The high hope that the removal of petrol subsidy and local refining of petroleum products will assuage the pains of the present energy crisis is a far cry from reality.
Were the ongoing scarcity of the Premium Motor Spirit (PMS) or petrol a mere matter of demand and supply base, it would have been easier to tackle. Unfortunately, while it is primarily induced by the global energy market, a lot of national actions and inactions have aggravated it. On the global front, the demand for energy has continued to outstrip supply after the re-opening of economic activities from the COVID-19 lockdown.
Recently, the Organisation of Petroleum Exporting Countries (OPEC) presented a gloomy picture of the global oil and gas industry. Its Secretary-General, Dr Mohammad Sanusi Barkindo, said: “We are already dealing with the harsh impacts the COVID-19 pandemic has had on investment, which declined by 30 per cent in 2020; investments recovered somewhat last year, but not to sustainable levels.
“Allow me here to add a few numbers for context. In OPEC’s most recent World Oil Outlook, we see energy demand expanding by 28 per cent in the period to 2045. Global oil demand would reach 108.2 mb/d by 2045 and cumulative oil-related investment requirements alone amounting to $11.8 trillion in the 2021-2045 periods.”
It is an irony of fate that as the demand for oil and gas is growing; the investment in the industry is dwindling. Some countries and companies have discontinued investment in new projects. This alone accounts for the inference that the outputs from the industry will continue to decline proportionally to the demand for crude oil and its products.
Last year, Barkindo painted a similar gloomy picture of events in the sector. “Investors, environmental lobbyists and even some corporate boards are pressuring oil companies and governments to pursue radical policies and initiatives that could, in the end, be more disruptive than productive for the global energy industry. There have recently been calls for investments in oil and gas to be discontinued, which are a dangerous and unrealistic scenario.”
Their decision to withdraw investments from the industry followed the global decision for the context of the net-zero 2050 emissions. It was the Paris Declaration in 2015 to tackle global warming. But, it is now clear that the suspension of investment in the industry is somehow hasty as the new bride: renewable energy is yet to meet the soaring energy demand.
Barkindo has depicted the current global energy crisis as a larger picture of what it could become if the complexities are not comprehended. He said: “The current energy market turmoil seen across the world in recent months is, perhaps, an early insight into some of the issues we are dealing with, and what can occur if we do not see the bigger picture and the interwoven complexities.”
Already, the prediction is playing out. Some countries have not met the organisation’s production quota for several years. The world energy crisis is already having its harsh impacts on several countries, chiefly Nigeria.
Investors bemoan losses
Upstream issues in the country tend to worsen by the day. Only recently, different investors in the industry cried out over the enormity of losses in the business. Their complaints are mostly about the magnitude of crude oil theft. For instance, Chairman Heirs Holdings, Mr Tony Elumelu, recently bemoaned the fact that Nigeria was losing over 95 per cent of its oil production to thieves. According to him, investors are losing over 95 per cent of oil output to thieves. This raises questions about the criminal act.
“How can we be losing over 95 per cent of oil production to thieves? Look at the Bonny Terminal, which should be receiving over 200,000 barrels of crude oil daily. Instead, it receives less than 3,000 barrels, leading the operator, Shell, to declare force majeure.
“Why are we paying taxes if our security agencies can’t stop this? It is clear that the reason Nigeria is unable to meet its OPEC production quota is not because of low investment but because of theft, pure and simple!”
Similarly, a few days later, the former Chief Executive Officer of Seplat Energy Plc, Mr Austin Avuru, lamented over the sabotage of crude oil theft. He sought a state of emergency on the menace, stressing that about 80 per cent of the oil production in the country was being stolen mostly specifically in the Southeast. So far, the government efforts at stemming the tide of oil theft have proved abortive as the criminal business has always allegedly attracted those sent to rescue the situation.
Implications of crude oil theft
The implication of crude oil theft is that the much-awaited Dangote Refinery and other modular ones may have a shortage of crude to contend with when they come on stream. The crude oil constitutes the highest cost of petrol in the pricing template. Recent occurrences do not give the oil market a ray of hope for lower prices any time soon.
On its own, OPEC has expressed fears that the Russian and Ukraine war will continue to undermine production plans. Following the sanction of Russia, it did not contribute its quota of over 10 million barrels per day to the cartel’s basket in February 2022. It is an indication of further supply shortage in the next few months. In other words, there is a very high likelihood that low supply will lead to higher prices of crude oil- the major component in the pricing template.
Besides, the indisputable excuse that the major and independent marketers have cited for shunning petroleum products importation has been the foreign exchange. It is disheartening to note that the naira has continued to lose its value against the dollar daily. At the time of filing this report, the naira had already fallen to as low as N580/dollar in the black market.
Only on Wednesday, the President of the Petroleum and Nature Gas Senior Staff Association of Nigeria (PENGASSAN), Mr Festus Osifo, blamed the prolonged petrol scarcity on the lack of foreign exchange. “Although the increase in the prices of crude oil in the international market is partly responsible for the surge, from our findings, the non-availability of foreign exchange at the Central Bank of Nigeria rate to marketers is largely responsible for the increase as they source for Forex from the parallel market.”
While the country’s dependency grows owing to a lack of energy to fuel domestic manufacturing, the only recourse is to import the products. This challenge makes the business of importation of petroleum products the sole Enterprise of the Pipeline and Products Marketing Company (PPMC), which is a subsidiary of the Nigeria National Petroleum Corporation (NNPC).
Unfavourable price regime
A view of how much should Nigeria sell petrol lends credence to why the product is scarce in the country. From the global petrol price/litre as of March 21, 2022 report, it is evident that Nigeria is selling the product at the same rate as countries that refine it.
For instance, Venezuela sold it for $0.025 per litre. Libya sold it for $0.032 per litre. Iran sold it for $0.051/litre. In Angola, it was sold for $0.35/litre while Russia sold it for $0.484/litre.
Nigeria does not refine petroleum, which imports it from Europe, sold it for $0.400 per litre, even cheaper than Russia. On the other hand, its neighbouring countries that are also import-dependent, sold the petrol as follows: in the period under review, Togo and Chad sold it for $0.871 per litre while Cameroon sold it for $1.059 per litre. In Mali, it sold for $1.31 per litre while Ghana sold it for $1.181 per litre. In Liberia, it was sold for $1.238 per litre.
This defect of the price mechanism is accountable for why smugglers dare all consequences to take Nigeria’s subsidised petrol to neighbouring countries where it is far more expensive.
The simple reason for the price disparity among Nigeria and its adjoining countries is the Petrol Subsidy Support Scheme. It is not certain how long the Federal Government will run the subsidy regime since its budget elapses in June. The striking question is: if the stoppage of subsidy will solve Nigeria’s petrol scarcity palaver, it may not. This is so because even as the Petroleum Industry Act (PIA) provides full deregulation, there is still the government’s determination to have a uniform pump price throughout the country.
Inasmuch as the government may be poised to attain this uniform pump price in a deregulated regime, there may still be some degree of regulation of the price. Recently, the Nigerian Association of Road Transport Owners (NARTO) confirmed that the Federal Government commenced the payment of its new 25 per cent freight rate. Freight rate means the cost of transporting the product across the country in order to bridge the gap that distance would have caused in the price of petrol.
With this, for petrol to sell at the same rate in Maiduguri and Lagos, the landing point, the government has to absorb the cost-bridging. In other words, it means that the freight rate now constitutes 25 per cent of the total cost of petrol. As the burden of petrol importation now lies solely on the shoulders of the NNPC, it is obvious that its purchase is according to its financial strength. Although marketers have sustained the clamour for massive importation to bridge the wide demand gap that the toxic petrol created, the NNPC is yet to act.
If it acts accordingly, it is common knowledge that the queues will disappear overnight. Only on Thursday, the National President of the Independent Petroleum Marketers Association of Nigeria (IPMAN) Alhaji Debo Ahmed called on the NNPC to embark on “massive importation to clear the supply gap that was created when the adulterated petrol was withdrawn from the market.”
Arbitrary increase of ex-depot price
Among other things, he had previously drawn attention to the arbitrary increase of the ex-depot price. He told The Nation that the private depots sold petrol to marketers at N185/per litre. Their only choice is to quit the business or sell above official rates since the NNPC depots are not selling the product.
NNPC Group General Manager Group Public Affairs Division, Malam Garba Deen Muhammad, did not reply to why NNPC’s depots are not selling petrol when The Nation sent a text message to him. He did not pick up when a call was put across to him, either. A member of the Depot and Petroleum Products Marketers Association of Nigeria (DAPPMAN) that spoke to The Nation in confidence revealed that the petrol, which some marketers paid for in December 2021, was yet to arrive as of March 1 2021.
According to him, the cargoes were expected to arrive by the middle of January while the loan repayment was billed for January 2022. The source said the private depots were not selling to members of IPMAN because their stock was not sufficient to supply to outsiders. The source called on the NNPC to raise its petrol importation volume. She wondered who would pay the accruable interest that emanated from the loan time lag.
On how the petrol market was, she said: “We are selling what NNPC is giving to us. We are loading. The issue is that some of this fuel that we load today was paid for in December. It was paid for with a bank loan. There was a projection in the bank loan. The projection was that you are to receive the product by the middle of January and pay it back in January. So, who pays for the interest between when we were supposed to have paid back and today?”
On whether it was true that the private depots were selling above the ex-depot price, another source in the association said there was no need to sell above the official rate since their own filling stations were the ones selling the product.
Explaining why the depots were not selling to IPMAN, she said “Some people have not actually loaded their own cargo because we are not getting at all. It makes sense if I have 100 stations to concentrate on my stations rather than selling to any other person. If I don’t sell to IPMAN and they want to blackmail me, they can say anything. I will not load and be selling to IPMAN and leave my own stations dry.”
She urged whoever found any member of the association selling above the pump price of N165/litre to report the station for necessary actions. The source said: “If you see any private station selling above N165, let me know. I will tell you it is not a DAPPMAN station. There is no DAPPMAN station that is selling above N165/litre.
“So, anybody who is claiming we are selling above ex-depot, we are simply concentrating on our own stations. But the point is that if you can drive into any petrol station between 15 minutes and buy your fuel, will you patronise jerry cans outside? Because the product is not enough that is why the jerry can people are selling. The bottom line is that the NNPC should bring products in and all these queues and allegations will disappear. Why should I give to someone outside when I don’t have for my stations?”
Following the supply gap from the depots, most of the marketers prefer selling the product where they can make much profit since there is a higher presence of security operatives and officials of the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA). This is accountable for why most marketers take their stock to hinterlands, where they sell at a pump price as much as N300 to N400 per litre unmolested. This is therefore the simple reason petrol is scarce in Abuja and Lagos.
Private refineries’ waiting game
While some of the completed refineries are yet to commence production until there is the removal of subsidy, some of the Greenfield Field Refineries have quietly vowed to develop theirs only when the industry is fully deregulated. For fear of a regulated price, a few of the private modular refineries that are upstream and downstream produce only for their own operations. In the long run, the citizens will get used to the harrowing situation and see the reasons for subsidy removal and product availability.
However, the experience of what has played out in the cement industry has thought the citizens the bitter lesson that local production of a commodity does not necessarily guarantee its cheapness. Owners of private refineries are yet to allay the consumers of the fear that there will be no cartel in the petrol market; the consumers are still longing for the assurance that only the forces of demand and supply will determine the pump price when there is 100 per cent reliance on local refineries.
