Petroleum Marketers Demand Petrol Supply Diversity As Landing Cost Rise Above N1,000 A Liter
Experts in the downstream petroleum industry have raised concerns about possible supply and pricing challenges soon except effective policy management is applied in the supply chain.
A media engagement hosted by the Major Energy Marketers Association of Nigeria, MEMAN, revealed that the landing costs of petroleum Premium Motor Spirit(petrol) as of July 16, 2024, is N1,117 per litre.
It was also revealed that the landing costs of AGO (Diesel) is N1,157 for a 20KT vessel and ATK at N1,217 for a 15KT vessel landing in Apapa, Lagos.
The MEMAN’s Quarterly Press Webinar and engagement with energy correspondents on Wednesday, offered speakers at the session to highlight the ongoing financial strain on Nigeria due to the subsidies.
They argued that promoting supply diversity enhances competition in the petroleum industry, which is supported by effectively implementing the Petroleum Industry Act (PIA) 2021 to streamline operations and reduce costs in refining or importing petroleum products.
Mr. Bello Rabiu, Independent Consultant and Former Chief Operating Officer, Upstream of the NNPCL , in his presentation on the theme: Immersion of Dangote Refinery in the PMS Supply Chain(Call for Competitive, Efficient and Sustainably Liberalised Downstream and Petroleum Sector in Nigeria),’ disclosed that a total of 1.3 billion litres of NNPC PMS were imported into the country through a Direct Sale-Direct Purchase (DSDP) arrangement.
He stated that it is not competitive for the NNPCL to be the sole marketer, controlling supply and fixing prices, effectively running a monopoly within the Nigerian downstream sector.
Rabiu said that the NNPCL’s monopolistic control contradicts the Petroleum Industry Act (PIA) 2021, which aims for a competitive environment with multiple suppliers.
According to him, lack of transparency in the pricing and importation process has led to significant revenue leakages and potential hidden subsidies.
He added that the market lacks a clear, competitive framework, resulting in inefficiencies and high costs
Rabiu emphasized that since PMS is the only regulated product, adding that the regulation is essential due to its significant role in the downstream sector.
He highlighted the current administration’s key agendas, which include ensuring the security of petroleum products, ending subsidies, promoting inclusive growth, and eliminating leakages.
According to him, “To achieve an efficient oil and gas sector across upstream, midstream, and downstream systems, the market must be liberalized, with all refineries and pipeline works operational.
Rabiu said, ‘Regulation does not mean the removal of subsidy alone. It must extend to ensuring that there is a profitable investment for everyone supplying in the downstream sector. It is not competitive that only one marketer controls supply, pricing, and other aspects.
He stated that The NNPCL is running a monopoly as the only supplier, a dominant player in the sector.
” Questions remain regarding regulatory oversight, crude supply, pricing models, and the role of NNPCL in a market with new local suppliers,” he said.
Rabiu lamented that the country is still bleeding because the exact amount paid as a subsidy remains unknown.
He said, ‘We are yet to see the subsidy that is supposedly gone,’ he noted. He also pointed out that marketers are not importing due to access to forex, and everyone is dependent on NNPC and PPMC. He called for transparency in the cost of importing and determining the price of products.
Additionally, Rabiu argued that refining petroleum products domestically for consumption is better than importing refined products.
He explained that because NNPCL continues to be the major importer, it is challenging for any refinery to scale up due to higher production costs compared to imported products.
Former Chief Operating Officer, Upstream of the NNPC emphasised that the Nigerian Government spends N1.5 trillion Naira monthly on petroleum product importation into Nigeria.
Rabiu has therefore suggested the reintroduction of a pricing template to encourage market efficiency and competitive behaviour.
He also called for regulatory intervention in the short term to ensure the smooth entry of new players and protect consumers .
According to him,the long-term goals include transparent market practices, anti-competitive safeguards, and promotion of alternative energy sources
Dr. Abiodun Adedipe, Chief Consultant of B. Adedipe and Associate Limited, while speaking on issues in local supply and refined petroleum products, said that the sole importation of petroleum products by NNPC has created more crises for the downstream sector.
He added that this monopoly is the reason why things are not working, and the price hike at the fuel pump is due to the inefficiencies of NNPCL in the downstream market.
According to him, to address these issues, the government should allow a level playing field for everyone. He stated that, at the moment, modular refineries and other big refineries cannot operate effectively due to NNPC’s monopoly.
He identified the current challenges in local supply to include persistent oil theft and related challenges have led to a decrease in production, causing divestment and discouraging new investments in the oil sector.
Adedipe noted that the importation of fuel and lubricants has increased significantly, contributing to market distortions and pressure on the Naira in the FX market.
He said, “ The cost of importing fuel and lubricants has increased dramatically, highlighting the need for a more efficient and cost-effective local supply chain.
Speaking further he said Nigeria has the installed refining capacity to meet local demand and even export products.
“However, the local refineries are not operating at full capacity due to insufficient feedstock and other operational challenges.
“Meanwhile, increasing local refining capacity is crucial to reduce dependence on imports and stabilize prices.
Adedipe has therefore called on all stakeholders, including oil producers, refiners, marketers, transporters, consumers, media, NGOs, and development partners, to collaborate to ensure a stable and efficient supply chain.
According to him, the stakeholders must also ensure transparency and competition in the market is essential to avoid monopolistic practices and promote fair pricing.
To address the crisis he said,” aggressively pursuing energy diversification is critical for long-term stability and sustainability.
“Strong regulatory oversight is needed to ensure transparency, competition, and accountability among all stakeholders.
“Focus on refining sufficient products locally to reverse the trend of importing fuel and lubricants, thereby reducing costs and market distortions,” Adedipe said.
Key recommendations from the engagement include engaging stakeholders to ensure cost recovery for refiners and PMS importers, resisting anti-competitive practices, and enforcing fair competition through NMDPRA and FCCPC. It was also suggested that transparency in the downstream value chain and managing price volatility through monthly guided prices are crucial while repositioning and adequately funding NNPCL Pipelines and Storage under a PPP arrangement, encouraging alternative energy sources like LPG, CNG, LNG, and EVs, and recognizing the impact of the Dangote Refinery in the deregulation process are also essential.
In addition participants talked about increasing local refining and addressing the challenge of insufficient locally sourced feedstock for domestic refineries will further support these efforts.
Experts further recommended recognizing the interconnected roles of various industry stakeholders, including oil producers, refiners, marketers, transporters, consumers, media, NGOs, and development partners.
They advocated for periodic, all- inclusive industry stakeholder meetings to keep the industry informed on various issues.
They added, “Promoting sustainability, transparency, compliance, and fair practices, as well as encouraging the private sector to develop and share benchmarks for the landed costs of major crude oil products and other relevant market parameters, are also essential. Additionally, supporting the expansion of the industry with local refineries and fostering collaboration for growth is crucial for the sustainability and economic growth of the energy industry.”
