Nigeria: The Mechanics And Dynamics of Fuel Scarcity

18 Views Comment Off

Daily Independent (Lagos), Dr. Kòmbò Mason Braide, 8 August 2011, opinion

Introduction

 

The complex interplay between the demand for petroleum products, and their timely availability to the Nigerian consumer, is constrained by the inadequacy of the quantum of crude oil allowed by the Federal Government of Nigeria for domestic refining, the deficit of available petroleum products needed to satisfy the national demand at any given time, the recurrent low capacity utilisation of Nigerian refineries, the epileptic performance of the pipeline distribution network, and the adverse impact of price regulation in the country. Consequently, a clearer appreciation, and better quantification of the factors that affect the supply-demand dynamic for petroleum products in Nigeria are crucial, and indeed unavoidable, in order to reverse the trend, once and for all.

For a start, the estimated daily crisis-free demand for petroleum products in Nigeria today, are 30 million litres of petrol (PMS), 12 million litres of kerosene (DPK), 18 million litres of diesel oil (AGO), and 780 metric tons (1.4 million litres) of cooking gas (LPG). And so, based on the yield profile of the benchmark Nigerian crude oil (i.e. Bonny Light, the feedstock of the least crisis-prone refinery in Nigeria, PHRC), the estimated amount of crude oil required daily for domestic refining, that would satisfy the pent-up demand for petroleum products in Nigeria adequately, should be about 530,000 barrels per day (bbl/d), which are some 85,000 bbl/d more than the combined refining capacities of all the state-owned, state-ran, poorly maintained, and chronically dysfunctional refineries at Warri (WRPC), Port Harcourt (PHRC), and Kaduna, (KRPC),or about 230,000 bbl/d more than the quantity of crude oil (300,000 bbl/d) allowed by the Federal Government of Nigeria for domestic refining, and consumption, or/and about 440, 000 bbl/d more than the current ultra-low efficiency domestic refining operations in Nigeria.

Built-In obsolescence as National Policy

Right now, Nigeria can only locally refine about 17% of what General Obasanjo needs to “really conquer scarcity” in the country, even though Nigerian refineries have the potential of meeting up to 80% of domestic demand for petroleum products in Nigeria . Evidently, Nigerian refineries have undergone significant depreciation due to old age, neglect, and idleness:

The former Shell-BP refinery, which later became NPRC on nationalisation by General Obasanjo, a quarter of a century ago, now PHRC I, is 38 years old, and practically dead.

The fuels section of Warri refinery (WRPC), with its prehistory of corrosion problems, and frequent shut-downs, ab initio, built by the military administration of General Obasanjo, is 23 years old. The petrochemicals section of WRPC is comatose.

Kaduna refinery (KRPC), built by the military administration of General Obasanjo, located over 600 km from its feedstock supply source in Escravos, Delta State, designed to process both Nigerian and imported Venezuelan (later, Arab Light) crude oil for the production of fuels, lubricants, wax, residual fuel oils, and bitumen, is 21 years old, and frequently idle.

 

The new Port Harcourt refinery, PHRC II, originally conceived as an export refinery, built by the military administration of General Babangida, is now 15 years old, over-stretched, and barely 60% efficient.

They all have very poor maintenance histories. Therefore, Nigeria ‘s state-owned refineries, like any state-ran enterprise, are technically inefficient, and are unreliable for uninterrupted domestic production of petroleum products, even at the very best of times.

At any rate, in order to meet the domestic demand for refined petroleum products in Nigeria in 2003, at least 530,000 bbl/d, (i.e. 27% of daily crude oil production, as constrained by Nigeria’s 2,000,000 bbl/d OPEC quota), must be efficiently refined, so as to meet, and if need be, exceed the expectations of the understandably traumatised, and frazzled out Nigerian consumers. The figures would be higher when considering the optimal refining capacity for meeting the national demand for petroleum products in the next decade.

Indeed, daily, about 210,000 barrels (i.e. 10% of the crude oil produced daily in Nigeria, or 70% of the current arbitrary refining limit of 300,000 bbl/d imposed on NNPC), are exported, instead of being consumed cheaply as petroleum products, as intended, in Nigeria! Furthermore, there are regional price differentials which have never been reflected in any official pricing considerations in Nigeria since General Yakubu Gowon promulgated the Petroleum Equalisation Decree, some thirty (30) years ago, in 1973.

Incidentally, the Honourable Federal Minister of Petroleum Resources, who normally should be directly accountable to Nigerians, particularly in an election year, for the success or failure of the Nigerian petroleum industry, is indeed, the current Commander-in-Chief of the Armed Forces, and President of the Federal Republic of Nigeria, His Excellency General (Chief) Olusegun Aremu Okikiola Mathew Obasanjo.

Surely, there can be no better way of haemorrhaging the Nigerian treasury to death, and mismanaging Nigeria’s petroleum resources than this rather macabre merry-go-round of state-assisted executive brigandage, sustained over a period of about 30 years, including the on-going seemingly democratically condoned lack of creativity, transparency, or accountability, in addressing the resultant mess, satisfactorily.

The awe and shock of fuel importation

 

Why is it that in Iraq, for example, even with over 12 years of sever economic blockade, including weeks of full-blown war, there have not been fuel queues like Nigerians have become accustomed to over the past decade? Clearly, the Nigerian paradox of “scarcity in abundance” is a betrayal of the scandalous paucity of the capacity to manage Nigeria ‘s human, material and natural resources effectively.

It may not be self-evident yet to many Nigerians that a nation does not need to have any petroleum resources (like Austria, Burkina Faso, Cuba, Japan, Switzerland, Niger, or Zambia), or refineries (like (Chad, Uganda, Benin Republic, or Zimbabwe), or petroleum products distribution pipeline networks (like most African countries), in order to be free of the trauma induced by the crisis of fuel availability (“scarcity”) that Nigerians have been made to take as normal.

Indeed, for most countries of the world, the importation of crude oil, or/and refined petroleum products for meeting their national energy requirements, is among the topmost priorities and responsibilities of any responsible government. And so, importation of petroleum products is not necessarily bad, as perceived in the Nigerian stereotype.

However, in Nigeria , massive fuel importation has become unavoidable, given the potentially dire social, economic, and political repercussions of the significant deficits in the available inventories of petroleum products nationwide, occasioned by monumental blunders and failures in both political and indigenous technocratic leadership, over a period spanning more than 30 years, to date.

Based on the lowest official foreign exchange (inter-bank) rate, an assumed international open market price of crude oil at US$34.00 per barrel, translates to N26.32 per litre, which, paradoxically, is costlier than one litre of refined petrol, or kerosene, or diesel oil, in the Federal Republic of Nigeria. Of course, using a more realistic (black market) foreign exchange rate, the price of crude oil translates to N29.72 per litre, while petrol, one of the by-products of refined crude oil, costs N26.00 per litre in Nigeria .

At best, the cost of imported petrol (PMS), would amount to N32.76 per litre, based on the lowest official exchange rate, or more realistically, N35.30 per litre, based on the (official) black market exchange rate. Uncertainties about vessel round-trip logistics and delays in the bureaucracy, inefficiencies or/and supply disruptions, occasioned by equipment obsolescence, frequent unplanned shut-downs due to vandalisation, and/or internal corrosion of pipeline network, create anxieties that further exacerbate the crisis of availability of, and accessibility to imported or locally refined petroleum products in the Nigerian market.

The nominal cost of imported petroleum products into Nigeria amounted to N57.44 billion in the first quarter of 2001 alone. Approximately 79% of the total cost of fuel importation – i.e. the cost, insurance freight (CIF) of the imported petroleum products – is outside of the control of the Federal Government of Nigeria, yet the Federal Government contributes about 11.5% of the burden of importation of petrol into Nigeria through (self-imposed) taxes and port charges payable to the Federal Government of Nigeria. (Weird!)

In : Articles

About the author

Nigerian Community,News, Events and more

Related Articles