LONDON, May 23, 2017 – Nigeria’s state-run oil company will keep buying cheaper, lower-quality gasoline for now because the government has yet to circulate new rules forcing a switch by July to cleaner fuels with less sulphur content, trading sources said on Tuesday.
Nigeria, an oil producer that relies on imports of refined fuels, had said it would raise standards for gasoline and other fuels imports from July 1, a move backed by the U.N. Environment Programme which has pushed for using cleaner fuel in the region.
Large contracts swapping Nigerian crude for refined products signed in recent days between state-run Nigerian National Petroleum Company (NNPC) and major traders offered premiums of as much as $25 a tonne for cleaner fuels with less sulphur, traders said.
With the government yet to issue rules that specify new fuel standards, traders said NNPC was likely to pick the cheaper fuel grades with more sulphur after the July deadline has passed.
The lack of government guidance casts doubt on plans to import cleaner fuel for the rest of the year as NNPC was under no obligation to buy the more expensive gasoline, the trading sources said.
“They will have to issue circulars and new specification sheets,” one importer said, adding none had yet been sent out.
NNPC could not immediately be reached for comment.
While disappointing health and environment campaigners, it marks a reprieve for refineries, particularly in Europe, which still export to the region fuel that contains levels of sulphur that has been banned in the European Union and United States.
Sulphur is a major air pollutant particularly in cities.
Traders said contracts signed last week by NNPC with 10 groups of trade houses and local companies included options for three different grades of fuel, one with a sulphur content at Nigeria’s current maximum allowed level of 1,000 parts per million (ppm), one at 500 ppm and one at 150 ppm, the limit that had been promised by the Environment Ministry.
Those close to the discussions told Reuters NNPC had taken 1,000 ppm as a baseline, and would have to pay an extra $1.50-$2 a tonne for 500 ppm and up to $25 a tonne more for 150 ppm.
The 1,000 ppm grade pricing was based around a small premium or small discount to Platts pricing assessments of 1,000 ppm barges cif Lagos, with pricing varying between contracts.
“It will be government that determines” which grade NNPC purchases, one trader said.
When the government announced plans for new fuel standards, industry experts had questioned whether cash-strapped NNPC could afford better quality fuels. Nigeria, like other oil producers, has been hit by a fall in crude prices since 2014.
Nigeria’s Standards Organization of Nigeria (SON), the body responsible for setting requirements for imported goods, said in May that new quality rules would come into force on July 1.
But local importers and international traders said another government body – the Department of Petroleum Resources (DPR) – had not issued a list of revised specifications, so importers could stick with existing standards for now.
The DPR did not respond to a request for comment.