Vanguard News Nigeria

The lure of crude oil versus value addition

By Sonny Atumah

William Shakespeare, the all-time great English playwright and poet used the idealization of comedy to portray our world. A servant would dream of having greatness thrust upon him without imbibing the enterprise culture. In Illyria the plot set in the Twelfth Night would continue to play out in Nigeria.

Shakespearean character Malvolio, a servant must have been in a hallucinative mood thinking about greatness thrust upon him if he becomes the lover of Olivia, his boss. It is ones wish that Nigeria would harness her abundant natural and human resources to become a wealthy nation. And we must work extremely hard to add value and create the desired wealth since wishes are not horses.

File: Oil pipeline

Economists say the value of an object in the marketplace is determined by desirability and scarcity. Petroleum is both desirable and scarce. It commands power in the exchange ratio, and exchanges for item of equal or greater worth.

We have been ignorant or perhaps negligent about value creation. How do we create wealth in Nigeria using petroleum?  The value we add in our crude processing for various by products is the wealth derived thereof. We have comparative and competitive advantages as petroleum still represents the major part of the global energy matrix.  Petroleum has a strategic role it plays for the less than 50 countries that are privileged to possess it.

Value addition in petroleum could be the value created in by-products in the course of processing exclusive of the cost of crude, packaging or overhead. With value addition the total money revenue, or price, for which a by-product will sell sometimes quadruples. And that is how we create wealth. Refining makes an integral part of the oil and gas value chain that delivers products to consumers. Refineries produce value added products from crude oil.

Investing in downstream petroleum products can create an industrial base that adds value to our petroleum output as part of Nigeria’s strategy to diversify the economy and drive growth. A portfolio of refined petroleum, petrochemical, chemical and fertiliser products all numbering about 6000 can form a substantial part of our economic base. And that would make us a wealthy and great nation.

It is the reason why these countries without oil: France, Germany, Italy, Japan, Netherlands, South Korea, Spain and Turkey referred to as non-producing consumer nations invest massively in refineries. A non-producing consumer nation has 10 percent or less oil production of what they consume.

Nigeria’s refined petroleum products are imported mostly from these countries. We have chosen to be at the lower rungs of the ladder by exporting cheap crude. We gather like investors that their stocks are mature every month in Abuja to collect our shares.

We sell crude and import refined products. The recent crisis in the May-June sharing of the proceeds of crude oil was a shortfall in proceeds from the NNPC. After meeting cash call obligations on Joint Ventures (JV) with IOCs, deductions for Premium Motor Spirit, PMS-cost under recovery and pipeline maintenance, it became clear that we are not creating wealth. Governors and stakeholders in the Federation Account Allocation Committee, FAAC expected higher revenues but they were used to service subsidies to keep the prices of imported PMS within the government modulated price band. It caused delays in the payment of salaries in states and local governments. Until recently our own local contribution to crude oil production for export was less than six percent. Like the ostrich we pretend that we are creating wealth from crude oil that is controlled by the buyers.

Value additions in the industry are strategic for energy, technology and skills. The intending trade war between the United States and China is making economic headlines because oil and gas have been touted to be tools of the fight. When the issue of oil embargo was introduced in North Korea’s nuclear acquisition she offered for talks on its abandonment. The crises in the Middle East including Iran, Venezuela, and elsewhere are orchestrated with petroleum. The benefits of local refining are that we have many products, diversify the economy along vertical linkages, create wealth, induce savings and investments, create employment, increased GDP and increase revenue. Since 1993 when our refineries showed signs of distress every successive administration had thought of rehabilitating our four refineries in Port Harcourt, Warri and Kaduna. But the lure or tempting quality of crude oil sales was enough to look the other way.

Petroleum is there for us to own to solve Nigeria’s problems. President Muhammadu Buhari’s administration severally promised rehabilitating the refineries for local refining of petroleum products. The GMD of NNPC, Dr. Maikanti Baru made irrevocable commitment to the nation as the fuel crisis subsided in January 2018. Baru said the final selection of financiers to secure funding to start the rehabilitation of the refineries towards 90 per cent capacity utilization per stream day before the end of 2019 was before NNPC’s board for approval. Has the quarter of a century Nigerian refineries rehabilitation riddle been abandoned again? Mr. President, Speak!

Latest News

Top Stories

Trending