Fuel scarcity: Nigeria can borrow a leaf from Saudi Arabia
Nigerians are currently experiencing untold hardship as the nation groans under the effects of fuel scarcity. The worsening scarcity has shot up the pump price of fuel to N300 per litre and N500 – N700 at black markets in some parts of the country as against the original pump price of N87.
Meanwhile, the Federal Government and petroleum marketers have continued to trade blames over alleged unpaid subsidy of N159 billion, which is the cause of the current scarcity. But Nigeria should have averted this situation long before now. Perhaps this is a wake-up call for the incoming administration of Buhari.
According Tam David-West, Nigeria’s former petroleum minister, “Buhari has promised to build four refineries and repair the old ones that are reparable. We can build a refinery in a year. With that, there will be no more fuel importation and price will come down.”
The outgoing administration promised that Nigeria’s refining capacity would receive significant boost through the execution of comprehensive turnaround maintenance (TAM) that would increase refining capacity from 445,000 barrels per day (bpd) to about one million barrels per day (1mbpd). The promise turned out to be a hoax.
It is really unfortunate that Nigeria, said to be Africa’s leading crude oil exporter and a regional leader in installed crude oil refining capacity, sadly, remains the continent’s largest per capita importer of refined petroleum products. Nigeria has to import nearly 80 percent of its requirement of refined petroleum products.
The failure of these government-owned and operated refineries costs Nigerian citizens colossal sums of money in foreign exchange and government revenue, to the detriment of education, healthcare and other badly needed public services.
The future is products
More crude oil producing countries are shifting their focus to refining instead of just exporting crude. While crude oil producers who lack a developed refinery sector effectively leave this money on the table for refiners, Aramco and others in the Gulf can now cash in.
Other Organisation of the Petroleum Exporting Countries members, including fellow Gulf states Kuwait and the United Arab Emirates, have also boosted refining and added trading arms. But their refineries worldwide, hovering near 1 million bpd each, are only a fraction of what Aramco has built in just a few years.
The Saudi model
Saudi Arabia now has stakes in more than 5 million barrels per day (bpd) of refining capacity, at home and abroad, landing it a place among the global leaders in making oil products. Its target is now 8-10 million bpd of refining firepower.
Its oil trading arm, Aramco Trading, could soon find at least two thirds of its trading focused on products such as diesel, gasoline and heating oil rather than crude.
As OPEC members fight for market share, Aramco’s refineries also give it a natural outlet for its 10 million bpd of crude production.
In contrast with the crude market which is shrinking, the product market is becoming more global.
The crude oil price rout this year catapulted refining to the fore; trading and refining last year soared to 60 percent of integrated oil companies’ first quarter earnings, compared with 18 percent last year.
The Saudis have a much wider market there because they are competing globally. They diversify vertically by capturing different parts of the value chain and it becomes a hedge and it gives them a lot more market access.
Aramco has added more than 1 million bpd in capacity through a controlling stake in Korea’s S-Oil as well as its two heavy hitting refineries at home, Yanbu and Yasref, both with 400,000 bpd in throughput. Jizan, due on in the Kingdom in 2018, would add a further 400,000 bpd.
The growth puts Aramco’s owned or equity stakes refining at 5.4 million bpd, at least 40 percent above a decade ago. Aramco itself markets more than 3 million bpd of that, tying it with Shell as the world’s fourth largest oil refiner.
The shift could also enable it to funnel more crude into its own plants, meaning the nine-year high of 7.89 million bpd it exported in March could be the high water mark. Already, it has turned down requests from China for extra crude.
FRANK UZUEGBUNAM