The Federal Government is considering new regulations for crude oil supply to local refineries, as refiners continue to struggle with high feedstock costs. This was disclosed by the Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, during a recent industry meeting in Abuja.
Review of Crude Supply Rules
Lokpobiri stated that the government is reviewing the existing crude oil supply framework to ensure that local refiners have access to affordable feedstock. He noted that the current pricing mechanism has been a major point of contention, with refiners complaining that they are forced to pay international prices for crude, which undermines their competitiveness.
The minister explained that the review aims to create a more equitable system that balances the interests of producers and refiners. He said, "We are looking at the entire value chain to see how we can make crude available to our local refiners at a price that will enable them to operate profitably."
Refiners' Challenges
Refiners have repeatedly highlighted the high cost of crude oil as a major bottleneck. According to the Crude Oil Refinery Owners Association of Nigeria (CORAN), the lack of a domestic supply obligation and the dollar-denominated pricing have made it difficult for modular refineries to sustain operations.
CORAN's Publicity Secretary, Eche Idoko, said, "Many of our members are operating below capacity because they cannot afford to import crude at the current exchange rate. We need the government to intervene and enforce a domestic supply obligation."
Impact on Production
The high feedstock costs have led to reduced output from local refineries. For instance, the 6,500-barrel-per-day (bpd) modular refinery in Imo State has been producing at only 30% capacity due to lack of crude supply. This has forced Nigeria to continue importing refined petroleum products, despite having abundant crude reserves.
Industry analysts suggest that the new rules could help stabilize the downstream sector and reduce the country's reliance on imports. However, they also caution that any new regulation must be carefully designed to avoid discouraging upstream investment.
Next Steps
The Federal Government has set up a technical committee to work out the details of the new crude supply guidelines. The committee is expected to engage with all stakeholders, including the Nigerian National Petroleum Company Limited (NNPC), international oil companies, and independent refiners, to arrive at a workable solution.
Lokpobiri assured that the government is committed to ensuring that the downstream sector thrives, adding that the new rules would be announced before the end of the year.
