Fuel Crisis Erodes Gains of 2017

Despite the modest achievements recorded in Nigeria’s oil and gas industry in 2017, the current nationwide petrol scarcity, the first fuel crisis in Nigeria since last year’s upward review of the petrol price, has dealt a great blow to the sector. Ejiofor Alike reports

Nigeria’s oil and gas industry unarguably recorded modest achievements in 2017, with a raft of measures initiated by the present administration to reposition the industry.

Top on the list of the accomplishments was the steady rise of the country’s crude oil output since the beginning of 2017, following deliberate and constructive engagements with all the agitating groups in the Niger Delta by the Vice President, Prof. Yemi Osinbajo and the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu.
Before the recovery of the country’s crude production in 2017, the daily output had dropped below 1.4 million barrels per day at a point in 2016 as a result of militant attacks on oil facilities.

The disruption of the country’s production had prompted the Organisation of Petroleum Exporting Countries (OPEC) to exempt the country from the cartel’s production cut when the output deal was sealed in November 2016.
The cartel had in its latest meeting on November 30, 2017 agreed to extend the oil output cuts until the end of 2018 as part of the global efforts to eliminate excess oil supply in the international market.

With the improvement recorded in Nigeria’s production in 2017, OPEC had also decided to cap the output of Nigeria at 2017 production levels without deciding on figures.
Earlier in their July 25, 2017 meeting, OPEC and non-OPEC producers, led by Russia had approved the decision of the federal government to cap Nigeria’s oil production at a sustainable volume of 1.8 million barrels per day (mbpd).
However, despite the rise in the country’s output to 1.8 million bpd in August 2017, the producers after a meeting in Vienna, Austria, on September 22, 2017, still extended Nigeria’s exemption from crude oil production cut.

Kachikwu had admitted at the September 22 meeting that even though Nigeria hit 1.802 million barrels per day in the month of August 2017, the improvement was not enough justification for a call by some countries for Nigeria to be brought into the fold.

Today, Nigeria’s crude oil production is already above 2 million barrels per day, including large volumes of condensates, which are in high demand by foreign refineries but are not included in OPEC cut.
As the country’s production was recovering in 2017, it was a double blessing for the country as oil prices were also recovering as a result of the OPEC and non-OPEC output deal, which stabilised the prices above $60 per barrel, from the $27 per barrel in January 2016.

Year-end petrol scarcity
Despite the giant strides recorded in Nigeria’s oil and gas industry in 2017, the year ended on a sad note as petrol scarcity, the first fuel crisis since May 11, 2016 when the federal government increased petrol price, inflicted pains on Nigerians, potentially eroding the gains recorded in the sector during the year under review.
Before the crisis, the May 11, 2016 price review had stabilised fuel supply as queues disappeared from filling stations following the renewed capacity of private marketers to import petrol and break even with the new pump price, especially as the price of crude was around $40 when the new price regime took effect.

However, the challenges of accessing forex, coupled with the rising cost of crude to about $60 per barrel, led to high cost of petrol, which made it difficult for marketers to import and sell at N145.
With the high cost of petrol in the international market, the private marketers started to rely on NNPC for supply, a development, which led to huge supply gaps.

NNPC’s efforts to bridge the supply gaps became unsustainable, resulting to a threat issued by the Independent Petroleum Markers Association of Nigeria (IPMAN) to shut down over 900 filling stations in Lagos and Ogun stations by December 11.
IPMAN had promised to carry out the threat if the NNPC continued to undersupply petrol to its members.
IPMAN argued that with undersupply from the NNPC, its members source for products from the Depot and Petroleum Marketers Association (DAPMA), which allegedly buys at N117 per litre from the NNPC and resells to IPMAN members at N141 per litre.

Though IPMAN did not implement the threat, the country was hit by petrol scarcity as the supply gap widened.
Despite NNPC’s claims that the country has enough petrol, only a handful of the 28 active depots in Lagos have regular stock of petrol during this crisis period.
Having failed to bridge the supply gap arising from the inability of the private marketers to import petrol, the federal government and the NNPC have resorted to blame game, accusing the marketers of hoarding petrol in anticipation of official increase in price.

Rather than blame the undersupply and the role of his association for the crisis, the President of PENGASSAN, Mr. Francis Johnson had also reportedly accused the marketers of causing the crisis by hoarding and diverting products in a bid to push for an increase in the price of the commodity.
PENGASSAN had contributed to the fuel crisis as a planned strike by these senior oil workers, also exacerbated the fuel supply situation by fueling panic buying by motorists.

PENGASSAN had on December 7 announced its intention to embark on strike due to what it described as “unfair labour practices” and the “seemingly untameable posture” of some indigenous oil and gas companies, including Neconde Energy and marginal field operators by the relevant agencies of government.
However, the strike was suspended following the intervention of the Director-General of the Department of State Services (DSS), Mr. Lawal Daura; Minister of Labour and Productivity, Mr. Chris Ngige; and Minister of State for Petroleum Resources, Dr. Ibe Kachikwu.
Even the ruling party – All progressives Congress (APC) at the weekend joined the fray, claiming that there was no scarcity of petrol in the country.

According to a statement reportedly released on its Twitter page, some marketers are hoarding products in order to cause artificial scarcity and panic buying.

But the results of the surveillance mounted by the DPR on the depots showed that most of the 28 depots are dry, contrary to the claims by the government that the depot owners are responsible for the crisis.
As part of the efforts to curb the alleged illegal activities of the marketers, the regulatory agency has since unveiled a new set of strict sanctions for marketers that hoard petrol and sell above the official prices.
But no depot has been sanctioned as most of them are dry and cannot be accused of hoarding.

Instead of hoarding as widely alleged, a handful of private depots that have stock of petrol have jerked the ex-depot price and this is where the marketers and the regulatory agency have worsened the crisis.
After buying at exorbitant ex-depot price, the retail outlets are also selling above the N145 pump price.

Regulatory lapses
The inability of DPR to effectively enforce official prices in the few depots and filling stations that have petrol has worsened the crisis with prices hitting the roof tops.
Investigation revealed that some depots were selling petrol at N146 per litre at the depots, against the federal government’s ex-depot price of N133.28.

With this high ex-depot price, filling stations have also since jerked the pump price, while the few that are still selling at the official price, has adjusted their meters to shortchange customers
This is a serious indictment of both the regulatory agency that regulates the price, and the NNPC, which supplies the marketers with product.

THISDAY gathered that marketers actually buy from the NNPC at official ex-depot price but are also made to pay huge bribes to the NNPC officials before they could access NNPC product at official price.
To recoup the bribes paid to NNPC, the marketers resort to selling above the official prices at their depots and retail outlets.

With effective regulations, it is expected that the NNPC and the marketers must sell at official prices even if the product is available in only one depot and one filling station in the country.
Even before the current crisis started, the regulator had concentrated its oversight on the retail outlets in Abuja, Lagos and other major cities, leaving the independent marketers in majority of the states and hinterland to sell petrol above the N145 pump price.

Failed promises on refineries
The country also recorded failed promises in refineries after the government’s repeated promises to revamp the refineries remained unfulfilled promises.
The issue of revamping the refineries to boost Nigeria’s local refining capacity and make the country less dependent on petrol importation has remained a mirage.

Kachikwu had in September 2015, as the then Group Managing Director of NNPC, given a 90-day ultimatum to the Warri Refining and Petrochemicals Company (WRPC), to commence full production at 125,000 barrels per day.
However, exactly 27 months after the expiration of the ultimatum, the poor performance of the country’s refineries in Warri, Port Harcourt and Kaduna have forced the country to depend solely on imported petroleum products.

Passage of reform bill
However, despite the petrol scarcity that marred the end of the year, another gain recorded in 2017 was the passage of one of the petroleum industry reform bills – the Petroleum Industry Governance Bill (PIGB), by the Senate in May 2017, after the failure of the previous administrations to consolidate all the existing legislations in the petroleum sector in the form of Petroleum Industry Bill (PIB) and pass it into one law,
The PIGB, when concurred to by the House of Representatives and assented to by the president, would institute a new governance structure in the management of the nation’s oil industry assets and its manager, the Nigerian National Petroleum Company (NNPC).

The Senate had promised that it would pass the remaining versions of the petroleum reform bills – Petroleum Industry Administration Bill (PIAB); Petroleum Industry Fiscal Bill (PIFB); and Petroleum Host Community Bill (PHCB) within the first quarter of 2018.

Nigeria’s exit from JV cash calls
Nigeria’s successful negotiation of cash call exit policy was another accomplishment in 2017, which has potentially restored the upward trajectory of the country’s oil and gas sector, previously retarded by chronic funding shortages.
With this achievement, the country’s attainment of the 4 million barrels per day production and 40 billion barrels of reserves targets by 2020, subject to the successful resolution of the security challenges in the Niger Delta, is achievable.

Before the country’s exit from the JV funding regime, the federal government, through the NNPC had over the years, demonstrated lack of financial capacity to provide its cash calls to fund joint venture projects.
Poor funding led to declining production in the JV assets, while production from projects under the Production Sharing Contract (PSC) arrangement, which are solely funded by the IOCs, was rising.

The country’s efforts to resolve the funding challenges paid off in 2017 with the successful signing of the cash call exit agreement between the NNPC and the IOCs.
At the end of the negotiation, the IOCs agreed to be paid their accumulated arrears up to December 2015, over the period of about five years.

New policies on oil and gas
During the year under review, the federal government also developed separate policies for oil and gas.
To curb the challenges that hamper the development of the country’s gas resources to boost power generation, the federal government had also developed a National Gas Policy to encourage new investments for gas development.

The Federal Executive Council (FEC) at a meeting presided over by Osinbajo then in his capacity as the Acting President, had on June 28, 2017, approved the National Gas Policy, following a presentation by Kachikwu.
The new gas policy document seeks to pursue the policy goals of the federal government for the gas sector as presented in the Seven Big Wins developed by the Ministry of Petroleum Resources and the National Economic Recovery & Growth Plan (ERGP 2017 – 2020).

The policy, which intends to remove the barriers affecting investment and development of the sector, also sets an implementation plan for the introduction of an appropriate institutional, legal, regulatory and commercial framework for the gas sector.

FEC also approved a new Petroleum Policy during the year under review.
The new policy seeks to restructure the Nigerian Petroleum Investment Management Services Limited (NAPIMS), an arm of NNPC, and strip it of its responsibility of regulating costing of projects.
By this new policy, projects costing will be done by an independent regulator, which will emerge from the restructuring of DPR.
NAPIMS will be a pure asset management agency while cost regulation would reside with the sector regulator.
The National Petroleum Policy awaits gazetting by the federal government.