By Damilola Bello
Economic and Energy experts have described the decision of the Federal Government to allow crude oil refiners to buy the commodity with Naira as a good step towards revamping the economy.
They however want the government to ensure that the crude bought in Naira is not sold in dollars in – country as anything is possible in Nigeria.
Dr. Biodun Adedipe of B.Adedipe Associate while commenting on this development, said: “It’s a fantastic decision. It aligns with what I have advocated for – it takes the pressure off the Naira in the FX market where those refineries would have had to buy FX to pay for the crude (feedstock).”
He said this also eliminates exchange rate vagaries in the pricing template for refined petroleum products as well as eliminates the tortuous intervention by the government in moderating energy cost to companies and households – a phenomenon noisily described as “bringing back subsidy”, as if that is not what every responsible government around the world is doing, including the vociferous proponents of subsidy removal.
In his reaction, Babajide Soyede, an energy expert and former managing director of Warri Refinery and Petrochemicals, said, the quantity to be purchased by modular refineries not connected to a flow station is very minimal, and delivery costs could be very expensive.
“However, if these refineries export any part of their products, the proceeds thereof should be turned over to the CBN for Naira to balance the FX lost from non-export of the crude oil sold to them in Naira.
He cautioned that extreme care should be taken to ensure the crude is not sold for dollars.“In Nigeria, everything is possible.”
The Federal Government eventually bowed to pressure as it now complies with the demands of domestic crude oil refiners and other operators in the sector, by allowing them to pay for crude in local currency, the Naira.
With the sales of crude oil in Naira, the pressure on the local currency will ease and this may make products from the refineries, such as diesel cheaper.
“It will also encourage more investors to build and patronise the local refineries. If you take petroleum products off the foreign exchange market, you would have helped the naira by 60 percent,” an industry operator stated.
The government declared on Monday that indigenous refineries can now buy crude oil in naira or dollars. Just as it also informed that the total crude oil and condensate reserves in Nigeria increased to 37.5 billion barrels as of January 1, 2024, with a life index of 68.01 years.
The Nigerian Upstream Petroleum Regulatory Commission at a briefing in Abuja, disclosed where it unveiled the new template for domestic crude oil supply obligation.
According to NUPRC, It stated, that in compliance with the provisions of Section 109(2) of the Petroleum Industry Act 2021, the NUPRC in a landmark move, had developed a template guiding the activities for Domestic Crude Oil Supply Obligation.
“The commission in conjunction with relevant stakeholders from NNPC Upstream Investment Management Services, representatives of Crude Oil/Condensate Producers, Crude Oil Refinery-Owners Association of Nigeria, and Dangote Petroleum Refinery came up with the template for the buy-in of all.
The Chief Executive, NUPRC, Gbenga Komolafe, told journalists that the action is in a bid to foster a seamless implementation of the DCSO and ensure consistent supply of crude oil to domestic refineries,” the Chief Executive, NUPRC.
The NUPRC boss also pointed out that the template had become effective because all necessary parties had signed up for it.
He said, “The PIA intends to make the implementation (of crude oil obligation) very easy for the parties, both for the producers and refineries. So the answer simply is that the currency for the transaction would either be in naira or dollar. That is the simple answer.
“But we all know that if the transaction is carried out in naira, that itself will free the pressure on the exchange rate. That will help the exchange rate. So that is the intent and besides, the overall intent of the Petroleum Industry Act is to develop our midstream, which is a very laudable provision of the PIA.”
Responding to a question on the currency of transaction for crude oil purchase, as approved in the new template, Komolafe stated that it would be either in naira or dollar, adding that naira transactions would free the pressure on the country’s foreign exchange rate.
He stated that in the currency of payment section of the new template, it was stated that “the payment shall be in either United States dollar or naira or both. Where the payment is in both currencies, the payment split shall be as agreed in the SPA between the producer and the refiner.”
This particular action by the government has become a big relief to operators of modular refineries in particular, as they have been faced with the threat of shutting down operations following their inability to access foreign exchange for the purchase of crude oil, a commodity priced in United States dollars.
Nigeria has 25 licenced modular refineries with a combined capacity of producing 200,000 barrels of crude oil daily.
Although not all of the plants are currently operational, the report stated that the functional ones were increasingly finding it difficult to purchase crude due to the foreign exchange crisis in the country.
Modular Refineries which produce Automotive Gas Oil (diesel), Dual Purpose Kerosene or kerosene, naphtha and black oil, have been finding it hard to make the refined products available to oil marketers for distribution to consumers.
Also, during the briefing, the NUPRC boss revealed government that the total crude oil and condensate reserves in Nigeria increased to 37.5 billion barrels as of January 1, 2024, with a life index of 68.01 years.
He also announced an increase in the country’s gas reserves, as this moved up to 209.26 trillion cubic feet as of January 1, 2024, while its reserves index life was put at 97.99 years.
“I am pleased to present to you an overview of the nation’s oil, condensate, associated gas, and non-associated gas reserves as of January 1, 2024, as follows:
1. Crude oil and condensate reserves stand at 31.56 billion barrels and 5.94 billion barrels respectively, amounting to a total of 37.50 billion barrels.
“2. Associated gas and non-associated gas reserves stand at 102.59 trillion cubic feet and 106.67TCF respectively, resulting in total gas reserves of 209.26TCF. The reserves life index is 68.01 years and 97.99 years for oil and gas respectively.”
Komolafe stated that positive gross additions to oil and gas reserves of 1.087 billion barrels and 2.573 trillion cubic feet respectively were recorded.
“Given the above, and in furtherance of the provisions of Chapter 1, Part III, Section 7 (g), (i), (j), (k), (m), (q), (r) (of the Petroleum Industry Act) and other powers enabling me in this respect, I declare the total oil and condensate reserves of 37.50 billion barrels and total gas reserves of 209.26 trillion cubic feet as the official national petroleum reserves position as of January 1, 2024,” he stated.
Before the latest increase announced by the government, Nigeria’s total crude oil and condensates reserves as of January 1, 2023, was 36.96 billion barrels, while its total associated gas and non-associated gas reserves as of January 1, 2023, was 208.83 trillion cubic feet.
Nigeria has been looking for new sources of oil by exploring what are called frontier basins. These are areas where little or no exploration has been done before.
Some of the basins being explored include the Anambra Basin, Benue trough
Bida basin, Chad basin (Nigerian section), Dahomey basin, Sokoto basin Deep and Ultra-deep offshore Niger Delta.
The Federal Government hopes that these basins will contain significant reserves of oil and gas. However, there have been some controversies about how much money should be spent on exploration, and how the benefits should be shared.
Notwithstanding the concerns, there is the potential that these basins could help to increase Nigeria’s oil production and boost its economy.
Meanwhile, while commenting on the significance of the reserves, Komolafe said the figures showed the abundance of crude oil and gas that the country could produce within a stipulated period, adding that Nigeria boasts 33 percent of gas reserves in Africa.
by Damilola Bello
