Dangote refinery has resumed importing crude oil from the United States despite a deal with the Nigerian government for the supply of up to 400,000 barrels of local oil daily, paid for in naira. Meanwhile, the Nigerian National Petroleum Corporation Limited has introduced the latest crude oil grade, the Utapate crude oil blend to the international market. Ayodele Oni, Partner at Bloomfield Law Practice joins CNBC Africa for more on these stories.
The Dangote refinery has resumed importing crude oil from the United States despite a deal with the Nigerian government to supply up to 400,000 barrels of local oil daily, paid for in naira. Meanwhile, the Nigerian National Petroleum Corporation Limited has introduced the latest crude oil grade, the Utapate crude oil blend to the international market. Ayodele Oni, Partner at Bloomfield Law Practice joins me for more on these stories. Ayodele, thank you for joining us today. Thank you very much for having me. Right, so we have all these reports today in the national dailies. Can you confirm to us that the Dangote refinery is actually buying crude from the US even with this existing deal with the NNPCL to buy crude in Naira? I believe that that's the case. Recall that under the domestic supply arrangement for sale of crude, it's only a percentage of what it does require that that would cover, generally speaking, because you do have two regimes. You have a willing buyer, willing seller regime and you have a regime where there's a domestic crude supply obligation for every good crude supplier and then NNPC is taking the lead because of what the federal government has instructed the NNPC to do. So Dangote does need to find crude elsewhere. Also, you need to take into consideration that even with new production, there are contractual obligations prior to the arrangement with Dangote. So increased production does not necessarily mean you would get more. So just to be clear, the deal never stated that the Dangote refinery would buy crude exclusively from the NNPCL? Yes, it doesn't state that it'll be exclusive. And volumes too. Two things. It's not exclusive. Secondly, the volumes won't suffice. Right. What we're also hearing is that the NNPCL, I mean just your thoughts on this, may not even be able to supply the needed crude even though it's not exclusive owing to its existing forward sales agreement involving cash swaps with international traders. What are your thoughts on that? Yeah, that goes to the point that I made previously. We remember that there have been forward sale arrangements and there have been swaps. There have been all sorts of arrangements to be able to take loans internationally, even in some cases from traders. And in that circumstance, it then means that you have an obligation for a number of years such that regardless of your production, you won't be able to supply to other third parties because you need to fulfill your pre-existing contractual obligations. And the average third party is going to conduct their due diligence and they understand the market and they know you already have those volumes already charged, so to speak. Right. But do we know if the NNPC, I mean what we're producing at this time, what are we doing? 1.7. I know we're doing between 1.3, 1.5. Where are we at the moment? Okay, so you could add another 400, 500K with the Utah party, but I think we're around 1.4, 1.5. I mean, depending on who you speak to, I do not think we're doing up to 1.7. I mean, there have been situations where we've had that increase, that spike, but I don't think it's been consistent. Right. So let's talk about this new crude oil grade that the NNPC introduced to the international market today at the Utah party. What do we know about this crude oil blend and how does it differ from Nigeria's popular burning light? Okay, well, I haven't done much checks around its quality, but I understand that it's also low in sulfur, similar to what we have currently. And you also know that recently prior to Utah party, there was also the Nambe crude, right? So we have Boni, we have Nambe, and we have this third one. So in terms of sulfur contents, they all seem to be sweet crude with very low sulfur content. And if we can ramp up production, it's a good thing for us. But of course, it then also does have its negatives because as the market gets a glut, prices then begin to drop. And if we have a drill baby drill situation with Trump from January, yeah, we know it will take a while. Then it even goes to affect our budget, our benchmark of $75, if I recall correctly. So yes, it's good sweet crude, but we then need to determine what those volumes are. What are the reserves? And just a quick question. I mean, regarding that, of course, the budget projection, I believe it's just what, about 2 million barrels per day. What do you make of that number? I think with the NUPR obviously saying they want to double volumes, I think we may just be able to match that volume, just about that. But I'm not sure the benchmark price will work. But I think the volumes, if we don't get to the 2 million barrel, maybe around 1,850,000 to 1,900,000. Quickly, we have about a minute left. I mean, petrol supply, pricing dynamics, distribution, how is all of that taking shape? And are we seeing an impact on actual consumption? Well, so with Dangote, with increases in pump price, appears that our data is now becoming more accurate. We actually, if you check in the last few months and weeks, where people have kept data, it's actually after three quarters of what we've reported in the past as our daily consumption. So with Dangote coming on stream, issues around transportation being the case, and it's a fun fact. I live on the island and it's not been as crazy as many of us thought with trucks. But I understand that they're not using just one means to do the haulage. So they're going by water, going by other means. So I think that things are looking up, but not as quickly as we expect. Well, I mean, regarding those trucks, believe me, we're all grateful that that wasn't the case. So thank you so much, Ayodele, for talking to us today. Ayodele Oni, partner at Bloomfield Law Practice.
Theme: Navigating the complexities of Nigeria's crude oil market amidst the Dangote refinery's import decisions, NNPC's supply challenges, and the introduction of the Utapate crude oil blend.
In a recent turn of events, the Dangote refinery has resumed importing crude oil from the United States, raising questions about its existing deal with the Nigerian National Petroleum Corporation Limited (NNPCL) to purchase local oil. Despite a supposed agreement for up to 400,000 barrels of crude daily in exchange for Naira, the refinery seems to be exploring other sources to meet its demand. To shed light on these developments, Ayodele Oni, Partner at Bloomfield Law Practice, offered valuable insights in a CNBC Africa interview. According to Oni, the domestic supply arrangement only covers a portion of the refinery's needs, leaving room for sourcing from alternative markets. The lack of exclusivity in the deal and pre-existing contractual obligations also make it challenging for the NNPCL to meet the full demand of the refinery. With forward sales agreements and cash swaps complicating the situation, the NNPC's ability to supply the required crude remains uncertain. Amidst these complexities, the introduction of the Utapate crude oil blend adds another layer to Nigeria's crude oil market. Characterized by low sulfur content similar to the popular Bonny Light, the new blend holds promise for ramping up production but also raises concerns about market saturation and price fluctuations. While the NNPC aims to double production volumes, achieving the projected 2 million barrels per day target may prove ambitious. The impact of these developments extends to petrol supply, pricing dynamics, and distribution in Nigeria. With Dangote's entry into the market potentially improving data accuracy on consumption patterns, the industry is experiencing a gradual transformation. Despite challenges in transportation logistics, innovations like multi-modal haulage are easing the strain on infrastructure. As Nigeria navigates its crude oil landscape, stakeholders must carefully balance demand, supply, pricing, and distribution dynamics to ensure sustainable growth and stability.
"Despite challenges in transportation logistics, innovations like multi-modal haulage are easing the strain on infrastructure."
['Nigeria', 'crude oil market', 'Dangote refinery', 'NNPC', 'Utapate crude oil blend', 'oil imports', 'contractual obligations', 'petrol supply', 'price fluctuations', 'consumption patterns']