The Crude Oil Marketing Business In Nigeria: Complete Guide For Buyers & Sellers
Despite the steep drop in the global value of BLCO, crude oil marketing continues to be the largest revenue stream for the Nigerian government. The trade doesn’t just benefit the federal government, but also benefits every business savvy individual interested in the oil and gas industry, as the lucrative nature of crude oil marketing in Nigeria has given rise to a vast number of crude oil brokers who strive daily to source genuine crude oil buyers searching for genuine crude oil sellers that can supply crude oil from the NNPC, to buy from.
In a previous article titled: The Ultimate Guide To Starting A Crude Oil Brokerage Business (Crude Oil Selling) In Nigeria And Africa, we explained in-depth, how anyone could start a crude oil brokerage business.
In another article titled: How To Find Real Crude Oil Sellers And Buyers In Nigeria, we also explained everything crude oil buyers, crude oil sellers or suppliers, crude oil brokers or facilitators, or anyone simply interested in crude oil marketing in Nigeria could use to learn exactly how to find real crude oil sellers and crude oil buyers in Nigeria.
These two articles built up to this, and since a lot of people have been asking questions regarding crude oil marketing in Nigeria and want to have key terms, laws, and general questions and answers about the business answered, we’ve curated a robust list of questions with their answers about everything you need to know about crude oil marketing in Nigeria.
What Is The Most Important Part In Securing And Sealing A Crude Oil Deal?
To secure a crude oil deal, you need to have a genuine crude oil seller and a genuine crude oil buyer. A lot of time gets wasted because either the crude oil broker’s supplier can’t supply or the crude oil buyer doesn’t have the funds.
The first step here for any prospective crude oil broker or facilitator is to source a crude oil supplier, confirm that the seller is financially capable and has the ability to lift crude oil from the NNPC.
If the crude oil buyer issues you a Letter of Credit (LC) because they believe you have the product and so, will supply to them after the preliminaries have been covered, they can sue you for fraud when they realize you don’t have the capacity to supply.
Getting a Letter of Credit (LC) comes at a cost to the crude oil buyer, and so, they’d have great cause to charge you for fraud since they lost hundreds of thousands of dollars and also time while trying to execute a transaction with you.
So for crude oil marketing in Nigeria, the most important step in securing and sealing a crude oil deal is to first ensure you have a reputable crude oil supplier who truly has the ability to deliver, before seeking a genuine crude oil buyer.
Who Is And What Does The NNPC Mean?
The NNPC is known as the Nigerian National Petroleum Commission (NNPC). It is the oil corporation through which the federal government of Nigeria regulates and participates in the country’s petroleum industry.
The NNPC is responsible for the country’s oil products. No single individual is, only the NNPC. And to facilitate its crude oil sales to international buyers, they either recommend a direct purchase through them, which are usually tied to ridiculous conditions that makes almost no foreign crude oil buyer to purchase through them, or by issuing OPEC allocations to various organisations, who in turn work with genuine crude oil brokers and facilitators to help them broker crude oil marketing deals with genuine crude oil buyers from around the world.
The NNPC only sells its crude oil on FOB basis, which the crude oil seller bauys through and resells to the crude oil buyer on CIF basis.
What Laws Does Everyone Have To Follow In International Global Trading, Including Crude Oil Marketing In Nigeria?
The laws used in International Global Trading, which also includes crude oil marketing in Nigeria or anywhere around the world are UCP600, Incoterms 2000, and the ICC Paris.
The laws must be expressly mentioned in any crude oil marketing contract you’re signing, whether as a buyer mandate or seller mandate, crude oil broker or facilitator, crude oil buyer, or crude oil supplier. Such that if you’re signing a contract where the payment instrument is a Letter of Credit (LC), you could highlight comprehensively in the contract that your financial instrument in every way is an LC defined under UCP600, so that every procedure carried out follows the UCP600’s definition.
The laws are enforceable in every country that trades around the world, and a lawsuit can be executed anywhere.
What Is The Difference Between An RFQ (Request For Quote) From The Crude Oil Buyer To A Crude Oil Buyer/Seller And An RFQ From A Crude Oil Buyer/Seller To A Crude Oil Seller?
An RFQ (Request For Quote) from the crude oil buyer to the crude oil buyer/seller intermediary is a full-on request for a quote to buy crude oil (the product). When the buyer/seller intermediary requests an RFQ from a crude oil seller, he or she is requesting a quote from the seller to sell their product.
Facilitators, brokers, or intermediaries cannot issue an official document like an ICPO to a crude oil supplier or seller. They only hold the titles and never the product.
Requesting the price of a product from an owner so you can find a buyer for your quote, makes you a buyer/seller intermediary, and not the owner of the product.
What Is A Quote?
A quote is also known as an offer or a soft corporate offer as many people prefer to call it. Once a quote is confirmed, a full offer is advised, after which a contract is then advised, signed, and sealed.
What Is Called The Shell Screen London?
The shell screen is widely believed to be non-existent since it has no website, no physical office, or company in London. Another sect also believes the shell screen exists and only oil refineries who pay a yearly subscription of about $25,000 have access to it.
While none of the two theories are easily verifiable, the shell screen is presumably a way to also verify if the transaction is an OPEC registered transaction.
Another way to do this for OPEC transactions is at Abuja. Off-OPEC transactions are not verifiable at all. Only the Laycan which shows there’s a loading schedule in place for the crude oil seller is verifiable. If the Laycan is not verifiable, then the source of the crude oil is highly questionable.
What And Who Are The Lloyds Of London?
There’s a lot of misunderstanding surrounding the Lloyds of London. While many believe the Lloyd’s of London owns the shell screen, the Lloyd’s of London, generally known as Lloyd’s, according to Wikipedia, “is an insurance market located in the City of London, which exists inside London.”
Can You Easily Become A Crude Oil Seller Mandate Or Crude Oil Buyer Mandate When You Find A Genuine One?
Becoming a crude oil seller mandate or crude oil buyer mandate takes hard work, a proven track record, trust, and much more. The mandate acts as an agent to the crude oil supplier or buyer, and as such, could earn lesser than what a crude oil broker would earn, except a crude oil broker has an agreement with the crude oil seller to liaise also as his mandate in trying to seal crude oil marketing deals.
Knowing or being close to a crude oil supplier or buyer doesn’t qualify you to automatically become a mandate.
One way to know if a buyer or seller mandate is real is to request a power of attorney document or mandate letter showing they’re mandates to the crude oil buyer or crude oil seller. This is usually one way to verify whether the so-called mandate is wasting your time.
What Is A POP (Proof Of Product)
A proof of product (POP) is demanded by some crude oil buyers to show that the product advertised truly exists. The only problem with POPs is the fact that once it is verified or seen, it is automatically out of date. Crude oil suppliers are constantly willing to transact with anyone that’s ready to buy. And verifying the presence of an existing product now means nothing because it can get sold the next day to someone else.
No POP is totally real. The only way to guarantee you’ll have a product is to first provide the financial instrument for the transaction. No crude oil supplier in Nigeria will get the goods ready until that is done.
If you’re a crude oil broker, and you’re certain your crude oil supplier has the means to get the product available when requested, tell the crude oil buyer to place a financial instrument, else, any proof of payment provided, no matter how current or expired, will have the crude oil buyer circumventing you to go straight to the crude oil supplier you’re brokering on behalf of.
What Is The Meaning Of An NCND Or An NCNDA?
The NCNDA term stands for Non-Circumvention, Non-Disclosure Agreement. It is a weak document as if you get circumvented, legal proceedings could cost you millions of Dollars to follow up on, at the international courts.
The best place to usually use this document is in the country of origin (Nigeria), only if the product is still there. Else, it gets even more difficult and frustrating.
What Is The Meaning Of An IMFPA, IFPA, & FPA?
The term, IMFPA, stands for Irrevocable Master Fee Protection Agreement. IFPA stands for Irrevocable Fee Protection Agreement. And FPA stands for Fee Protection Agreement.
These documents are to be signed alongside an NCNDA, but are still not a comprehensive way to protect the interests of a crude oil broker, facilitator, or intermediary.
Your commission payments are not protected by these documents. To protect your interests, one way can be to include the banking coordinates of all the parties involved, including the crude oil broker, crude oil supplier, and crude oil buyer in the SPA (Sales and Purchasing Agreement).
Another way to ensure you are better protected and can afford an attorney is to include in the contract that for any breach of contract, the end supplier or end buyer would completely cover the attorney cost of the intermediary, no matter which attorney the intermediary chooses to go with.
In another article, I’ll explain in-depth, how to fully protect your interests in any crude oil transaction.
What Is The Meaning Of An LOI?
A Letter of Intent is a document that is usually issued to inform a crude oil supplier of the intent of the crude oil buyer to really make a purchase. This document is non-binding and is only an offer signed by the buyer, which can be taken elsewhere at any time.
It is important to know that an intermediary cannot issue you a Letter of Intent, as it is only the crude oil buyer that can do that.
What Is The Meaning Of An ICPO?
The Irrevocable Corporate Purchase Offer (ICPO) is a document that is only prepared and issued by a crude oil buyer to the end crude oil supplier. This document doesn’t work for the crude oil facilitator or intermediary, as it is only issued to the end seller.
It is also important to note that just as an LOI, intermediaries cannot issue an ICPO, as it is only the crude oil buyer that can do that.
Any intermediary claiming they can issue you an ICPO is either completely inexperienced, a time waster, or is a scammer trying to part you with your money.
What Is The Meaning Of A BCL?
A BCL is called a Bank Comfort Letter. It is a letter that is provided by the buyer’s bank to show that the crude oil buyer has enough funds to execute the transaction.
As an intermediary, you should never just hand over the BCL to the end crude oil seller, because once you do, the deal is over. They’d circumvent you and deal directly with each other.
Intermediaries can’t work with a BCL, same as an intermediary cannot also issue a BCL. The BCL is mostly only used when the crude oil buyer and end crude oil seller are dealing directly with each other.
What Is The Meaning Of An RWA?
The RWA stands for Ready Willing and Able. It also means the crude oil buyer has the financial capacity to buy, and if it is to be issued to the intermediary (Buyer/Seller), the intermediary must, in turn, disclose the crude oil supplier, which thwarts the entire deal.
A disclosure would usually cause the crude oil buyer to cancel the transaction, only to return at a later time to contact the crude oil seller directly to make a purchase, thereby cutting you out completely. When the crude oil buyer does this, they save themselves millions of Dollars.
What Is The Meaning Of An EXW?
The term EXW, means Ex-Works. And it implies that the crude oil buyer will pay the full cost of transportation right from the point of pickup on the crude oil seller’s end.
What Is The Meaning Of FAS?
The term FAS, stands for Free Alongside Ship. And it means the crude oil supplier will pay the cost up to the point of loading. After this point, the loading and shipment become the problem of the crude oil buyer.
After the goods have been cleared for export, the crude oil supplier will get paid once delivery FAS has been applied, based on Incoterms delivery rules.
What Is The Meaning Of A DLC?
A DLC stands for a Documentary Letter of Credit and is a financial instrument that is used to pay for goods that are being ordered.
In the workings of a DLC, the crude oil buyer will issue a DLC to the crude oil supplier. If all the conditions are valid and met, the crude oil supplier can collect funds.
The best Documentary Letter of Credit (DLC) to use is a confirmed and Irrevocable Letter of Credit. This is so because the CIDCL will be guaranteed by the crude oil buyer’s bank and another bank, and not the crude oil buyer themselves.
This means that no matter what the crude oil buyer tries to do after shipment has happened or not, the issuing bank will forward the funds to the crude oil seller’s account. In all essence, guaranteeing that payment will definitely be made.
Should A Crude Oil Facilitator Or Broker Accept A Letter Of Credit From The Crude Oil Buyer For Payment Of Goods?
A crude oil broker, intermediary, or facilitator can accept a Letter of credit from the buyer and transfer it to the crude oil seller. But it is important that the facilitator only accepts an irrevocable letter of credit. This way, once all the conditions of the Letter of Credit have been met and are already activated, they cannot change their minds about the transaction.
Dealing only with an irrevocable LC is what a crude oil broker, facilitator, or intermediary should work with. If you choose instead to go with a revocable LC, the crude oil buyer can, and most likely would change their minds about the transaction, later on, just to circumvent you.
How Many Times Can A TDLC (Transferable Documentary Letter Of Credit) Be Transferred?
A Transferable Documentary Letter of Credit is issued from the crude oil buyer’s bank to the buyer/seller intermediary (the crude oil broker or facilitator) bank account. Which can then be transferred by the crude oil broker (buyer/seller intermediary) to the crude oil suppliers’ bank account as one transfer.
In this situation, the crude oil broker will only transfer the crude oil supplier’s amount, minus your own commissions.
This is a single transfer, which can be done only once, even if it’s to two different suppliers at a go.
What Are Financial Instruments Acceptable In Crude Oil Marketing In Nigeria?
Other acceptable banking instruments asides a Letter of Credit are:
1). SWIFT MT 799:
The MT 799 is a simple text message that is sent bank to bank. This is only used for a bank to bank proof of funds. The MT799 is not a form of payment and is not a bank undertaking or promise to pay. It is only just a bank to bank confirmation of the funds in the crude oil buyer’s account, and nothing more.
2). SWIFT MT 760:
When the crude oil buyer’s bank issues an MT 760, the bank blocks their funds and prevents the crude oil buyers from using them. This is the SWIFT Message Type that Bank Guarantees are sent and received with.
Should You Send The Buyer A Sample Cargo Before Signing An Agreement?
Under no circumstance should you do this! Some crude oil buyers would reject the product whether it is exactly what they asked for or not, and in the process, waste far more of your precious time and money than you envisaged.
No matter what the crude oil buyer promises or not, don’t send samples. It is the safest route to save yourself from manipulative and time-wasting buyers.
Is An Activated Letter Of Credit Equal To Real Money For A Crude Oil Seller?
An activated letter of credit does not equate to money in a crude oil supplier’s bank account. It only means the crude oil buyer can no longer change their mind about going on with the transaction unless they can prove that a form of fraud has been perpetrated by the agreement. The Letter of Credit only turns into money for the crude oil supplier when the supplier has presented the delivery document to the bank.
It is important to know that the conditions in a Letter of Credit is not the same as posting a bank performance guarantee by the crude oil supplier.
After the crude oil buyer issues a Letter of Credit, the crude oil supplier, on the other hand, will post a bank performance guarantee or a performance bond.
What Is The Difference Between A Performance Bond And A Performance Guarantee?
The performance bond and performance guarantee are both performance based instruments but have different performance assurances.
- A Performance Bond is usually used for a crude oil marketing deal that works majorly for a crude oil supplier that’s in possession of the goods and a crude oil buyer that’s taking possession of the goods. The title documents here cannot be securely delivered, and as such, crude oil brokers, intermediaries, and facilitators are not advised to enter such a deal.
- A performance guarantee, on the other hand, is usually issued by the crude oil seller’s bank to the crude oil buyer’s bank in the form of an unconditional Letter of Credit. It pretty much implies that if the cargo delivery doesn’t happen and the verifiable delivery documents don’t get delivered to the bank on the day specified according to the contract, the crude oil supplier’s bank will automatically and unconditionally pay the crude oil buyer’s bank the performance guarantee.
The safest route for any crude oil broker would then be to ask the crude oil seller to issue a Performance Guarantee of 2% of the total cost of the contract as a standby letter of credit that is defined under UCP600 banking rules, and must be issued within 3 days of the crude oil buyer’s Letter of Credit being transferred.
Sometimes the crude oil buyer/seller intermediary may have the funds to post the performance guarantee themselves. If the funds are personally available, this can be a great route to take to protect your interests. Meaning you’d negotiate a far better deal for you the crude oil broker than even the crude oil supplier themselves.
A performance guarantee can be issued instead of a performance bond.
Who Between The Crude Oil Supplier and Crude Oil Buyer Charters The Vessel To Supply The Purchased Crude Oil?
If it is a Cost, Insurance & Freight (CIF) crude oil marketing deal, the crude oil supplier will secure the vessel, cover clearance, insurance, and shipping.
In a Free On Board (FOB) crude oil marketing deal instead, the crude oil buyers will charter the vessel themselves.
There are other shipping methods like Tanker Take Over (TTO) and Tanker to Tanker Transfer (TTT) offered by crude oil sellers. We’ll cover them in-depth in another article, including showing safe procedures that should be followed in any crude oil marketing deal in Nigeria involving them.
What Is A Crude Oil Broker or Facilitator Commission?
Depending on what procedure was used, negotiations with both parties (crude oil buyer and crude oil seller), a crude oil broker commission can be anywhere from $.50 per barrel to over $1 per barrel.
If you successfully broker a 2 million barrel per month supply contract, at $.50 per barrel on the crude oil supplier end, you’d earn at least $1,000,000 monthly for the duration of the contract, which is usually between 1 to 5 years. But if you broker successfully on both ends, you’d earn at least $1 per barrel, meaning at least $2,000,000 monthly for the duration of the contract.
Depending on whether it is CIF, TTT, TTO, or a FOB transaction, and how many brokers are in the chain, the commissions could be as much as $1 to $2 per barrel or as low as $0.05 per barrel.
How Do You Determine The Distance From The Bonny Port To Any Port Around The World?
During a crude oil marketing deal, it may be paramount for you to determine the distance from the bonny port in Nigeria by water to any port in the world. You can do this using https://sea-distances.org/ or http://ports.com/sea-route/
To Sum It Up
These are just a few questions on crude oil marketing in Nigeria that crude oil buyers ask. Over time, we’ll post a lot more articles on crude oil marketing in Nigeria, cover all the angles people have problems with, and provide far more comprehensive information that even a novice could read through and start a crude oil brokerage business of his or her own.
What are your thoughts on these questions and answers about crude oil marketing in Nigeria? Let me know by leaving a comment below.
This article has been updated for better clarity of content
An Important Point
Trying to buy crude oil from Nigeria through genuine sellers can lead to a lot of wasted time and efforts on the part of the crude oil buyers. They spend a lot of time vetting crude oil sellers in Nigeria, doubting their results even if positive, and going back and forth too many times than they can count, only to end up either cancelling their decision to buy or making a purchase after months or years have passed.
Since finding genuine crude oil sellers in Nigeria is a problem, it is always wise for a crude oil buyer to use a Nigerian organisation as its representative, so they can be on the ground and help the crude oil buyer make better calculative decisions.
To make this possible for crude oil buyers, Startup Tips Daily Media, through her sister company, Globexia, can help genuine crude oil buyers facilitate crude oil purchases from Nigeria.
Whatever position that helps crude oil buyers in Nigeria to close genuine crude oil transactions fast, transparently, and easier, we can make the process as stress-free as possible.
If you’re a genuine crude oil buyer, crude oil buyer mandate, crude oil seller, or crude oil seller mandate, you can reach out to us through the contact form below. If you’d like us instead to represent your interests as your crude oil seller mandate or crude oil buyer mandate, we’d be glad to do so.
We also offer a thorough in-depth due diligence service on exporters in Nigeria.
In addition to our crude oil facilitation business in Nigeria, we’re also AGO sellers in Nigeria (diesel suppliers in Lagos), and can supply AGO to tank farms, private or government organizations in Nigeria, or to countries like Cameroon, Ghana, and more, in the West African coast, while remaining willing to also represent your interests as your AGO buyer mandate or AGO seller mandate.
If you’re only a scam, don’t waste your time, as the conversation wouldn’t last too long after a few questions and demands to prove your authenticity have been made from our end.
Professional Due Diligence Checks In Nigeria By Globexia
International buyers are always wary of doing business with Nigerian based businesses because of the high risk of disappointments either in the form of time wasted or money lost, and as such, are highly sensitive of any organisation that presents them a trade offer.
To curb this problem and help international buyers make comfortable and confident trade decisions, Startup Tips Daily, through her sister company, Globexia, has set up an in-depth due diligence check consulting service that will help international buyers get in-depth information on any organisation looking to do business with them. Some of the information the international buyers stand to gain from the in-depth due diligence exercise that will be carried out by Globexia’s team of experienced lawyers in Nigeria are:
- Verification of Company Registration
- Verification of Export Licence
- Verification of Export Activity
- Verification of Past Certificates of Origin
- Verification of Past & Present Bill of Ladings
- Verification of International Passport / Driver’s Licence of The Exporter
- Verification of Bank Verification Number (BVN)
- Verification of Tax Documents
- Verification of Financial Health of The Company
- Verification of Mining Licence
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And much more based on the client’s requirements.
You can read more about the service here.
If you simply want general commodity trade consulting in Nigeria spanning through Due diligence & proper verifications of both parties, understanding the entire Nigerian commodity trading industry, identifying and completing all due trade registrations, clearing & forwarding of the commodities, market research/feasibility study reports, and much more, Globexia Limited is the right partner to talk to.
We look forward to hearing from you.