Oil & Energy
How Nigeria Averted Another Fuel Scarcity
It was a game of wits between the Federal Government and oil marketers last week. The oil marketers, apparently taking advantage of the coming yuletide, had penultimate Sunday, given the Federal Government a seven-day ultimatum to settle outstanding debts totaling N800 billion, failing which depots would cease operations across the country.
The marketers requested that Forex differential and interest component of government’s indebtedness to them be calculated up to December 2018 and be paid within next seven days from the date of the letter sent to the government.
The oil marketers, comprising major Oil Marketers Association of Nigeria (MOMAN), Depot and Petroleum Products Marketers Association (DAPPMA) and Independent Petroleum Products Importers (IPPIs) said the only way to avert the strike action was for the government to pay them the outstanding debts through cash option instead of the promissory note proposed by the government.
Sources reveal that the decision of the independent marketers to withdraw their services was ignited by the passive response from the Nigeria National Petroleum Corporation (NNPC) to their demands, on the ground that there was enough fuel to last across the country through the season.
Jilted by apparent indifference of the NNPC to their demand, the independent marketers promised to make real their threat by mobilising their rank and file for a show down.
However, in a swift response, the Federal Government through the Debt Management Office (DMO) and the federal Ministry of Finance, engaged the marketers in a negotiation to resolve the niggling issues and avert the impending strike action.
It could be recalled that the marketers had earlier rejected the Government promissory offer of N350billion, stating that the amount was not enough to clear outstanding bills, such as payment of staff salaries. Some of the outstanding payments due the marketers are also said to accrue from past administrations, making the issue more complicating, as the present administration seems to be reluctant to clear the outstanding debts.
However, as a matter of urgent intervention, the senate at its last plenary urged the Federal Government to pay outstanding fuel subsidy arrears to the oil marketers within the next two weeks. Chairman, senate committee on Down Stream, Kabiru Marafa, who moved the motion said,” the need became imperative to avert looming crisis in fuel supply due to non payment of accrued subsidy arrears to oil marketers”.
The senate also noted that the accumulated debt has forced some marketers out of business, while most of them are being subjected to “marinal injunctions”.
The senate later made some far reaching decisions to bring a lasting solution to the matter. Some of the resolutions which bordered on public interest includes that marketers should as a matter of public interest rescind their decision on the ultimatum to allow the Federal Government more time to look into their demands, engage the debt management office to determine an appropriate financial instrument for the payment of the debt”.
The higher chamber of the National Assembly, also urged the Federal Government to, “engage marketers and agree on outstanding liabilities to put an end to these subsidy claims, and direct all concerned agencies to immediately pay subsidy arrears as approved by the Federal Executive, Council (FEC) and passed by the National Assembly”.
Meanwhile, Special Assistant on Media and Communication to the Minister of Finance, Mr Paul Abechi, had in a press statement, disclosed that the Federal Government and the marketers have come to agreement, and the marketers have assured the public of product availability, while operations at all depots and sales would continue.
Abechi added that the government was reviewing the initial mode of settlement agreed upon by both parties.
He said, “After the meeting with senior government officials from the Federal Ministry of Finance, the Debt management Office, (DMO), Nigeria National Petroleum Corporation, (NNPC), Central Bank of Nigeria (CBN) Budget Office of the Federation, Accountant General of the Federation, and the Petroleum Products Pricing Regulatory Agency (PPRA), we are satisfied with the arrangement being made by the government to settle the clams of the petroleum marketers”.
However, as the meeting between the Federal Government and the Independent Petroleum Marketers continues today, pundits are of the view that strident measures should be taken to address critical issues in the Nigeria oil and gas sector.
Elder statesman and former Minister of Petroleum, Prof Tam David West, sees fuel subsidy as a monumental fraud which the Buhari administration must do away with to bring some sanity in the system.
David West who disclosed this in an interview with The Guardian newspapers, described a statement credited to Minister of state for petroleum that, “all refineries will work next year”, as scandalous, and unrealistic.
He said there was deliberate sabotage to make the refineries dysfunctional noting that during his time as petroleum minister, all three refineries in the country were working.
“Nigeria has no business importing fuel, and Nigerians need not pay as much as N145 per litre of fuel. Federal Government should make the refineries work, the amount spent on subsidy can build 10 refineries”.
On his part, the chairman, Port Harcourt Refinery Depot of the Independent Petroleum Marketers Association of Nigeria, (IPMAN), Comrade Emmanuel Imimgba, said the association was ready to live up to its statutory obligations and ensure products availability provided the Federal Government lived up to their own bargain. He also called for the refurbishing of the refineries to make products available.
Some Port Harcourt residents and motorists who commented on the issue appealed to the Federal Government and the independent marketers to resolve all contentious issues at stake to save the people from excruciating pains especially during this period of lean economic fortunes.
A commercial motorist, Mr Kenneth Ibe, who plies Port Harcourt –Aba Road, said government should, as a matter of urgency, intervene to avoid any strike action that will worsen the situation.
“We, commercial drivers are ready to perform our duties, but we can only work well when there is enough fuel in the system. Any fuel scarcity will affect our business and also affect the people that are travelling, government should do something about it”.
The days ahead will however, determine the sincerity of government on the matter.
The Federal Government has expressed optimism in attracting more investments by International Oil Companies (IOCs) into Nigeria to foster growth and sustainability in the energy sector.
This is as some IOCs, particularly Shell and TotalEnergies, had announced plans to divest some of their assets from the country.
Recall that Shell in January, 2024 had said it would sell the Shell Petroleum Development Company of Nigeria Limited (SPDC) to Renaissance.
According to the Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, increasing investments by IOCs as well as boosting crude production to enhancing Nigeria’s position as a leading player in the global energy market, are the key objectives of the Government.
Lokpobiri emphasized the Ministry’s willingness to collaborate with State Governments, particularly Bayelsa State, in advancing energy sector transformation efforts.
The Minister, who stressed the importance of cooperation in achieving shared goals said, “we are open to partnerships with Bayelsa State Government for mutual progress”.
In response to Governor Douye Diri’s appeal for Ministry intervention in restoring the Atala Oil Field belonging to Bayelsa State, the Minister assured prompt attention to the matter.
He said, “We will look into the issue promptly and ensure fairness and equity in addressing state concerns”.
Lokpobiri explained that the Bayelsa State Governor, Douyi Diri’s visit reaffirmed the commitment of both the Federal and State Government’s readiness to work together towards a sustainable, inclusive, and prosperous energy future for Nigeria.
While speaking, Governor Diri commended the Minister for his remarkable performance in revitalisng the nation’s energy sector.
The Federal Government has assured investors in the nation’s gas sector of the security and safety of their investments.
Minister of State for Petroleum Resources (Gas), Ekperikpe Ekpo, gave the assurance while hosting top officials of Shanghai Huayi Energy Chemical Company Group of China (HUAYI) and China Road and Bridge Corporation, who are strategic investors in Brass Methanol and Gas Hub Project in Bayelsa State.
The Minister in a statement stressed that Nigeria was open for investments and investors, insisting that present and prospective foreign investors have no need to entertain fear on the safety of their investment.
Describing the Brass project as one critical project of the President Bola Tinubu-led administration, Ekpo said.
“The Federal Government is committed to developing Nigeria’s gas reserves through projects such as the Brass Methanol project, which presents an opportunity for the diversification of Nigeria’s economy.
“It is for this and other reasons that the project has been accorded the significant concessions (or support) that it enjoys from the government.
“Let me, therefore, assure you of the strong commitment of our government to the security and safety of yours and other investments as we have continually done for similar Chinese investments in Nigeria through the years”, he added.
Ekpo further tasked investors and contractors working on the project to double their efforts, saying, “I want to see this project running for the good of Nigeria and its investors”.
Earlier in his speech, Leader of the Chinese delegation, Mr Zheng Bi Jun, said the visit to the country was to carry out feasibility studies for investments in methanol projects.
On his part, the Managing Director of Brass Fertiliser and Petrochemical Ltd, Mr Ben Okoye, expressed optimism in partnering with genuine investors on the project.
Crude oil prices recently logged their second monthly gain in a row as OPEC+ extended their supply curb deal until the end of Q2 2024.
The gains have been considerable, with WTI adding about $7 per barrel over the month of February.
Yet a lot of analysts remain bearish about the commodity’s prospects. In fact, they believe that there is enough oil supply globally to keep Brent around $81 this year and WTI at some $76.50, according to a Reuters poll.
Yet, like last year in U.S. shale showed, there is always the possibility of a major surprise.
According to the respondents in that poll, what’s keeping prices tame is, first, the fact that the Red Sea crisis has not yet affected oil shipments in the region, thanks to alternative routes.
The second reason cited by the analysts is OPEC+ spare capacity, which has increased, thanks to the cuts.
“Spare capacity has reached a multi-year high, which will keep overall market sentiment under pressure over the coming months”, senior analyst, Florian Grunberger, told Reuters.
The perception of ample spare capacity is definitely one factor keeping traders and analysts bearish as they assume this capacity would be put into operation as soon as the market needs it. This may well be an incorrect assumption.
Saudi Arabia and OPEC have given multiple signs that they would only release more production if prices are to their liking, and if cuts are getting extended, then current prices are not to OPEC’s liking yet.
There is more, too. The Saudis, which are cutting the most and have the greatest spare capacity at around 3 million barrels daily right now, are acutely aware that the moment they release additional supply, prices will plunge.
Therefore, the chance of Saudi cuts being reversed anytime soon is pretty slim.
Then there is the U.S. oil production factor. Last year, analysts expected modest output additions from the shale patch because the rig count remained consistently lower than what it was during the strongest shale boom years.
That assumption proved wrong as drillers made substantial gains in well productivity that pushed total production to yet another record.
Perhaps a bit oddly, analysts are once again making a bold assumption for this year: that the productivity gains will continue at the same rate this year as well.
The Energy Information Administration disagrees. In its latest Short-Term Energy Outlook, the authority estimated that U.S. oil output had reached a record high of 13.3 million barrels daily that in January fell to 12.6 million bpd due to harsh winter weather.
For the rest of the year, however, the EIA has forecast a production level remaining around the December record, which will only be broken in February 2025.
Oil demand, meanwhile, will be growing. Wood Mackenzie recently predicted 2024 demand growth at 1.9 million barrels daily.
OPEC sees this year’s demand growth at 2.25 million barrels daily. The IEA is, as usual, the most modest in its expectations, seeing 2024 demand for oil grow by 1.2 million bpd.
With OPEC+ keeping a lid on production and U.S. production remaining largely flat on 2023, if the EIA is correct, a tightening of the supply situation is only a matter of time. Indeed, some are predicting that already.
Natural resource-focused investors Goehring and Rozencwajg recently released their latest market outlook, in which they warned that the oil market may already be in a structural deficit, to manifest later this year.
They also noted a change in the methodology that the EIA uses to estimate oil production, which may well have led to a serious overestimation of production growth.
The discrepancy between actual and reported production, Goehring and Rozencwajg said, could be so significant that the EIA may be estimating growth where there’s a production decline.
So, on the one hand, some pretty important assumptions are being made about demand, namely, that it will grow more slowly this year than it did last year.
This assumption is based on another one, by the way, and this is the assumption that EV sales will rise as strongly as they did last year, when they failed to make a dent in oil demand growth, and kill some oil demand.
On the other hand, there is the assumption that U.S. drillers will keep drilling like they did last year. What would motivate such a development is unclear, besides the expectation that Europe will take in even more U.S. crude this year than it already is.
This is a much safer assumption than the one about demand, by the way. And yet, there are indications from the U.S. oil industry that there will be no pumping at will this year. There will be more production discipline.
Predicting oil prices accurately, even over the shortest of periods, is as safe as flipping a coin. With the number of variables at play at any moment, accurate predictions are usually little more than a fluke, especially when perceptions play such an outsized role in price movements.
One thing is for sure, though. There may be surprises this year in oil.
lrina Slav
Slav writes for Oilprice.com.
