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Stakeholders proffer solutions to fuel supply challenges

By on March 18, 2016

Stakeholders, including industry operators, have called on the Federal Government to increase private sector participation in the downstream segment of the nation’s oil and gas industry to tackle the fuel supply challenges facing the country.

They highlighted concerns about the current state of the downstream segment, noting that the nation’s refineries, pipelines and depots had continued to be in a state of disrepair over the years.

The stakeholders stressed the need for the deregulation of the downstream sub-sector, part privatisation of the refineries and concession of the product pipelines.

The President, Lagos Chamber of Commerce and Industry, Dr. Nike Akande, who spoke at the Business Clinic organised by the Petroleum Downstream Group of the Lagos Chamber of Commerce and Industry in Lagos, said the forum aimed to assess activities in the downstream with a view to recommending lasting solutions to the challenges facing the sub-sector.

“Over the years, the nation’s petroleum industry has witnessed several setbacks such as shutdown of domestic refineries, pipeline vandalism and recurring scarcity of products. There have been several discussions about reforms in this sector, yet very little progress has been made. The state of the sector has a significant bearing on the economy because we need energy to power the economy,” she said.

The Chairman and Managing Director, Mobil Oil Nigeria Plc, Mr. Tunji Oyebanji, said the fuel supply challenges being experienced in the country would not go away.

Oyebanji stated this while giving a short-term outlook of the downstream sub-sector at the forum, adding that it would be another tough year for the downstream.

He said they had warned a few months ago that there would be shortage of petrol due to certain decisions that were made.

“Today, we have a situation in which everything is determined by government – how much allocation we can get and how much we can sell.

“Right now, there are almost no cargos out there. There are no cargoes to come. Even if you are going to get them, the premium is going to be high, and who bears the difference?”

Oyebanji said shortage of foreign exchange would continue to impact product imports, and tank farm owners would be challenged.

“We are running an industry that is severely challenged. Fuel prices may start to inch upwards if crude oil prices continue to rise.”

The Mobil MD said the concentration of most of the products in Lagos and Abuja had created a huge arbitrage and rent, adding, “It is going to be another tough year for the downstream.”

“The realisation is starting to dawn on us that one entity is not capable of doing 80 per cent of importation. That realisation seems to have come now. We need to free up this industry, and things like queues will be a thing of the past.”

A former Executive Secretary, Petroleum Products Pricing Regulatory Agency and the Managing Director, Petrowest Energy Resources, Mr. Reginald Stanley, said there was a high level of inefficiency in the downstream segment.

While calling for a reduction in the import volume allotted to the Nigerian National Petroleum Corporation, Stanley said, “Marketers should be allowed to import more due to spread of locations.”

The NNPC had recently increased its direct petrol imports to more than 70 per cent of the country’s needs, leaving the private marketers with less than 30 per cent.

“The NNPC should concession the pipelines as a matter of urgency. Some of the pipelines need to be re-laid,” he said, adding that the government should establish realistic tariffs to make it attractive to new operators.

On the refineries, he said the NNPC should partner investors based on 51/49 NLNG model.

Stanley said the process of the recent review of the petrol pricing template of the Petroleum Products Pricing Regulatory Agency was flawed, claiming that there was no stakeholders’ input.

He said there was a lack of clarity in the deregulation process, adding that operators were under the threat of losing their investments.

“Forex will remain a big issue in the downstream in the short to medium term,” he said, stressing the need for transparent management of the forex to avoid round-tripping.

The Head of Energy Research, Ecobank Capital, Mr. Dolapo Oni, in an emailed response to questions, said, “I think a key challenge is the poor logistics for distribution aside other issues like low level of fuel storage held by the Nigerian National Petroleum Corporation.”

“We need to improve the logistics for distribution and reduce dependence on trucks, using more of railways and pipelines. While for rail, it’s a more straightforward thing. For pipelines, it’s really about creating alternative routes such that if one is vandalised, it can be shut and the feedstock or product being evacuated can be rerouted.”

 

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