NUPRC urged to honour crude supply obligations

The Tope Adebayo LP, a 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, urging the Nigerian Upstream Petroleum Regulatory Commission to honour contractual agreements.

In a paper focusing on the Nigerian oil and gas sector, titled ‘Implementation Framework and Potential Implications of the Domestic Crude Supply Obligations’, TALP lauded the drive by the government to enhance the country’s refining capacity but advocated caution in the enforcement mechanism in light of existing contractual obligations.

The law firm acknowledged that the PIA permits the imposition of domestic crude oil supply obligations by the NUPRC on lessees of upstream petroleum operations towards enhancing local refining capacity, preventing shortages and inadequate supply, supporting strategic economic development and promoting energy security.

It added that to ensure a steady supply of crude oil to the domestic market, the Production Curtailment and Domestic Crude Oil Supply Obligations Regulations 2023 prioritised domestic supply obligations over export commitments, even where production in a quarter falls below the allocated production quotas.

Both the commission and the Nigerian Midstream and Downstream Petroleum Regulatory Authority are responsible for the implementation of the DCSOs.

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 regularly.

However, it called 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 stated, “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, and 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.”

It could be recalled that the Dangote refinery and other local refineries have recently been up in arms with the NUPRC, accusing it of supporting international oil companies, which they said refused to sell crude to the domestic market.