1. Introduction

The process of buying crude oil in Nigeria can be a challenging and daunting task for international buyers. The Nigerian market is known for its high volatility, and it's rife with individuals masquerading as crude oil sellers, leading to wasted time and effort for both buyers and sellers. This article aims to shed light on the intricacies of the crude oil market in Nigeria, particularly focusing on the truth about OPEC and Off-OPEC crude oil allocations.

2. Understanding NNPCL's Stance

Before delving into the complexities of the Nigerian crude oil market, it's essential to understand the position of the Nigerian National Petroleum Company Limited (NNPCL), which plays a central role in the industry. NNPCL explicitly states that it does not employ the services of agents or third parties for the sale and purchase of Nigerian crude oil, natural gas liquids (domestic and export), and LPG mix. Additionally, NNPCL does not introduce or recommend potential term contract holders to any third parties or agents, nor does it have any Off-OPEC allocations. The corporation also emphasizes that it does not require companies to make payments into individuals' or companies' accounts that are not designated by the government for crude oil transactions. Furthermore, NNPCL does not issue any authority to sell to individuals or companies.

3. Why This Statement Matters

NNPCL, as an OPEC registered nation, adheres to OPEC rules and regulations. This means that to purchase Nigeria's crude oil at the full OPEC price, a crude oil buyer must engage directly with NNPC, typically through negotiations that involve traveling to Nigeria. The discounts available in such transactions are minimal, often as low as $2 per barrel or none at all, making it less favorable for buyers looking for resale opportunities.


4. Understanding BLCO Off-Takers

Annually, NNPCL opens bidding for companies that meet certain criteria to participate in crude oil lifting and marketing contracts. These companies undergo rigorous technical and financial evaluations to prove their capability to lift and market Nigeria's crude oil. The contracts awarded typically grant a year-long allocation to sell Nigeria's crude oil to refineries worldwide, following established OPEC practices. These transactions offer little room for significant discounts, which may not align with the goals of buyers seeking profitable resale.

5. Exploring Off-OPEC Sales

To circumvent OPEC's production limitations and cater to the surplus crude oil production in Nigeria, Off-OPEC transactions come into play. These transactions involve organizations with the financial capacity to purchase crude oil from NNPCL on Provisional Lifting Right (PLR) FOB terms and then resell it to crude oil buyers on CIF terms. In Off-OPEC transactions, no Off-OPEC allocations are granted, and the process revolves around PLR agreements.

Many companies operate on Off-OPEC/PLR terms, but their names do not appear on NNPC's annual list of off-takers, which is reserved for companies strictly adhering to OPEC practices on behalf of the Nigerian government.

6. Verifying an Off-OPEC Allocation in Nigeria

Verifying an Off-OPEC allocation or ATS (Authority To Sell) letter from a potential crude oil seller in Nigeria is a challenging task. The NNPC does not officially acknowledge Off-OPEC allocations, and presenting such documents at NNPCL's offices in Abuja may lead to denial or even legal consequences. Some individuals might attempt to introduce buyers to sellers operating on PLR terms, facilitating transactions informally, as they cannot officially obtain allocations. The verifiable aspect in this process is the Laycan issued to the crude oil seller for loading their vessel. An unverifiable Laycan raises suspicions about the origin of the crude oil.

7. NNPCL's Denial of Off-OPEC Allocations

NNPCL's denial of Off-OPEC allocations is grounded in the fact that such allocations do not exist. Additionally, OPEC closely monitors its member countries to ensure compliance with its regulations and may impose sanctions for any violations. Therefore, NNPCL officials are vigilant and deny any knowledge of Off-OPEC allocations to avoid scrutiny.

8. Why Crude Oil Buyers Seek Off-OPEC Crude Oil Instead of OPEC Crude Oil?

Crude oil buyers in Nigeria are driven by the desire for cost savings. When purchasing through OPEC allocations, they pay the full Brent price or sometimes a mere $2 discount per barrel. In contrast, Off-OPEC transactions can yield discounts of up to $6 NET per barrel for exports to Europe and up to $8 per barrel for exports to West African countries. These savings allow buyers to remain competitive in the global market.

9. Navigating Off-OPEC Transactions

To successfully buy crude oil from the Nigerian Off-OPEC market, buyers must take several steps:

Find a credible crude oil seller experienced in Off-OPEC transactions.
Communicate directly with the seller's mandates or facilitators, as sellers can be elusive.
Engage in negotiations regarding terms, discounts, and procedures.
Note that NNPCL sells crude oil on FOB terms for both OPEC and Off-OPEC (PLR) transactions.
Ensure that the seller covers insurance, clearance, and transportation costs to ship crude oil on CIF terms.
Verify the seller's Laycan, vessel documents, and other necessary documents before shipment.
It's crucial to recognize that procedures may vary depending on the seller, and inexperienced Off-OPEC sellers may make critical mistakes in selecting financial instruments or procedures, potentially leading to issues with distressed vessels.

10. Do ATS and PPOP verification Exist?

NNPC does not issue Off-OPEC allocations, so any ATS (Authority To Sell) and PPOP (Partial Proof Of Product) indicating a bulk allocation should be treated as fake. To mitigate risks, buyers should ensure that sellers post a performance bond, possibly upfront, to demonstrate their financial commitment to the transaction.

11. Conclusion and Call to Action

Navigating the Nigerian crude oil market, whether within OPEC or Off-OPEC transactions, is undoubtedly a formidable task. However, armed with knowledge and a willingness to adapt, success is within reach for determined buyers.

If you are a prospective crude oil buyer interested in the Off-OPEC market, here's a call to action:

11.1. Educate Yourself: Continue your research and delve deeper into the intricacies of the Nigerian crude oil market. Understanding the market nuances and regulations will empower you in your journey.

11.2. Seek Expert Guidance: Given the challenges of finding reliable sellers, consider partnering with reputable Nigerian organizations or industry experts who can serve as your buyer mandate. Their local expertise can be invaluable in vetting sellers and facilitating transactions.

11.3. Network and Build Relationships: Establishing connections within the Nigerian crude oil industry can open doors to credible sellers. Attend industry events, conferences, and engage with professionals in the field to expand your network.

11.4. Exercise Due Diligence: Whether you are dealing with OPEC or Off-OPEC transactions, always prioritize due diligence. Verify documents, scrutinize agreements, and insist on transparency to protect your interests.

11.4. Consider Risk Mitigation: To safeguard your investment, explore options for risk mitigation such as performance bonds and financial instruments that provide both parties with confidence in the transaction.

11.5. Stay Persistent: The Nigerian crude oil market can be challenging, but persistence often pays off. Be prepared for the negotiation process, and don't be discouraged by setbacks.

Sources: https://barnabasuche.com/how-to-buy-crude-oil-blco-in-nigeria-navigating-opec-and-off-opec-crude-oil-allocations/

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