Oil
Crude at $70: Time for new SAP
Nigeria is not broke, Nigerians are broke’
By Dele Sobowale
“Already, some states are having difficulty with the payment of salaries of their workers. Many have issues with payment to contractors” – Alhaji Remi Bello, President, Lagos Chamber of Commerce and Industry, LCCI. THE NATION, November 13, 2014, p 13.
The same day’s edition of the paper reported that workers at the National Assembly, NASS, had not been paid their salaries for October; and legislature’s third quarter allocation is still pending (p 5). And, on its back page, the RIPPLES cartoonist reminded us that Dr Okonjo-Iweala recently assured us that ‘Nigeria is not broke”. To which RIPPLES replied, “Yes. It’s Nigerians that are broke.”
But, jokes apart, it is quite clear to those not clinging to officially sanctioned illusions that Nigeria was already in deep trouble. That crude oil was heading for a drastic fall was predictable from last year. What nobody could forecast was the dramatic drop from $108 in August this year, just three months ago, to $76 on November 13. Now, this mind-boggling reality portending grave dangers for all segments of Nigerian society and the nation’s economy can only continue to be ignored at our collective peril. The first thing governments, at all levels, and the people of Nigeria must understand, is that the remedies which must be applied, invariably painful, cannot wait until after the 2015 elections – as those in governments would prefer. The old adage, “a stitch in time saves nine”, applies here. The longer government delays, the worse will be the damages to be repaired later. So, some of the measures, recommended under such circumstances, are urgent – like initial first aid to victims of car crashes.
There is no need to repeat all the known facts about the vital role of crude oil revenue to our economy. What we must get into our, usually thick, yet porous, skulls is the fact that for several years to come, the revenue will be less than what it was in 2013 – which was inadequate for our needs. Meanwhile, those financial needs have escalated; some on account of measures taken in the past (Minimum Wage increase, agreements with ASUU and NMA etc’ bloated governments, debt stock and repayment obligations etc); others will result from the need to, in the first instance, obtain more loans and pay more interest. One thing is inescapable, there will be more hardship for the masses and there is nothing governments can do to avert the decline in popularity and pervasive hostility which will arise from these calamities.
NATIONAL ECONOMIC SUMMIT GROUP, NESG.
One remedy, often mentioned, but impractical in the short-term, however indispensable in the long-run, is diversification of the economy to reduce our dependence on crude oil. That was an idea on which the Structural Adjustment Programme, SAP, of the 1980s was bottomed. Unfortunately, very little came of it – until President Babangida – the author of SAP, stepped aside in 1993. Chief Ernest Shonekan, as the Head of Government to IBB, organised the first annual National Economic Summit Group, NESG, meeting in 1992. As a participant, representing the Nigerian Institute of Management, NIM, I recollect that one of the major recommendations in the final communiqué was diversification of the economy to reduce reliance on crude oil. In the 22 years interval very little had been done to actualise that dream. The NESG 1, not only made that recommendation, it also laid out the ways to achieve the goals. Additionally, there has been no NESG meeting which had not emphasised the need for diversification of the economy.
Those attending the annual NESG meeting, who can be regarded as those with economic clout, the same individuals who donate generously to presidential campaign elections and visit Aso Rock regularly, had failed to persuade six Heads of State – three military and three civilians to prosecute the diversification programme seriously in twenty two years. Obviously, it cannot be done in a hurry and it will take time before its impact is felt. Meanwhile, we need something that can be done immediately.
TIME FOR SAP 2
Let me first of all admit that SAP 1 was a failure. However, it needs to be pointed out that Nigeria was not the only country undergoing adjustment at the time. Several countries in Asia and Europe were also undergoing the same therapy. At least five Asian tigers were included. And, they were very successful. Nigeria’s SAP failed, not on account of economics, but because bad politics intruded into economic policy management. For instance, when IBB decided to establish two political parties – NRC and SDP – and fund them with government money, he took a decision which had strong economic implications – but negative. The N40 billion (worth over N1 trillion today) spent on the political transition programme, which was later annulled, could have established four power stations – each with 2000MW capacity. That error alone robbed us of 8,000MW which we would have been enjoying from the 1990s till today. Only God knows by how much the Nigerian economy would have grown since then.
What should be basic content of SAP 2?
– See more at: http://www.vanguardngr.com/2014/11/crude-70-time-new-sap/#sthash.rv3XOdNG.dpuf
The Nigerian National Petroleum Company (NNPC) Limited has revealed the detection of more than 4,800 unauthorized connections on oil pipelines within the country, painting a troubling image of the nation’s primary source of revenue.
Mele Kyari, the Group Chief Executive Officer of NNPC Ltd, communicated this information to the Senate Committee on Appropriations last Friday.
He said, “We have over 4,800 illegal connections on our pipelines. That means in some lines, within 100 kilometres of pipelines, you have as much as 300 insertions.
“Therefore, even when you produce the oil, you cannot deliver them at the required pressure and therefore the volume will also be less.”
As per the NNPC Ltd chief, individuals from various regions enter the Niger Delta, inserting unauthorized connections on pipelines in Nigeria’s oil-producing area.
This recent revelation follows a prior discovery of 295 illegal connections to the pipelines by the firm a year ago, underscoring the escalating issue of crude oil theft in Nigeria.
Two years earlier, Kyari had highlighted the country’s daily loss of 200,000 barrels of oil, amounting to $13 million due to theft and vandalism.
He further stated “We have two sets of losses, one coming from our products and the other coming from crude oil. In terms of crude losses, it is still going on. On the average, we are losing 200,000 barrels of crude every day.”
After the discovery, Nigeria’s security forces pledged to enhance security around the country’s pipelines.
To bolster this, the Federal Government granted a multi-billion naira pipelines surveillance contract to Tantita Security Services, headed by former militant leader Government Ekpemepulo, also known as Tompolo.
Despite facing criticism for this decision, Senator Heineken Lokpobiri, the Minister of State for Petroleum, remains convinced that it was the appropriate course of action.
In August, following a tour of oil facilities in the Niger Delta, Senator Heineken Lokpobiri expressed gratitude to Tantita, commissioned by NNPC Ltd, for their ongoing work.
He also hinted at plans for further extensive endeavors in the future.
In 2021, after extensive debate and delays, the Petroleum Industry Bill was finally passed to attract increased foreign investment into the oil sector through amendments to regulations, royalties, and taxes.
Nigeria’s colossal $19 billion Dangote Refinery, after encountering several setbacks, is on the verge of kickstarting fuel production.
This achievement is heralded by the arrival of the first crude shipment, transported by the OTIS tanker carrying 950,000 barrels of Nigeria’s Agbami crude.
S&P Global, citing industry sources and tanker tracking data on spglobal.com, reported the tanker’s departure on December 6, en route to Lekki, the nearest land port to Dangote’s offshore crude receiving terminal.
Scheduled to reach its destination around 8 PM on December 7, the arrival of this shipment signifies the commencement of crude supplies for the refinery’s operations.
Chartered by the state-owned Nigerian National Petroleum Company (NNPC), the Suezmax tanker is an emblem of the initial crude supply to Dangote’s cutting-edge refinery, as disclosed by a West African oil trader familiar with the matter in the S&P report.
Even though the refinery was officially completed in May, the absence of domestic crude feedstock had hindered oil product manufacturing.
To address this, the NNPC, holding a 20% stake in the refinery, struck an agreement to provide 6 million barrels of crude oil as feedstock to the Dangote refinery in December.
This move aims to jumpstart operations and overcome the previous impediments.
Agbami, operated by Chevron, holds a prominent position among Nigeria’s major deepwater developments, producing around 100,000 barrels per day in the central Niger Delta.
Known for its light sweet crude qualities, with a specific gravity of 47.9 API and a low sulfur content of 0.04%, Agbami produces substantial amounts of naphtha and kerosene.
NNPC has chartered additional shipments from different Nigerian offshore fields to the refinery, marking the start of a sequence of planned crude supplies for the month, as mentioned by the oil trader.
Located on the outskirts of Lagos, Nigeria’s commercial hub, the Dangote Refinery encountered repeated delays since its 2013 announcement, despite significant installation progress in 2019.
The refinery, designed to handle multiple crudes simultaneously, targets three Nigerian crude grades—Escravos, Bonny Light, and Forcados. When operating at full capacity, it aims to produce 327,000 barrels per day (b/d) of gasoline, 244,000 b/d of gasoil/diesel, 56,000 b/d of jet fuel/kerosene, and 290,000 metric tons per year of propane/LPG.
Dangote’s operations starting signify Nigeria’s hopes to lessen its reliance on gasoline imports, addressing the deficiencies of its existing refineries undergoing repairs. This shift is poised to reshape Nigeria’s oil industry, potentially leading to gasoline self-sufficiency by the 2040s.
Dangote officials anticipate an initial output of 370,000 barrels per day (b/d), emphasizing jet fuel and diesel production.
Industry analysts, however, project the refinery to reach its full operational capacity by mid-2025, although potential delays remain a looming concern.
The Nigerian National Petroleum Company Limited (NNPCL) has announced intentions to cease importing refined petroleum products by December 2024, anticipating full operational functionality for all national refineries by that time.
Group CEO, NNPC Ltd, Mele Kyari, shared this at a meeting with Speaker Tajudeen Abbas of the House of Representatives, who advocated for the privatisation of Nigeria’s refineries on Thursday.
Projections indicated the national oil firm’s revenue could climb to N4.5 trillion by the conclusion of 2023. Moreover, the rehabilitation of the Port Harcourt Refining Company, managed by NNPCL, was slated for completion by December of the current year.
Meanwhile, Oil marketers verified on Thursday that the Port Harcourt refinery is set for operations, potentially starting in January 2024. They emphasized that once operational, this refinery could notably reduce the prices of refined petroleum products.
During the meeting in Abuja, Kyari asserted Nigeria’s intention to cease importing refined petroleum products by 2024, envisioning the country’s emergence as a net exporter of these commodities within the same year.
He outlined the plans for launching operations at the Port Harcourt, Warri, and Kaduna refineries.
Kyari reiterated that all refineries would operate at full capacity, ultimately paving the way for Nigeria to transition into a net exporter of petroleum products by the conclusion of 2024.
He attributed the inactivity of Nigeria’s refineries over the years to the petroleum subsidy, emphasizing that the removal of this subsidy was drawing significant private-sector investments into the sector.
Kyari said “I can confirm to you that by the end of December this year, we will start the Port Harcourt refinery; early in the first quarter of 2024, we will start the Warri refinery and by the end of 2024, Kaduna refinery will come into operation.
“This is the commitment we are giving today and you can hold us accountable for this. In 2024, many of the initiatives including the rehabilitation of our refineries and also the efforts of small-scale refineries, and the upcoming Dangote refinery, will make Nigeria a net exporter of petroleum products in 2024.
“We will no longer be talking about fuel importation by the end of 2024. I am very optimistic that this will crystallise.
Kyari promised that by the conclusion of 2023, the government’s anticipated revenue from the company would reach N4.5 trillion, emphasizing NNPCL’s adherence to the Petroleum Industry Act and its commitment to delivering value to shareholders.
Recall that in October 2023, it was reported that Nigeria’s monthly spending on the importation of Premium Motor Spirit, known as petrol, had reached approximately N843 billion due to NNPCL’s cessation of oil swaps.
In July of this year, the Nigerian Midstream and Downstream Petroleum Regulatory Authority reported that during the post-deregulation period, spanning June 1 to June 28, 2023, the country’s total petrol consumption amounted to 1.36 billion litres, with an average daily consumption of 48.43 million litres.
The average ex-depot price of petrol, sourced solely from NNPCL as the importer, stands at about N580 per litre.
However, both NNPCL and oil marketers declared on Thursday that this substantial oil import expenditure would soon diminish.
They anticipated a drop once the Port Harcourt refinery commences production of refined petroleum products from January 2024, barring any unforeseen circumstances.
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