Author: Sasforde

At the current petrol pricing template, the pump price of petrol will sell anywhere between N478 and N590 per litre, based on the effective dollar rate the Central Bank of Nigeria (CBN) settles upon following the directive by the new president to reform currency rates, BusinessDay analysis shows.

The Nigerian National Petroleum Company Limited met with oil marketers to agree on indicative pricing on Tuesday. Mele Kyari, its group chief executive officer, met President Bola Tinubu at the Presidential Villa shortly after he resumed work. The results of these engagements have yet to be made public.

Using the CBN naira-dollar rate of N467/$1, the pump price of petrol could rise to N390 per litre if the government no longer pays subsidy. When the rate allowed for airlines to repatriate funds, which stand at N600/$1, is used, BusinessDay’s calculations show that the effective pump price would be N478 per litre in Lagos.

At the black market rate of N750/$, the picture changes. The product cost rises to N503.91 per litre. Other costs including traders’ margin, freight, NPA port charges, NIMASA, financing costs, jetty storage, and wholesale margin bring the landing cost to N565.34.

When retailers margin, dealers margin and transport cost are added, it brings the price in Lagos to N590.34. The price could average around N600 when it is transported across Nigeria.

The major components that constitute petrol landing cost in Nigeria include product cost, traders and insurance margin, shipping, charges by government agencies, financing and banking charges and storage charges. These come to about N358.24 per litre as landing charges. Another N25 is added based on retailer margins (N15), dealer’s margin (N5) and Transport cost at (N5). This brings the total costs to N383.24.

However, pump price would vary based on station and location and, with the government’s subsidised transport charges, could average at N385 per litre using the official exchange rate. This pump increases to N478 litre using the N600/$1 rate and N600 using N750/$1 as the parallel market rate.

BusinessDay reached this conclusion by analysing the Nigerian government’s current pricing template based on current oil prices and marketers’ surveys on what prices would be at different oil price and dollar rate scenarios.

The current panic buying is contributing to worsening the problem as it gives unscrupulous marketers the avenue to exploit consumers. This is why NNPC Ltd, the marketers’ group and the regulator are calling for calm.

The oil regulator said in a statement that it is working with the NNPC and other key stakeholders to guarantee a smooth transition, avoid supply disruptions, and ensure that consumers are not short-changed in any form.

“Contrary to speculations and concerns, the announcement is in line with the Petroleum Industry Act (2021) which provides for total deregulation of the petroleum downstream sector to drive investment and growth,” the statement said.

The Nigerian Midstream and Downstream Petroleum Regulatory Authority assures that there is an ample supply of petrol to meet demand as it has taken necessary steps to ensure distribution channels remain uninterrupted and fuel is readily available at all filling stations across the country.

A joint statement issued by the Major Oil Marketers Association of Nigeria (MOMAN) and the Depot and Petroleum Marketers Association of Nigeria (DAPPMAN), on Tuesday, called for calm.

“In light of the assurance given by the Nigerian National Petroleum Company Limited (NNPCL) and the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), we wish to reiterate that there is no cause for alarm,” they said.

“We strongly urge Nigerians to avoid panic buying or stockpiling of petrol. This behaviour not only creates artificial scarcity but also poses a significant safety hazard.”

According to the oil marketers, the NNPCL has assured Nigerians of adequate fuel supply and the NMDPRA is working closely with stakeholders to ensure a seamless transition.

“They are ensuring distribution channels remain uninterrupted, thereby making fuel readily available at all filling stations across the country,” it read. “The decision to phase out this fuel subsidy regime is not merely a fiscal reform; it is a significant stride toward social justice.”

“We understand the concerns regarding potential price increases. However, we expect marketers to maintain reasonable pricing, as NNPCL remains the sole supplier of the product currently,” the Joint statement read.

The oil marketers said they anticipate minimal changes regarding distribution costs, considering the cost of the product constitutes 80 percent of the pump price and pledged to manage these distribution costs diligently to minimize the impact on the pump price in collaboration with the Nigerian Association of Road Transport Owners and other crucial stakeholders,

Some analysts say phased removal is the best option. “My recommendation is that the process should be done in phases,” said Ayodele Oni, energy lawyer and partner at Lagos-based Bloomfield law firm.

Oni said the refineries in the country should be functional and operational to the extent that they can meet the demands of the country. This would certainly reduce the importation of refined products into the country and the associated costs such as haulage, insurance, ship-to-ship transfer costs, etc

Refineries

Since Tinubu’s inaugural speech, labour unions have been kicking against subsidy removal. At a press briefing in Abuja on Tuesday, Festus Osifo and Nuhu Toro, president and general secretary of Trade Union Congress of Nigeria, said they expect the President to be wise with the issue at hand.

“We dare say that this is a very delicate issue that touches on the lives, if not very survival, of particularly the working people, hence ought to have been treated with the utmost caution, and should have been preceded by robust dialogue and consultation with, the representatives of the working people, including professionals, market people, students and the poor masses,” they said in a statement.

The labour leader said they were concerned that Tinubu was not specific in how the plan will work and that Nigerian workers and indeed masses must not be made to suffer the inefficiency of successive governments, adding that they are ready to dialogue with the President.

“We are also worried that in his speech President Tinubu failed to delve into or reveal his plans on how to tackle and address the issue of poor and unchecked deterioration in industrial relations, particularly in the education, health and judiciary sectors, often resulting in prolonged strike and Industrial actions and their attendant adverse effects on society and the economy.”

However, analysts say subsidy actually benefits the rich at the exclusion of the poor.

“Fuel subsidy only rewards the elites, middle class, and rich in Nigeria. If you go to rural areas, you will hardly buy fuel at the regulated pump price. The fuel subsidy that is supposed to help the poor actually helps in intensifying their poverty and misery. So, fuel subsidy is only for the rich and has to go,” said Bongo Adi, a professor of Economics at Lagos Business School.

Labour leaders have also called for fixing the refineries before subsidy is removed but in the current situation, local refining would only save freight and port charges as crude constitutes over 86 percent of the cost.

Tinubu meets Kyari, Emefiele, others

Tinubu on Tuesday met behind closed doors with Godwin Emefiele, governor of CBN, NNPC boss, Kyari, in an apparent effort to address the fallout of fuel subsidy removal.

The meeting was his first official assignment in the Presidential Villa. The President arrived the meeting at about 2:32pm, and was received by Vice President Kashim Shettima, at the foya of the President’s office, accompanied by Tijjani Umar, permanent secretary, State House.

Others include Femi Gbajabiamila, speaker of House of Representatives, Wale Edun, Dele Akake and James Faleke.

Fuel subsidy, a burden on poor Nigerians – Shettima

Shettima described Nigeria’s huge subsidy spendings as a burden placed on poor Nigerians.

Shettima, speaking with State House Journalists on his first day in office at the Presidential Villa, said: “You and I benefit 90 percent from the fuel subsidy, while the poor, 40 percent of Nigerians, benefit very little. And we know the consequences of unveiling a masquerade.”

He said: “The truth of the matter is that it is either we get rid of subsidy or the fuel subsidy gets rid of the Nigerian nation.

“We will get fierce opposition from those benefitting from the oil subsidy scam. But where there is a will, there is a way. Be rest assured that our President is a man of strong will and conviction. In the fullness of time, you will appreciate his noble intentions for the nation. The issue of fuel subsidy will be frontally addressed. The earlier we do so, the better.”

Also speaking on the issue of multiple exchange rates, he said the Tinubu administration would collapse the multiple exchange into one.

He said: “So these are two big elephants in the room and as the days go by, we will be unveiling our agenda. He is going to unveil his agenda because as I have always said, there can never be two captains in a ship. He is the president and commander-in-chief of the armed forces.

“I’m the vice president. Your relevance is directly proportional to the level of your loyalty to the president. This is a gentleman that I have known for well over a decade; that I have interacted closely with. Be rest assured that we are going to work harmoniously as a team, as a family for the greater good of our nation.”

Read also: Fuel subsidy crisis: Tonye Cole urges Tinubu to discuss more with labour

FG owes NNPC N2.8trn, says Kyari

Also speaking on the subsidy issue, Kyari told journalists that the federal government owed the NNPC N2.8 trillion for money expended on fuel subsidy.

He revealed that the federal government “no longer have the money to pay the agency money spent on subsidy” adding that government has not paid NNPCL for subsidy for about two years.

Kyari also affirmed that the subsidy is no longer sustainable as it has made it impossible for the company to funds to fund its operations.

Kyari said the petrol queues that have resurfaced are understandable as marketers would like to understand the meaning of the president’s pronouncement that “subsidy is gone.”

He urged Nigerians to avoid panic buying, adding that the NNPCL has enough stock. “What you are seeing is normal because consumers will like to rush to the filing stations to fill their tanks, while the marketers will want to take advantage of the situation. The combined the two is what you are seeing play out.”

The NNPCL boss assured that government will initiate measures to cushion the effects of the removal of subsidy.

When the Nigerian Content Development and Monitoring Board (NCDMB) was established in 2010, its mission was to promote the development and utilisation of in-country capacities for Nigeria’s industrialisation by effectively implementing the Nigerian Content Act. While the board has, over the years, made giant strides towards actualising this goal with several policies to facilitate the participation of indigenous businesses in the Oil and Gas industry, changes in the global political and economic landscape call for a continuous rethinking of long-standing policies and implementing adjustments where necessary.
“NCDMB has been fantastic for the industry. The board has been an enabler. A lot of companies have benefitted, not just from the categorisation or the ring-fencing or the initiative of having Nigerian entities run the business. Some companies have benefited from the fund that they provide to enable them to acquire assets etc. It goes across the board. I think there are a lot of participants in the industry that may not be here if not for the NCDMB,” said Seyi Ajibola, MD/CEO of Zircon Marine Limited, during a live television interview exploring the challenges and opportunities in the Nigerian maritime industry.

Ajibola’s Zircon Marine is one of many indigenous businesses providing local content for Nigeria’s Oil and Gas industry. While his position reflects the dominant view of relevant stakeholders in the industry about the impact of the NCDMB, there remain particular challenges that indigenous industry players grapple with in their bid to match their counterparts in other parts of the world in terms of capacity and service delivery.

The rig count in the industry is currently at an all-time low, constituting a major challenge to businesses whose focus is on rig building, especially in offshore sites. The dearth of appropriate business-support infrastructure is another challenge, which drives up operating costs for indigenous businesses, making it difficult for them to compete with businesses from other countries. Accessibility to qualified technicians is another significant challenge to indigenous players as bringing in expatriates also negatively impacts operations costs. Similarly, soaring global prices due to the Russia-Ukraine war constitutes another hurdle.

Despite these challenges, stakeholders like Ajibola are convinced that indigenous businesses can not only thrive, but also compete successfully if they would adopt a global approach to their operations. According to Ajibola, earning certifications from IOCs, embracing sustainable strategies to business operations and adopting international best practices can better position an indigenous company to operate in the global market.

While these ideals may seem daunting, Zircon Marine has been able to achieve most by seeking out partnerships with companies with assets and expertise in relevant sectors of the industry and signing on to the UN Global Compact, a voluntary initiative based on CEO commitments to implement universal sustainability principles and to take steps to support UN goals.

“I think the main thing is that we want to compete globally, and these partnerships just enable us to do that. A lot of our business is devoted to best practices and we’re fighting and succeeding in getting international business that may have otherwise gone to so-called foreign companies. We’re building up as a 100% Nigerian entity,” he said.

“In 2022, we set ourselves some targets for our sustainability programme, both around the environment and around women empowerment, and we achieved both of them and I think the more and more companies that do that, the better not only for the environment but also for business.

“The top international companies also want to associate with companies that are environmentally compliant. They have initiatives that have respect for the environment and other sustainability goals. The environment is just one aspect. Even diversity in the workplace is a big sustainability goal as well. Those are the things that we’ve been doing specifically as a company.

Ajibola also thinks a tweak in one of the policies of the NCDMB can give local businesses better chances of achieving global relevance and position Nigeria’s Oil and Gas industry for greater gains in the global maritime market.

“For you to participate in the NCDMB today, you have to own vessels. I mean within a certain class, you can give waivers if the vessel is above a certain gross ton. I believe that if they can go back to narrowing into Nigerian participation and ownership of the business instead of Nigerian asset ownership, I believe immediately the cost will come down.

“You will still achieve some of the purposes of keeping money in the hands of Nigerians. You can then focus on specialising in other areas that enable that business. What is happening now is that a lot of people have borrowed money to buy assets and at the same time, especially in the upstream sector, the business has come down, leading to intense pressure to pay back. If you don’t have to own these assets, the flexibility to participate will be much higher, and I think, ultimately, it is much more sustainable,” he added.

This position is viable because it eases the entry burden on indigenous businesses, which has the knock-on effect of reducing operational costs and enabling competitive pricing.

Furthermore, indigenous businesses must continue to scrutinise their processes to ensure optimum efficiency, reducing waste to the barest minimum to give them better chances of setting competitive prices in the global market.

Ultimately, as the global market continues to respond to economic and political changes worldwide, the major stakeholders in the industry must take conscious efforts to reduce, if not remove, unnecessary obstacles impeding the progress of indigenous businesses.

…Nigeria’s oil discoveries in North missing in global listing
…Value creation reaches $33billion at base price

New global oil and gas discoveries hit record high in a decade last year, spurring value creation from the exploration segment to about $33 billion at the base.
Namibia, Brazil and Algeria stood out in the discoveries as Nigeria is missing despite announcing the discovery of over one billion barrels of oil in the northern part of the country.

ADVERTISING

As the world races towards net-zero, fossil fuel has been a major enemy as activists and the International Energy Agency (IEA) asked investors not to fund new oil, gas and coal supply projects if the world wants to reach net zero emissions by 2050.

Wood Mackenzie in a release noted “global oil and gas exploration sector had its strongest year in 2022 in more than a decade.”

The report acknowledged that attempts to lower-carbon, lower-cost advantaged hydrocarbons enabled the sector to create at least $33 billion of value and achieve full-cycle returns of 22 per cent at $60/barrel Brent prices.

The report, “Wood Mackenzie’s ‘Oil and gas exploration: 2022 in review” noted that the number of wells were less than half the numbers during pre-pandemic years, yet the total volume of 20 billion barrels of oil equivalent matched the average annual volumes of 2013-2019.

Director of global exploration research at Wood Mackenzie, Julie Wilson disclosed that the year was remarkable for exploration activities, and stressed that the volumes of discoveries were good, but not stellar.
“However, explorers were able to drive very high value through strategic selection and focusing on the best and largest prospects. The discoveries bring higher-quality hydrocarbons into companies’ portfolios, allowing them to reduce carbon by displacing less advantaged oil and gas supplies while also meeting the world’s energy needs,” Wilson noted.

Despite the much-trumpeted in-land basin reported discoveries in Nigeria, WoodMac noted that much of the listed discoveries are from deepwater.

According to the organisation, the highest value came from discoveries in a new deepwater play in Namibia, as well as resource additions in Algeria and several new deepwater discoveries in Guyana and Brazil, where the latest wave of pre-salt exploration finally met with success.
“The average discovery last year was over 150 million barrels of oil equivalent, more than double the average of the previous decade,” Wilson noted.

The report noted that liquids accounted for 60 per cent of new resources discovered, adding that the development is only the third time in 20 years that liquids made up the majority of new discoveries.

“There is a lot of uncertainty in future long-term demand scenarios for oil. Explorers are accelerating oil exploration to meet near and mid-term demand, while gas exploration is focused in geographies that can supply the gas-hungry European market. In some cases, major leases are approaching expiration of the exploration term and companies are pushing to optimize their value.

“By 2030, fast-tracked development of these new discoveries could deliver 1 million barrels per day in oil and 0.5 million barrels of equivalent per day gas production, generating $15 billion in free cash flow,” Wilson stated.

The report noted that the exploration sector continues to be dominated by national oil companies (NOCs) and Majors, with TotalEnergies, QatarEnergy and Petrobras leading the way in net-new discovered resources in 2022.

Wilson said, “Overall, we saw a year of continued discipline from explorers with exploration and appraisal well numbers largely flat from 2021. However, spending per well increased due to inflationary pressures. Appraisal well numbers increased as companies pushed towards final investment decisions in this short-term window of opportunity.”

The civil complaint, served on April 28, seeks a ruling that the November publication contains “false and misleading information,” a judicial order to withdraw the publication and cease all references to it under penalty of 2000 euros in fines per day, plus 1 symbolic euro in damages.

A first procedural hearing will take place on Sept. 7 at the Paris judicial court to set a calendar for arguments, though it will be several months before a judge begins to rule on the merits of the case.

Greenpeace and Factor X accused the oil major of having emitted about 1.64 billion tonnes of carbon dioxide equivalent in 2019 but only disclosing 455 million tonnes in public statements.

TotalEnergies countered that the report double-counted emissions by knowingly using dubious methodologies, which were morally prejudicial to the listed company.

“This is a question of principle, and a judgment from the court will not prevent Greenpeace from continuing to criticize us and our climate strategy if they wish, but will remind them that public debate on issues with such high stakes concerning a listed company require rigor and good faith,” a TotalEnergies spokesperson said.

The TotalEnergies spokesperson added that the company’s main goal was to have the court recognize the knowingly false nature of the report, since the Factor-X firm behind the math presents itself as an expert in the field of carbon emissions accounting.

Factor-X could not immediately be reached for comment.

Greenpeace said the lawsuit was an attempt to muzzle the NGO ahead of the May 26 TotalEnergies general assembly, where activist shareholders will push for stricter climate commitments and environmental groups have called to block entry in protest of the company’s global oil and gas projects.

“TotalEnergies wants to drag Greenpeace through a long legal process … erase our reports and prevent us from denouncing their misleading and climate-killing practices,” said Greenpeace France Director Jean-François Julliard. “We will continue to lift the veil on their responsibility in global warming.”