How To Buy Crude Oil From Nigeria: The Complete OFF-OPEC Guide For Buyers And Sellers
Safely figuring out how to buy crude oil from Nigeria is one of the most daunting tasks crude oil buyers from many parts of the world face.
The Nigerian market is highly volatile, too many people masquerade themselves as crude oil sellers, and after a long series of engagements, both the crude oil buyer and seller’s time gets wasted.
This article focuses on the concerns, highlights what’s real and what isn’t, and shows crude oil buyers what to do to close a successful transaction.
There’s a lot to understand when it comes to knowing how to buy crude oil from Nigeria. First, the NNPC (Nigerian National Petroleum Corporation) on its website claims that:
- NNPC does not employ the Services of any Agent (s) or third parties for the Sale and Purchase of Nigerian Crude Oil, Natural Gas Liquids (Domestic & Export) and LPG mix
- NNPC does not introduce or recommend its potential Term contract holders to any third party or Agent (s)
- NNPC does not have any Off-OPEC Allocation (s)
- NNPC does not require Companies to pay any money into individual’s Personal/Companies Account (s) or any Account that is not Designated by the Government for Crude Oil, Natural Gas Liquids (Domestic & Export) and LPG mix
- NNPC does not issue any Authority to Sell to individuals or Companies
Why This Statement?
First, the NNPC is an OPEC registered nation, and so, abides by OPEC rules and regulations. Meaning that if a crude oil buyer wants to get Nigeria’s crude oil, they’d have to come down to Nigeria to have a talk with the NNPC, after which they can go on to purchase the quantity of crude oil they want at the full OPEC price.
So Who Are Off-Takers?
Every year, the NNPC puts out an advert for companies that meet a minimum critical requirement, to bid for crude oil lifting and marketing contracts. These organizations undergo a technical and financial evaluation to prove they are fully fit to lift and market Nigeria’s crude oil.
Those awarded the contract usually get a year-long allocation/contract to sell Nigeria’s crude oil to refineries around the world, and this is done based on thorough OPEC practices.
The discounts here can be as ridiculously low as $2, which never favors refineries or crude oil buyers who primarily look to buy Nigeria’s crude for resale purposes.
So What Are OFF-OPEC Sales
Since OPEC (Organization of the Petroleum Exporting Countries ), the world’s foremost body for regulating the price of crude oil, imposes strict practices for its member countries to follow, this limits the production capacity and sales of crude oil worldwide.
Nigeria, for instance, as at July 2017, officially produces about 2.2 million barrels of crude oil a day. These figures are merely official numbers, but what is rumored to be generated is said to be over 3 to 4 million barrels of crude oil a day.
These excess crude oil generated are then in-turn sold through organizations who have the financial capacity to execute in what are called Off-OPEC allocations. The selection process for these companies is extremely secretive and completely legal in the country.
So many companies operate OFF-OPEC, and this is why their names never appear on the list of off-takers the NNPC releases every year, which are only meant to be companies that strictly operate with OPEC practices on behalf of the Nigerian government.
How Do You Verify An OFF-OPEC Allocation In Nigeria
Since OFF-OPEC allocations do not officially exist, taking a company’s ATS (Authority To Sell) letter to the NNPC tower in Abuja for a verification would either get you a straight denial or arrested. No official in the building will admit to any OFF-OPEC practices, but on your way out, some people may try to lure you to use another person “they claim” is a real seller, whose name isn’t even on the off-takers list published yearly by the NNPC. They mostly do this in a bid to broker a crude oil transaction since they cannot officially own allocations or issue allocations to any of their family members.
If you want to verify an OFF-OPEC allocation or ATS (Authority To Sell) letter of any potential crude oil seller in Nigeria, you’d need to visit the Bonny Terminal in Rivers State.
But just paying the Bonny terminal a visit with the seller’s name or documents still won’t get you the answer you need. To verify any seller at the Bonny terminal, you must have an insider to do this for you.
If you walk into the place flashing documents and demanding answers to questions, they’d tell you the only approved sellers are the published off-takers. But when you have an insider that recognizes you as someone they know, all the answers to your questions would be provided.
Why Then Does The NNPC Deny Having Crude Oil Sellers With OFF-OPEC Allocations?
As stated earlier, OFF-OPEC allocations do not officially exist. OPEC constantly sends spies to try to identify wrong practices done by its member countries in a bid to impose heavy sanctions on those found wanting. As a result, every official both at the NNPC towers and the Bonny terminal are always on the alert, and would deny any knowledge of a seller with an OFF-OPEC allocation.
Since every OPEC country also engages in OFF-OPEC practices, the governments run the operations underground through companies they award secret OFF-OPEC allocations to.
Why Are Crude Oil Buyers Demanding For OFF-OPEC Crude Oil?
Crude oil buyers in Nigeria are always looking out for good deals on the price of the crude oil sold. On OPEC allocations, they purchase at the full Brent price, or sometimes with a $2 discount per barrel, but with OFF-OPEC purchases, they can get up to a $6 NET discount per barrel for exports to Europe and up to an $8 discount per barrel for exports to West African countries.
When they do this, they usually pay a commission of $4 to the brokers involved, where both the buyer and seller’s side gets to share it equally.
For instance, a crude oil export to China could come at a cost of $10 gross Less $6 net ($10/$6). Where $6 is the NET discount the buyer is getting per barrel, and $4 is the commission the buyer is paying, which is to be split by all the parties involved per barrel. This way, if the current Brent price of crude oil is $52 per barrel, the full amount the buyer would have to pay would be $46 per barrel, saving them $6 million Dollars for every 1 million barrels purchased.
So How Does A Crude Oil Buyer Buy Crude Oil From The Nigerian OFF-OPEC Market?
The first step is to find a credible crude oil seller who doesn’t just have an OFF-OPEC allocation, but is willing to complete a transaction on reasonable terms, discounts, and procedures. Since the sellers are usually difficult to find, you’d have to communicate directly with their mandates or facilitators.
The NNPC usually uses FOB for OPEC transactions. But for OFF-OPEC transactions, the crude oil seller mostly has to cover the insurance cost, and so, CIF is mostly the most common method used. Although, OFF-OPEC crude oil sellers can still do FOB (Free On Board), CIF (Cost, insurance, and Freight), TTT (Tanker to Tanker Transfer), and TTO (Tanker Take Over) procedures.
Next, the buyer’s bank would need to show a proof of finance to the seller’s bank, after which the seller’s bank would go to show their financial capability and readiness to post a 2% performance bond upon the placing of a financial instrument by the crude oil buyer.
At this point, the crude oil seller then goes on to present all the vessel documents and more to the crude oil buyer for verification. And the transaction subsequently continues.
Procedures could widely vary, and an inexperienced OFF-OPEC crude oil seller could make dire mistakes in choosing the type of financial instrument or procedure, which occasionally leads to distressed vessels.
What If The Crude Oil Buyer Can’t Verify The Crude Oil Seller’s ATS And Partial Proof Of Product?
If the ATS (Authority To Sell) and PPOP (Partial Proof Of Product) cannot be easily verified but the buyer wants to go on with the transaction, it is important to ensure the crude oil seller is made to post a performance bond. This ensures a financial commitment from the crude oil seller in the transaction.
Most ATS’ and PPOPs usually have falsified information, and so, a buyer should ensure the crude oil seller’s bank responds to the RWA they’ll send, showing they’re financially capable and will post a performance bond once the financial instrument of usually an SBLC (Standby Letter of Credit) and the likes is placed by the crude oil buyer.
To Sum It Up
While this article may be a small peek into how to buy crude oil from Nigeria in the OFF-OPEC market, there’s a whole lot more information to learn and this would require a detailed research on the part of the crude oil buyer looking to purchase BLCO (Bonny Light Crude Oil) at a discount from the OFF-OPEC market.
What are your thoughts on how to buy crude oil from Nigeria in the OFF-OPEC market? Let me know by leaving a comment below.
An Important Point
Trying to buy crude oil from Nigeria through genuine OFF-OPEC 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 buyer mandate, so they can be on the ground, meet with several crude oil sellers, 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, STDM Business Solutions, can help genuine crude oil buyers facilitate crude oil purchases from Nigeria. We could either act as facilitators from the crude oil seller’s end in some cases or represent the crude oil buyer as their mandate in other cases.
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.
Our crude oil facilitation service is completely transparent, and as a result, we will not deal with a crude oil buyer or crude oil seller who intends to cut corners or out smart any party in the course of a crude oil marketing deal.
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.
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 humbly 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.
We look forward to hearing from you.