The Federal Government has taken a bold step to increase domestic refinery capacity and decrease dependency on imported petroleum products by prohibiting the export of crude oil intended for domestic refineries.
This step is also intended to alleviate strain on foreign exchange reserves, as previously understood.
As dealers and producers looked to profit from foreign exchange gains, an estimated 500,000 barrels per day (bpd) of crude oil intended for local processing have been diverted to foreign markets for years.
The government has now issued a warning that crude oil cargoes designated for domestic processing will no longer be eligible for export licenses, operating through the Nigerian Upstream Petroleum Regulatory Commission (NUPRC).
It was also stressed by the commission that its Chief Executive must directly approve any modifications to these allocations.
The Government Takes Diversions Seriously
NUPRC’s Chief Executive, Engr. Gbenga Komolafe, emphasized in a letter dated February 2, 2025, that diverting crude oil meant for domestic use is illegal and was sent to exploration and production businesses as well as their equity partners.
Inconsistencies in the Domestic Crude Supply Obligation (DCSO) policy’s execution were attributed to refiners and producers at a recent industry gathering attended by more than 50 major participants.
Refiners said producers were selling oil on the global market instead of adhering to supply agreements, which forced them to look for other feedstock sources.
Producers countered that refiners frequently fall short of operational and commercial standards, forcing them to look for alternative markets in order to circumvent operational difficulties.
Notwithstanding these disagreements, both sides agreed that stronger regulatory enforcement was required.
Enhanced Regulations
In order to prevent more violations, the NUPRC has cautioned refiners to adhere to global best practices for operations and procurement.
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The DCSO policy’s requirements cannot be changed by producers without the regulating body’s express consent, the producers were also informed.
In order to provide a consistent supply of crude oil to domestic refineries and protect Nigeria’s energy security, Komolafe cited Section 109 of the Petroleum Industry Act (PIA) 2021.
He reaffirmed the commission’s commitment to rigorously enforce compliance and take appropriate regulatory action against those who fail to comply.
The “Production Curtailment and Domestic Crude Oil Supply Obligation Regulation 2023” was signed, and a procedural framework for its implementation was established, as part of the NUPRC’s efforts to assure compliance.
Boosting the Naira-for-Crude Campaign
This most recent action, according to Vanguard, is in line with the government’s “Naira-for-Crude” program, which guarantees that domestic refineries receive crude oil in naira and sell refined products in the local currency.
It is anticipated that this approach will increase the value of the naira and make it possible for Nigeria to more effectively meet its domestic fuel demand.
