September 22, 2018

Baru: Another fuel supply war room now


Group Managing Director of the NNPC, Dr Maikanti Baru

By Sonny Atumah

Speculation on the barrel which is the bane of the oil industry has come alive. Oil prices rose Tuesday on news that Saudi Arabia is comfortable with Brent above US$80 per barrel, offsetting the concerns that have been building over the U.S.-China trade war. The Trump administration is escalating the trade war with China, by announcing US$200 billion in tariffs on Chinese goods. The tariffs will start at 10 percent and go into effect next Monday September 24, and rise to 25 percent by January 1. An additional US$267 billion in tariffs on consumer goods are in the works. China would retaliate with tariffs on U.S. oil and gas exports to put a dent in crude oil exports.

Our own Mohammed Barkindo, Secretary General of OPEC has sounded warnings of global oil consumption reaching 100 million barrels per day (bpd) later this year, hitting that level much sooner than previously forecast. With conflicts in some oil producing nations and production cuts from OPEC which may not end in its next meeting in Vienna, there may be supply deficits with more inventory draw down by consumers. The flash points of global petroleum crises have again given signals that should not be ignored. Declining oil production in Iraq, Venezuela, Iran and violence in Libya keep the global oil market suspect.

NNPC Boss, Baru

The United States has sounded the warning on Iran for full economic sanctions to block access to international trade and finance including billions of dollars in oil revenue and assets. Bloomberg reported that Saudi Arabia is not afraid of oil going beyond US$80 per barrel, a bullish sign that suggests that Riyadh might not ramp up production to offset declines from Iran. It is a danger signal for consumers especially petroleum products importers. Many also believe America that is becoming a price giver in crude oil would moderate it. U.S. Secretary of Energy Rick Perry dismissed concerns about a supply crunch, arguing that Saudi Arabia, Russia and the U.S. could add enough supply to the market to compensate for Iran.

Panic buying for fuels would soon commence in Nigeria.   In our dear country, the indices of scarcity manifest as Yuletide approaches. When international oil prices increase we pay more for imported petroleum products and sometimes we are caught off guard with PMS stock running dry. With breakneck speed crises are influenced here. The present administration tried to mitigate the anticipated volatility through the Direct Supply -Direct Purchase policy. Hedge Fund is not here to offset possible losses against price fluctuations. Claims and counter claims on allowances due to the Petroleum Equalisation Fund, PEF and claims to marketers may surface soon. Black marketeers who profiteer would create scarcity to charging high prices for premium motor spirit, PMS (our dear petrol).

The NNPC, under Dr. Maikanti Baru inherited the import regime that had lingered with its challenges.  He has not been able to solve the import regime one year after as the statuses of our refineries are still questionable. The effect is our subsidy or under recovery profile may have risen to unacceptable levels. The Federal Accounts Allocation Committee, FAAC, complained of revenues shortfall and resolution was found politically and they have let sleeping dogs lie. It will take some time yet to solve this problem. It is a national question that answers again may not be found this year because of politicking. In this electioneering cheap shots and political points may be scored from it. One may be sounding alarmist but these are the emergencies that may resurface very soon.

Do we need a war room where operations are planned, coordinated, monitored and controlled? Baru’s NNPC needs a war room now to prevent being caught off guard.  Disbanded in March, it was a Rapid Response Committee to manage fuel supply and distribution that had become a nightmare. NNPC’s strategy to flush volumes and create a product glut situation across the country initially failed in the war room due to alleged sabotage that was not anticipated in the marketing and distribution chain. It took time for the NNPC to find solution to the very problem of fuel scarcity early this year. It was a 24-hour real time loading and monitoring of sales operations in all depots and mega stations in the country were deployed to solve the problem. The NNPC shared information with oil industry regulators and sister agencies with strong security back up. It also worked closely with petroleum tanker drivers and the National Association of Road Transport Owners for seamless movement of petroleum products nationwide.

New tools and technology that can help in crisis management is a priority for the government. Perhaps the government may be thinking in the direction of preventing artificially created scarcity of products as it approved N17 billion to deploy automated fuel system management and censor network to track and monitor imported petroleum products. Some of us thought it was high and  that the DPR that has the structure and not the PEF would have been in charge. It is Nigeria and we must salvage it together.