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Petrol Subsidy: NNPC under pressure as Bonny Light rises by 150% to $65 per barrel

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Buhari okays ownership of OML 123, others restored to NNPC

…As investors, others call for complete deregulation

By Udeme Akpan

THERE are indications that the Federal Government through the Nigerian National Petroleum Corporation, NNPC would be under more pressure to fund Nigeria’s petrol under-recovery or a subsidy as the price of Bonny Light rises to $65 per barrel in May 2021.

This showed an increase of 150 percent when juxtaposed against $26 per barrel recorded in the corresponding period of 2020 when the outbreak of Coronavirus Pandemic, and low demand for crude oil had culminated in low prices.

However, the current high prices of crudes, and by extension petrol is attributed to the re-opening of many economies, the discovery of Coronavirus pandemic vaccines and the efforts of the Organisation of Petroleum Exporting Countries, OPEC to achieve market stability.

The 16th Organisation of Petroleum Exporting Countries, OPEC and non-OPEC Ministerial Meeting of the Declaration of Cooperation (DoC), which took place via teleconference on Tuesday, April 27, 2021, under the Chairmanship of HRH Prince Abdul Aziz bin Salman, Saudi Arabia’s Minister of Energy, and Co-Chair HE Alexander Novak, Deputy Prime Minister of the Russian Federation had raised hope for increased stability.

In a statement obtained by Vanguard, OPEC, had stated: “The Meeting emphasized the ongoing positive contributions of the Declaration of Cooperation in supporting a rebalancing of the global oil market in line with the historic decisions taken at the 10th (Extraordinary) OPEC and non-OPEC Ministerial Meeting (ONOMM) on 12 April 2020 to adjust downwards overall crude oil production, and subsequent decisions.

“The Meeting highlighted the continuing recovery in the global economy, supported by unprecedented levels of monetary and fiscal support, while noting that the recovery is expected to pick up speed in the second half of the year. The Ministerial Meeting emphasized, however, that COVID-19 cases are rising in a number of countries, despite the ongoing vaccination campaigns, and that the resurgence could hamper the economic and oil demand recovery.

“The Meeting reviewed the monthly report prepared by the Joint Ministerial Monitoring Committee (JMMC), including the crude oil production data for March 2021, and welcomed the positive performance of the Participating Countries.

READ ALSO: Petrol subsidy continues in May, says NNPC GMD

Overall conformity to the production adjustments was 115% in March 2021, reinforcing the trend of high conformity by the Participating Countries. The Meeting expressed its appreciation to the Participating Countries that performed beyond expectation in March 2021, with total overconformed volumes of 1.23 mb/d.”

Implication

Commenting on the development, a Port Harcourt-based analyst, Dr. Bala Zaka, said: “With the rise in oil price, it would now cost more to procure and refine crude oil, meaning that the cost would be transferred to Nigeria as the nation currently imports all its petrol from the global market.”

Deregulation

The downstream sector of Nigeria’s petroleum industry was deregulated in March 2020, when the prices of crude were relatively low at less than $35 per barrel, meaning that the cost of refining and price of petrol were relatively cheaper then.

In its April 2020 report obtained by Vanguard, OPEC confirmed that, “Crude oil prices collapsed in March 2020, recording their deepest monthly drop since the global financial crisis in 2008. The ramifications of the COVID-19 pandemic were the main driving force, resulting in unprecedented worldwide oil demand shock and massive sell-offs in the global oil markets, amid a significant crude surplus.”

Smuggling

But the greatest pressure is currently fuelled by the smuggling of the product to neighbouring countries, especially Cameroun, Chad, Niger, and Benin.
The investigation, weekend, showed that increased smuggling of petrol across Nigeria’s borders has put pressure on the NNPC to meet the national daily demand, currently estimated at ‘72.72 million litres’ as the smuggled product goes for between N300 and N500 per litre in these nations.

However, in an interview with Vanguard, weekend, the Chairman, Major Oil Marketers Association of Nigeria, MOMAN, Mr. Adetunji Oyebanji, who is also the Managing Director, 11 Plc, said the huge price differential across the borders, provides an adequate incentive for smugglers.

He said: “The incentive is much. Even if you put the angels at the borders, the differential is too much. The only solution is to bridge the gap and remove the incentive. If not, it will continue.”

Monitoring

Nevertheless, the Department of Petroleum Resources (DPR), said it has sealed many stations nationwide for committing various offences, including under-dispensing and hoarding, but not much has been achieved in the battle against petroleum products diversion.

Participation

Nevertheless, the National President of Petroleum Products Retail Outlets Owners Association of Nigeria (PETROAN), Dr. Billy Gillis-Harry, maintained that, once the deregulation is properly outlined and the rules of engagement brought out, its members, comprising major and independent marketers, as well as depot owners, are ready to commence fuel import. In reality, there is no way any marketer, retail outlet owners, or tanker and depot owners, would invest in a business they cannot be certain that they would make a profit.”

Vanguard News Nigeria

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