TALP lauds FG’s drive to enhance Nigeria’s refining capacity

A Full-service law firm based in Lagos, Tope Adebayo LP (TALP), has urged the Federal Government to be cautious in the enforcement of contractual obligations in the nation’s downstream sector of the oil and gas industry.

In a paper titled ‘Implementation Framework and Potential Implications of the Domestic Crude Supply Obligations’ which focuses on the oil and gas industry, the firm said the oil and gas sector is central to the nation’s economy.

“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) on lessees of upstream petroleum operations 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 under the provisions of the PIA, prioritizes domestic supply obligations over exports commitments, even where production in a quarter falls below allocated production quotas,” the report stated.

The report also noted that Regulation 9(2) of PCDCOSOR gives the NUPRC 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.

It added: “Both the NUPRC and Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) are responsible for the implementation of the DCSOs. The NUPRC 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 stated.

According to the report, the NMDPRA is tasked with providing NUPRC with crude oil requirements for operational refineries and notifying the NUPRC of any shortages or inadequate supply conditions affecting local refineries regularly. It added that the commission’s 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 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 said: “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 balancing between regulatory oversight and the protection of existing contractual rights, project commerciality, and bankability. The Commission’s role in curtailing exports to prioritise domestic supply demonstrates the government’s commitment to supporting local refineries, but also underscores the need for clear and fair regulatory frameworks that do not undermine existing contractual obligations or disrupt market dynamics.”