Taiwo Jimoh In celebration of Nigeria’s 64th Independence Anniversary, Tope Adebayo LP (TALP), a reputable full-service law firm based in Lagos, has examined the implementation framework and enforcement mechanisms of Nigeria’s crude oil supply obligations and its role in enhancing the country’s refining capacity.
In a paper focusing on the Nigerian oil and gas sector which remains central to the nation’s economy titled Implementation Framework and Potential Implications of the Domestic Crude Supply Obligations, TALP lauded the drive by the government to enhance the nation’s refining capacity but advocated caution in the enforcement mechanism in light of existing contractual obligations.
“While reiterating commitment to the development of the domestic crude oil market driven by willing buyer-willing seller arrangements, the Petroleum Industry Act 2021 (“PIA”) permits the imposition of Domestic Crude Oil Supply Obligations (“DCSO”) by the Nigerian Upstream Petroleum Regulatory Commission (“NUPRC” or the “Commission”) on lessees of upstream petroleum operations (“lessees”) towards enhancing local refining capacity, preventing shortages and inadequate supply, supporting strategic economic development and promoting energy security.
“To ensure a steady supply of crude oil to the domestic market, the Production Curtailment and Domestic Crude Oil Supply Obligations Regulations 2023 (“PCDCOSOR”)” made pursuant to the provisions of the PIA, “prioritizes domestic supply obligations over exports commitments, even where production in a quarter falls below allocated production quotas. In reinforcing this priority, Regulation 9(2) of the Production Curtailment and Domestic Crude Oil Supply Obligations Regulations 2023 (“PCDCOSOR”) gives the Commission the authority to curtail crude oil exports by processing and approving export permit applications, ensuring that export volumes do not interfere with DCSOs imposed on lessees.
“Both the Commission and the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) are responsible for the implementation of the DCSOs. The Commission, however, has oversight responsibility for ensuring effective implementation. This is notwithstanding the Minister of Petroleum’s right of pre-emption of petroleum and petroleum products in the event of a national emergency under the First Schedule of the PIA,” the report states.
According to the publication, the NMDPRA is tasked with providing NUPRC with the crude oil requirements for operational refineries and notifying the Commission of any shortages or inadequate supply conditions affecting local refineries on a regular basis. For NUPRC, its responsibilities include allocating production quotas to lessees, publishing the crude oil requirements of operational refineries as provided by NMDPRA on its website and three national dailies for a period of six months.
Calling on industry stakeholders to engage in a forward-thinking approach that accounts for potential regulatory shifts due to relevant provisions of the PIA like Section 109 (4) and Section 231, among others while maintaining operational and commercial flexibility, the report further submits: “The DCSOs introduced under the PIA represent a critical step toward enhancing Nigeria’s domestic refining capacity and energy security.
However, the successful implementation of these obligations will depend largely on the balancing act between regulatory oversight and the protection of existing contractual rights, project commerciality, bankability, amongst others.
The Commission’s role in curtailing exports to prioritise domestic supply demonstrates the government’s commitment to supporting local refineries, but it also underscores the need for clear and fair regulatory frameworks that do not undermine existing contractual obligations or disrupt market dynamics
