section of the Lagos Chamber of Commerce and Industry.

This came as modular refinery operators demanded the intervention of the Minister of Finance and Coordinating Minister for the Economy, Wale Edun, in the lingering domestic crude oil supply crisis.

“Since the issue around crude supply to the Dangote refinery and the IOCs, the chamber has consulted with some relevant parties. While these consultations continue, we call on the government, as the regulator, to provide a detailed report on what the key issues are and what it intends to do to resolve these issues.

“This is critical as uncertainties like this can be a disincentive to potential investors in the oil and gas sector. The regulatory agency (NUPRC) must show the capacity to resolve issues about protecting investors’ interests. The investors here are the Dangote refinery and the IOCs,” Almona stated.

Modular refiners are, of course, investors in the midstream arm of the oil and gas sector, as the LCCI DG had earlier told our correspondent that the chamber had championed calls for the provision of crude to operators in this space.

Continuing in her response on Wednesday to the recent crude supply concerns between IOCs and the Dangote refinery, she added, “Crude oil is an international commodity traded on open trade terms in the global markets.

“Still, we can resolve these issues to prevent any form of blackmail and victimisation of any party. The issues around supply contracts, higher prices above international crude prices, and the cost of logistics should be quickly resolved before they damage the confidence of investors in the sector.”

Also, the National Vice President of the Nigerian Association of Small-Scale Industrialists, Segun Kuti-George, said the battling with crude oil locally to boost production by Dangote Refineries would dampen investors’ confidence if it lingered.

He said, “This development will affect negatively. Our crude oil is being used in other countries, I am concerned about the situation where we export crude oil to other countries, yet we import refined products.

“It doesn’t make sense. Why can’t our refineries process the crude oil we produce? Instead, we’re exporting it to other nations, only to import refined products from them.

“It’s suspicious and seems like a game is being played. I hope this isn’t another case of inefficiency or lack of capacity. We need to get our refineries working to process our crude oil and reduce our reliance on imported refined products. We must address this issue, if we continue in this course, we can dampen investors’ confidence.”

IOCs urged

It was reported on Monday that the Vice President of Oil and Gas at Dangote Industries Limited, Devakumar Edwin, had accused International Oil Companies in Nigeria of plans to frustrate the survival of the new Dangote Petroleum Refinery.

Edwin had said the IOCs were deliberately and willfully frustrating the refinery’s efforts to buy local crude by hiking the cost above the market price, thereby forcing the refinery to import crude from countries as far as the United States, with its attendant high costs.

“Recall that the NUPRC recently met with crude oil producers as well as refineries owners in Nigeria, in a bid to ensure full adherence to Domestic Crude Oil Supply Obligations as enunciated under section 109(2) of the Petroleum Industry Act.

“It seems that the IOCs’ objective is to ensure that our petroleum refinery fails. It is either they are deliberately asking for a ridiculous/humongous premium or they simply state that crude is not available. At some point, we paid $6 over and above the market price. This has forced us to reduce our output as well as import crude from countries as far as the US, increasing our cost of production. It appears that the objective of the IOCs is to ensure that Nigeria remains a country which exports crude oil and imports refined petroleum products. They (IOCs) are keen on exporting the raw materials to their home countries, creating employment and wealth for their countries, adding to their Gross Domestic Product, and dumping the expensive refined products into Nigeria – thus making us to be dependent on imported products. It is the same strategy the multinationals have been adopting in every commodity, making Nigeria and Sub-Saharan Africa to be facing unemployment and poverty, while they create wealth for themselves at our expense.

“This is exploitation – pure and simple. Unfortunately, the country is also playing into their hands by continuing to issue import licences at the expense of our economy and at the cost of the health of the Nigerians who are exposed to carcinogenic products,” the Dangote refinery official had stated.

Edwin had also accused the Nigerian Midstream and Downstream Petroleum Regulatory Authority of granting licences indiscriminately to oil marketers to import dirty refined products into the country.

He had stated that even though Dangote was producing and bringing diesel into the market, complying with the regulations of the Economic Community of West African States, “licences are being issued, in large quantities, to traders who are buying the extremely high sulphur diesel from Russia and dumping it in the Nigerian market.”

But the Federal Government, on Tuesday, denied this claim, as it declared that there was no importation of dirty fuel into Nigeria, countering the position of the official Dangote refinery official.

The government declared this after meeting with oil marketers and local refiners of crude oil in Abuja, where parties at the meeting discussed issues pertaining refined products’ pricing, issues of competition and the importation of products that are produced in Nigeria.

The government spoke through the Nigerian Midstream and Downstream Petroleum Regulatory Authority, as it explained that refined petroleum products with high-sulphur contents were last imported in February, and that this had since been addressed by the regulator.

The Executive Director, Distribution Systems, Storage and Retailing Infrastructure, NMDPRA, Ogbugo Ukoha, disclosed this to journalists after the regulator concluded its meeting with the oil marketers and local crude oil refiners, which had officials from Dangote refinery and modular refineries.

“There is no dirty fuel that is being brought into Nigeria,” Ukoha had declared, when asked to react to the allegations leveled against the NMDPRA by a senior official of the Dangote refinery.

Negotiations necessary

To adequately tackle the crisis, the LCCI called for further negotiations among parties, noting that issues of crude oil pricing and supply contracts require thorough discussions by all players.

“We urge the government to remain close to the emerging issues around pricing and supply contracts among all parties to create an environment where the IOCs and all other parties can trade profitably together, create jobs, and generate revenue for the government,” the chamber’s DG stated.

Almona pointed out that “we can all learn from these teething issues to enrich our oil and gas sector regulation for better performance.”

She added, “We acknowledge the efforts made so far by the government in calling the IOCs to supply crude to the Dangote refinery, we add our voice to say both parties should consider coming to the table with their offers negotiated within international best practices and as moderated by the sector regulators.”

Modular refiners.

On their part, operators of modular refineries stated that the Minister of Finance and Coordinating Minister for the Economy, Wale Edun, should intervene in the matter if the Presidency would not find the chance to do so.

They spoke to our correspondent through their umbrella association, the Crude Oil Refinery Owners Association of Nigeria, while reacting to Dangote’s recent revelation on the crude oil supply matter.

CORAN is a registered association of modular and conventional refinery companies in Nigeria. Modular refineries are simplified refineries that require significantly less capital investment than traditional full-scale refineries.

The Publicity Secretary, CORAN, Eche Idoko, said, “The chairman of CORAN was at ChannelsTV (Tuesday) to discuss the statement by Dangote that the IOCs are frustrating his refinery and by extension other local refineries. While we acknowledge the efforts of NMDPRA and NUPRC, they can only push within the ambit of the law and their enabling status.

“The issue as it stands requires the Federal Government, at least through the Coordinating Minister of the Economy and Minister of Finance if the Presidency is not available to react. This matter fundamentally bothers on the government’s fiscal policy directions.

We need to know clearly from the government where they lean on.

“Is it to achieve self-sufficiency concerning in-country refining or to continue the regime of fuel importation and holding onto the coat-tails of the foreign traders and their goons in Nigeria who have continued to stifle the growth in the mid and downstream segment of our petroleum industry?”

Idoko said the private sector saw the challenge in the oil sector and “took a bold step in the interest of the country to sink huge investments in the sector.

“The least we would want from this government and its economic team is to also take the same bold steps and stand unambiguously behind those who have taken the risk to invest here. This will be at least in keeping with one of their campaign promises.”

The association urged all the stakeholders in the oil sector to put the interest of Nigerians first and work towards alienating the sufferings of the citizenry.

“The government must not allow itself to be blackmailed, hoodwinked or bullied into pursuing an agenda that will benefit the foreign trading mafias and their agents in Nigeria at the expense of the suffering masses. Rather they should seize this opportunity to build synergy with emerging local investors within the refining space to build a vibrant and resilient refined petroleum products’ trading hub in Nigeria that will not only benefit the country but the entire subregion,” the CORAN official stated.

Refinery fire

Also on Wednesday, a section of the 650,000-capacity Dangote refinery caught fire, sparking reactions on social media as videos of the incident went viral.

The incident, which came at a time when the Dangote Group was accusing some oil mafias of sabotage, generated tension among Nigerians, who feared that the fire might further delay the operations of the refinery which promised to start the supply of Premium Motor Spirit in July.

While the company has yet to state the root cause of the fire incident, one of our correspondents gathered that it must have been triggered by an electricity surge.

While confirming the incident, the Group Chief Branding & Communications Officer, Dangote Industries Limited, Anthony Chiejina, described the incident as minor.

Chiejina noted that the company had contained a minor fire that affected only the effluent treatment plant.

“We have swiftly contained a minor fire incident at our effluent treatment plant today, Wednesday, June 26,” he noted.

Chiejina also stressed that the refinery was still operating, and no injury or bodily harm was recorded due to the incident.

“There is no cause for alarm as the refinery is operating and there is no recorded injury or body harm to all our staff on duty,” he concluded.

Speaking with our correspondent, the Secretary of the Depot and Petroleum Products Marketers Association of Nigeria, Olufemi Adewole, commended the Dangote Group for acting swiftly to stop the fire from spreading to other parts of the refinery.

Adewale said he might not be able to make comments on the incident, but empathised with the company.

“I will not be able to comment on the incident. I will just say we empathise with them, and it is a good thing they were able to put out the fire swiftly.

“It started as an accident from everything we read, probably some people started perceiving smells of burning cable. Anything could have happened at any point in time, but the good thing is that their safety crew were on top of it and were able to put it off. So, I think they did a very good job. We empathise with them, and they’ve done a good job,” Adewole said.

Giving a piece of advice, Adewole said industry players should continue to work towards safety to avoid accidents.

“Safety is not an accident. Safety is something that we all are working towards to ensure that we avoid accidents. The less of accidents we have in our various depots and refineries, the better for us,” he stated.

Our correspondent reminded Adewole that a fire incident happened at the Honeywell depot in Apapa in May, asking what was being done to stop the fire from becoming a trend and the need to put safety discussions on the front burner.

Adewole replied, “It is not a trend at all. When you see a trend, you will know.”

The DAPPMAN secretary added, “Safety is already on the front burner for everybody. I can assure you of that. Our depots do their monthly fire drills to keep themselves on top of every situation so that they can always counter any fire, any accident or any incident promptly.

“It is really good that the refinery was able to curtail the fire the way they did and that simply tells us that they know what they are doing. They are on top of their game.”

Lagos govt

Meanwhile, the Lagos State Fire and Rescue Service said it was unaware of the incident.

The Director of Public Affairs of the Lagos State Fire and Rescue Service, Amodu Shakiru, disclosed this to our correspondent in a telephone conversation.

Shakiru said neither its area office in Lekki nor the headquarters got a distress call from the Dangote refinery.

In the past few days, the Dangote refinery has been in the news for accusing international oil companies of denying it access to crude oil.

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