Nigeria, Ghana, Gabon have lowest fuel pump price in West Africa

Nigeria, Ghana and Gabon have the lowest fuel pump price in West African sub region. According to latest data on global petrol prices, Nigeria has the lowest pump price of fuel in the sub-region at $0.43 per litre followed by Ghana and Gabon with $0.79 and $0.84 per litre respectively as at September 28, 2015.

Outside of the West African sub-region, the lowest pump price of fuel is obtained in Libya at $0.14 per litre followed by Algeria with $0.22 per litre.  Nigeria is the third African country with the lowest pump price of fuel followed by Nambia, Sudan, Chad and Egypt with pump prices of $0.74, $0.76, $0.77 and $0.78 per litre respectively.

Within the West African sub-region, the highest pump price of fuel is obtained in Senegal, Mali, Bukina Faso, Cote d’Ivoire, Republic of Benin, Sierra Leone and Liberia with the pump prices of $1.31, $1.23, $1.20, $1.12, $0.96, $0.91 and $0.86 respectively. While in Africa, Djibouti, Zimbabwe and Malawi have the highest fuel pump price at $1.72, $1.56 respectively.

African governments are reviewing their energy subsidy schemes. Removing fuel subsidies is a cheerless job for any government especially in sub-Saharan Africa. But energy subsidies are often regressive overall, with over 80 percent of the total benefits accruing to the richest 40 percent of households, according to a global analysis made by the IMF. “Fuel subsidies are a costly approach to protecting the poor due to substantial benefit leakage to higher income groups,” argue the IMF in a report. “In absolute terms, the top income quintile captures six times more in subsidies than the bottom”.

Nigeria’s fuel subsidy unsustainable

Nigeria is Africa’s largest oil producer, with 37.4 billion barrels of crude in its reserves. Crude accounts for more than 90 percent of Nigeria’s export earnings and about 80 percent of federal government revenue.

Emmanuel Kachikwu, head of Nigeria’s state oil company on assumption of office said the country’s fuel subsidy was an unsustainable drain on the economy, calling for deregulation of the oil and gas sector.

“Subsidy creates distortions in government revenue distribution,” Nigerian National Petroleum Corporation (NNPC) managing director Emmanuel Kachikwu said. Nigeria spent more than five trillion naira ($25 billion) on fuel subsidies between 2006 and 2012.

“Subsidy accounted for 20 percent of the federal government budget in 2013,” said Kachikwu.

Nigeria produces some two million barrels of crude a day but despite its huge reserves, the country imports much of its fuel due to a lack of refining capability, a situation blamed on corruption and mismanagement.

To make fuel affordable, Nigeria has frozen the price of a litre of petrol at 87 naira ($0.43), lower than the market rate. Fuel importers expect subsidy payments from the government to make up the difference.

When the government does not pay, fuel runs scarce, frequently causing gridlock and panic, and the subsidy programme has been found to be rife with corruption, including false claims and overpayments.

Ghana scraps subsidy this month

Ghana’s government will scrap its remaining fuel subsidies this month in a bid to reduce expenditure while ensuring stable supply to drive economic growth, Petroleum Minister Emmanuel Buah said.

The government has set aside $12.5 million for subsidies in 2015 down from $150 million last year and took the decision in line with the terms of a three-year International Monetary Fund aid programme aimed at restoring fiscal stability.

Ghana exports gold, cocoa and oil and until 2013 its economy was one of the fastest growing in Africa, but it has slowed sharply due to a fall in commodity prices and a fiscal crisis seen in a high debt-to-GDP ratio and a weakening currency.

The country also faces a severe electricity shortage with frequent power cuts that have hurt the economy and angered voters. The government will safeguard against abuse or rapid price rises on bus fares caused by the decision, Buah said.

“The objective is to fully decontrol fuel pricing,” Buah said. “It also means that the perennial burden of subsidy arrears on the government’s budget will come to an end.”

Ghana subsidizes fuel under a partially regulated downstream sector run by the National Petroleum Authority but the government will allow oil distributors to fix pump prices in a process to be implemented between July and September.

The government started reducing fuel subsidies last July after previous attempts to scrap them failed.

Low oil prices dent Gabon fiscal stability

Gabon revised its 2015 budget in February and cut spending on goods, services and fuel subsidies following a sharp drop in oil prices.

In March 2007, Gabon raised gasoline and diesel prices by 26 percent. A cash payment scheme to the poor was resumed, and assistance to single mothers was increased, as was a microcredit program targeting disadvantaged women in rural areas. School enrolment fees were waived for public schools and investment in rural health, electricity and water supply was accelerated. However, current low oil prices threaten all that.

Oil accounts for nearly half of the Central African country’s GDP and the price drop has severely pinched earnings. Even before the price drop, earnings were under pressure as crude production has fallen by around half from a peak level of 400,000 barrels per day in the 1990s.

“To balance the books, they (Gabon authorities) intend to reduce current spending, especially on goods and services as well as on (fuel) subsidies,” the IMF said. The IMF forecast a growth slowdown to 4.5 percent in 2015 from an estimated 5.1 percent in 2014, “but with considerable downside risks”.

Growth could rebound in the 2015-2020 period to an average of 5.7 percent as the economy begins to benefit from government efforts to promote non-oil growth in sectors such as mining and wood processing, the note said.

While Gabon grapples with falling oil prices and declining production, the popularity of its crude has grown over the last few years and it boasts a broad global reach. Gabonese crude was largely restricted to the US and Europe until a decade ago, but it is now increasingly shipped globally, to, among others, Trinidad & Tobago, France, Malaysia and even Australia.

The majority of Gabon’s crude output is low sulfur, but it also produces a decent yield of both middle distillates and fuel oil, giving it a wider customer base.

The fifth-largest oil producer in sub-Saharan Africa, Gabon has been hit hard by falling oil prices, with oil accounting for about half of government revenues and 80 percent of national exports.

These low oil prices have also coincided with a decline in Gabonese production, which fallen in the past two years due to maturing fields and turbulent industrial relations.

Oil production this year has averaged 210,000-230,000 b/d and is expected to stay below last year’s 236,000 b/d, according to Platts estimates.

Production reached a peak of 365,000 b/d in 1996 but has since steadily declined, according to BP’s Statistical Review of World Energy 2015. It was down by almost 14 percent between 2003 and 2014, mainly due to the maturing fields and to the lack of any new oil projects over the past decade.

Apart from the technical allure of Gabonese crude, it is also cheap, regularly trading at a steep discount to Dated Brent. This compares with light sweet Nigerian crude, which trades at a significant premium.

Heavy and medium sweet crudes have been in strong demand from global refineries in the past few years, especially from complex refiners as they can refine heavier crudes which are cheaper and still produce a good amount of middle distillates giving them with better margins.

Gabon exports six main crude grades. The two medium sweet flagships are Rabi Blend and Rabi Light and make almost half of the country’s exports. Other export grades include Oguendjo, Lucina, Etame and Mandji, also medium-to-heavy sweet grades that attract a broad set of buyers. Some of Gabon’s biggest customers now include Trinidad and Tobago, Malaysia, Singapore, Japan, South Korea, Spain and France, with demand from these countries increasing steadily over the past few years.

Gabon has also become the sixth-largest supplier of oil to Australia which imported 31,249 b/d of Gabonese crude in the fiscal year ending June 30, according to recent data from the Australian Bureau of Statistics. This accounts for almost 15% of total Gabon crude exports, according to Platts estimates.

Malaysia has also emerged as a significant buyer of Gabonese crude. It imported 89,254 b/d of crude from Gabon between January and May, up 89 percent from a year earlier, Malaysian Department of Statistics data shows. Australia and Malaysia produce mainly light sweet crude and their imports are medium-to-heavy sweet crudes, Gabon’s principal grades.

Japan and South Korea have also increased imports from Gabon, and elsewhere in West Africa, and as they seek to diversify sourcing away from the Middle East to take advantage of low prices and government incentives to boost non-Middle Eastern imports.

In 2013, South Korea only imported 1.31 million barrels (3,589 b/d) of crude from Gabon, according to Korean government data. But in 2014, imports surged to 5.83 million barrels (15,973 b/d). In the seven months ending August 31, South Korea bought 4.22 million barrels (20,000 b/d) of crude from Gabon.

Regular demand from Spain, Singapore and France means the monthly Gabonese crude export program tends to sell faster than those in Nigeria, Equatorial Guinea and Angola.

The US used to be Gabon’s main export destination before the shale boom hit demand. The US started importing Gabonese crude only in the early-1990s. But by 1995, it imported 229,000 b/d of Gabonese crude, according to US Energy Information Administration data, almost 63% of total Gabonese output at the time. From 2000 to 2005, US imports of Gabonese crude averaged around 138,000 b/d. But last year the US only imported 16,000 b/d, its lowest-ever volume.

Unlike Nigeria, Gabon has found it somewhat easier to find new buyers for its crude in the past decade because of its specifications.

FRANK UZUEGBUNAM