By Jeph Ajobaju, Chief Copy Editor
Nigeria has extended fuel swap contracts from October 1, the expiry date of the current deal with 15 oil majors and world’s biggest commodity traders, but the price agreement is renegotiated because of upward adjustment in pump price.
The Nigerian National Petroleum Corporation (NNPC) reportedly extended for six months its contracts with the companies to swap crude oil for fuels, two sources familiar with the contracts told Reuters.
The initial one-year contracts to exchange more than 300,000 barrels per day (bpd) with 15 company pairings were due to expire in October.
The contracts supply a large portion of Nigeria’s refined petroleum, and some of its diesel and jet fuel, as it has not been profitable for private importers to bring in fuel.
Nigeria recently stopped setting a fuel price cap at the pump to eliminate costly subsidies and enable the private sector to begin importing again.
Subsidiary PPMC still sets an ex depot price for fuels imported by NNPC. This, combined with dollar shortages, has thus far made it difficult for some importers to bring in fuels outside the contracts, according to Reuters.
Fuel swap contractors
The swap contracts awarded in August last year went to units of BP and Total, as well as commodity traders Vitol, Gunvor, Trafigura, and Mercuria.
Most of them are in consortia with local Nigerian firms, according to OILPRICE.com
The contracts in Direct Sale of Crude Oil and Direct Purchase of Petroleum Products (DSDP) arrangement will run for a year effective October 1, 2019, through September 30, 2020.
“Under the DSDP arrangement, the under listed fifteen (15) consortia/companies shall over the contract period, offtake crude oil and in return, deliver corresponding petroleum products of equivalent value to NNPC, subject to the terms of the agreement,” the NNPC explained in a statement issued at the time.
At the end of 2018, the NNPC was looking to sign more oil swap deals as it is reliant on fuel imports despite being Africa’s largest oil producer in the Organisation of Petroleum Exporting Countries (OPEC).
Nigerian refineries are in need of investment and upgrade and they often do not work at full capacity. Nigeria imports almost all of the fuel it consumes.
The NNPC has acknowledged that the country will need refining capacity of 1.52 million bpd in order to meet its fuel demand by 2025.
However, OILPRICE.com says Nigeria currently has operating refineries with a total processing capacity of 445,000 bpd and it often struggles to keep them at full-capacity operation because of underinvestment in maintenance.
The country aims to triple the refining capacity by 2025 in order to move closer to becoming self-reliant in fuels.
The 650,000-bpd refinery that Africa’s richest man, Aliko Dangote, is building in Lagos which is expected to produce 650,000 bpd, but the plant did not take off by the middle of 2020 as planned.
