Oil firms resist DCSO policy, rejecting Nigerian government’s push to supply local refineries like Dangote despite regulatory pressure and engagements

Oil firms resist DCSO in a growing confrontation with Nigerian regulators over mandatory crude supply to domestic refineries, including the Dangote Petroleum Refinery.

Also read: Naira Slumps As Oil Dips After Israel Iran Ceasefire

The Nigerian Upstream Petroleum Regulatory Commission revealed the standoff in a report detailing events from the previous year.

Despite the enforcement of the Domestic Crude Supply Obligation (DCSO), several upstream oil producers resisted supplying allocated volumes to local refineries.

According to the NUPRC, oil companies submitted formal letters requesting waivers or justifying their inability to meet obligations.

These protests persisted despite months of engagement and the gazetting of the Production Curtailment and Domestic Crude Supply Obligation Regulations in September 2023.

“Several pushbacks from IPPG, OPTS, some producers and their equity partners were received via formal letters, either requesting for waivers on the allocated monthly obligations or giving detailed explanations why they might not be able to meet up with the allocated volumes,” the commission disclosed in its report.

The regulatory body began implementing the domestic supply strategy using its monthly production curtailment platform in February 2024. This included ensuring crude supply to the Dangote refinery and other local plants in line with the Petroleum Industry Act.

Efforts by the commission included formal letters to all exploration and production companies, requesting documentation on crude sales and purchase agreements that could impact domestic supply.

It also organised several stakeholder engagements to sensitise the industry, targeting operators, equity owners, and refinery owners about the scope and objectives of the DCSO.

To deepen implementation, a working committee was created in March 2023, comprising officials from the commission, the Oil Producers Trade Section, the Independent Petroleum Producers Group, the Crude Oil Refinery-Owners Association of Nigeria, and NNPC Upstream Investment Management Services.

This committee focused on crafting a framework that addressed stakeholders’ concerns about the feasibility of the DCSO policy.

In addition, the NUPRC developed metrics that assessed each producer’s capability based on past, present, and projected output. This informed the assignment of daily domestic supply quotas, distributed to producers bi-annually.

The DCSO operational template, jointly developed by industry players, was formally approved by NUPRC Chief Executive Gbenga Komolafe on 11 July 2024.

By 31 July, all producers with forecasted daily output exceeding 3,000 barrels were issued their supply obligations for the rest of the year.

Still, oil firms resist DCSO despite this detailed planning. In August, multiple companies submitted new objections, repeating calls for waivers or citing logistical and contractual constraints.

The resistance escalated when producers expressed discomfort with the attendance of refinery operators at curtailment meetings.

As a result, in September 2024, the commission issued a letter withdrawing invitations sent to refinery representatives. It noted that refiners’ attendance would be suspended until further notice, in a bid to reduce friction and address complaints raised by upstream operators.

The Nigerian National Petroleum Company Limited also weighed in. In a letter to the commission, NNPC provided a status update on crude supply to the Dangote refinery, outlining the challenges and steps taken to maintain the flow despite industry resistance.

In its closing remarks, the NUPRC confirmed that, although oil firms resist DCSO, it has successfully facilitated crude supply to domestic refineries wherever possible.

It reiterated its commitment to enforcing the law and ensuring that Nigeria’s refining capacity is supported through local crude sourcing.

This policy battle underscores broader tensions within Nigeria’s oil and gas sector, as the government pushes to prioritise domestic refining and reduce reliance on imports.

Also read: Nigeria Secures $16 Billion Oil Sector Investment Boost

Whether the resistance continues or producers ultimately comply remains to be seen, but the DCSO has clearly emerged as a flashpoint in the nation’s energy reform agenda.