Global oil price puts pressure on Nigeria
The recent increase in global price of petrol has caused a hike in the landing cost of premium motor spirit (petrol) imported by Nigeria.
The situation is reported to be putting massive pressure on the Nigerian National Petroleum Corporation (NNPC) which has to bear the brunt of the current landing cost of N205 per litre.
The country currently sell a litre of petrol for N145.
The NNPC has been the sole importer of petrol into the country for more than a year as private oil marketers have stopped importation due to shortage of foreign exchange.
Investors also stopped importation because it was no longer profitable.
As of March 20, 2018, when the international benchmark price for oil (Brent) was around $66 per barrel, the expected open market price of petrol, according to data obtained from the Petroleum Products Pricing Regulatory Agency, was around N189 per litre. The agency has not released any data since then.
The Group Managing Director, NNPC, on December 23, 2017, said the Federal Government had been resisting intense pressure to increase the pump price of petrol, noting that the landing cost of the commodity was N171.4 per litre as of December 22, 2017 when oil price was around $64 per barrel.
By adding the N14.3/litre for other cost elements such as the retailers’ margin, bridging fund, dealers’ cost and transporters’ pay, as captured in the last published template of the PPPRA, to the landing cost of N171.4, the pump price stood at N185.4/litre then.
Brent, against which Nigeria’s crude oil is priced, has risen by 25 per cent so far this year, hitting a new four-year high of $86.74 per barrel last week. It traded around $84.94 as of 1.40pm Nigerian time on Wednesday.
The Chief Executive Officer/Executive Secretary, Major Oil Marketers Association of Nigeria, Mr Clement Isong, said with oil price at $70, it was impossible for marketers to import petrol and sell at N145 per litre because it came in about N200 to N205 per litre.
“Currently, this burden is being borne by the government for Nigerians, but the truth is that it is not sustainable; it is just too heavy,” he added.
Isong said the outstanding subsidy debts owed marketers by the government remained the primary problem, adding that the debt “creates serious working capital constraints for all marketers, not just MOMAN, and makes it difficult to run our business. Any business that is owed so much debt will struggle.”
The Executive Secretary, Depot and Petroleum Products Marketers Association, Mr Olufemi Adewole, said, “It would have been a good thing if our refineries are working well, so that we can produce and refine what we use. The more crude oil prices rise in the international market, yes Nigeria makes more money. But unfortunately, the cost of refined products that we bring into the country is equally high.”
He said the subsidy element was “quite huge,” adding, “The last time I checked and it was when the oil price was lower than this, the landing cost of petrol was about N205 per litre.
“None of our members is importing since government has said it is not going to pay subsidy. So we are simply buying from the NNPC; it is only NNPC that can absorb whatever is needed to be absorbed. If we are bringing in products into the country at N210, that is about N65 above the regulated price of N145. That difference has to be absorbed by somebody. It is the government that is absorbing that through the NNPC and the PPMC.”
When contacted for comments on the implication of the recent oil price increase on fuel subsidy, the Group General Manager, Group Public Affairs Division, NNPC, Mr Ndu Ughamadu, said, “Have we ever told you that we are paying subsidy? We have been on cost recovery.
“Only the National Assembly can appropriate on subsidy, and we have consistently maintained that we are operating a regime of cost recovery in line with the Petroleum Act that guides us. Normally, the higher the prices of crude oil, the higher the prices of petroleum products and the higher the landing cost of products into the country. But the exact amount we might be losing is what I might not immediately give you.”
Asked if the oil price rally could affect the NNPC’s ability to import fuel, Ughamadu, said, “Not at all; we have the capacity, and we will continue to bring products in and augment that with what we produce locally. We have always remained the sole importer of petroleum products, particularly the PMS. The private marketers rely on us.”
The PPPRA, in its Downstream Monitor for January to April 2018, noted that petrol price had continued to rise at the international market, pushing the expected open market price far beyond the recommended pump price of N145/litre.
“As of the end of December 2017, the average expected open market price stood at N168.30/litre (about N23/litre more than the approved pump price of N145/litre). As a result, private oil marketers could not meet their supply obligation and the burden of the PMS supply fell solely on the NNPC,” the agency said.
It added, “Urgent intervention is required to encourage the participation of private oil marketers in the PMS supply; this is more so as the burden of supply is solely being borne by the NNPC.”
In the meantime, Waltersmith Refining and Petrochemical Company Limited has expressed its readiness to contribute about 271 million litres of refined products annually towards the development of Nigeria’s economy.
The Chairman and Chief Executive Officer, Waltersmith Petroman Oil Limited, Mr Abdulrazaq Isa, said the modular refinery being built by the firm would create direct and indirect employment as well as reduce the demand for foreign exchange from the nation’s treasury to import fuel.
It is being built at Ibigwe field in the Ohaji/Egbema Council Area of Imo state.
He said that the 5,000 bpd refinery, being the first phase of a much larger development, was conceptualised in 2011 to mitigate the frequent outage of the third-party export Trans Niger Pipeline and to optimise the full value of the firm’s produced crude through in-country refining and provide petroleum products for the domestic market.
The Minister of State for Petroleum Resources, Dr Ibe Kachikwu, commended the firm for the refinery project, adding that efforts would be intensified to reposition the nation’s refineries.
“We have processed excess of one million barrels in this country and a refining technical team and a clutch-free mechanism would soon be put in place for increased oil production.”
The minister noted that the success of the oil industry was dependent on rapid development of infrastructure.
The Executive Secretary, Nigerian Content Development and Monitoring Board, Mr Simbi Wabote, who congratulated Waltersmith on the groundbreaking event, called for more partnerships as part of its initiatives to increase Nigerian content in the oil and gas sector to 70 per cent within the next 10 years.
He said, “Beyond our interventions in the local supply chain for in-country capacity utilisation, we have broadened our focus to include in-country resource utilisation. We believe that oil production should be refined using modular refineries.
“Our doors are still open and we welcome more proposals for consideration and support in line with the published guidelines. The capacities of modular refineries we are willing to consider are in the range of a minimum of 1,000bpd and maximum of 5,000bpd.”