Why end to fuel scarcity is not in sight

Fuel ScarcitySINCE the past couple of weeks, the recurrent fuel scarcity that defines the Nigerian economy has resurfaced across the country.  Most petrol stations stopped selling fuel, claiming scarcity of the product from importers. The usual blame game is flying around. While some blame the government/subsidy regime as being responsible for the scarcity, others blame the cartel of importers of petrol. Removing or retaining petrol subsidy won’t remove the suffering over fuel.

For me, the blame game holds no water. The reason why an end to the fuel scarcity is not in sight is that Nigeria is not producing petrol that can service domestic need. Virtually everything is imported. The only three refineries in the country are obsolete and out-dated. The only solution to the fuel scarcity syndrome is to build modern refineries to produce fuel locally and stop importation.

NNPC’s claim that there is enough fuel which is being hoarded is mere face-saving. If at all there is fuel, it is imported and not produced in Nigeria. Around the world, how do businessmen deal with a scarce commodity in any economy? Fuel is a scarce commodity in Nigeria and those that can bring it have the upper hand.

As usual, especially as Christmas and New Year are around the corner, desperate motorists and citizens who need fuel for their cars and generators are besieging the few filling stations selling the product. Greedy marketers have capitalized on the situation to hike prices. A litre of petrol that officially goes for N87 is being sold for as high as N250 in parts of the country. Black marketers are reaping profit.

Unfortunately, Nigerians are used to queuing up to buy petrol under very chaotic situation.  Some of the previous scarcities occurred during high price regime or as a result of industrial action by different oil-sector industrial unions. At other times, policy changes like deregulation induced scarcity. The question is why fuel scarcity recurs in Nigeria even when there is oil glut in the world market? What could be done to stop the recurrent problem?

The cause of the fuel scarcity is systemic dysfunction arising from years of mismanagement of the oil sector. The Buhari administration has inherited it and is trying to redress it. The absence of functional refineries to satisfy local demand of petrol is the primary cause of fuel scarcity in the country. Not until there are functional refineries that would put a stop to fuel importation, fuel scarcity will continue to occur, irrespective of who is in power.

Before now, Nigeria had four refineries owned by the Nigerian National Petroleum Corporation (NNPC), located in Port Harcourt, Warri and Kaduna but there are now three. The two refineries in Port Harcourt built in 1965 and 1989 were merged into one in 1993, with a total refining capacity of 10.500 million metric tonnes per year. The Warri refinery was built in 1978 with a refining capacity of 5.5 million mt/yr.

The Kaduna refinery was built in 1980 with a refining capacity of 5.5 million mt/yr. The three refineries have a combined refining capacity of 445,000 barrels per day (b/d), which amounts to 70.75 million liters of petrol. The daily demand of petrol in Nigeria is about 40.32 million litres, meaning we ought to have an excess 30.43 million litres if the three refineries were working at full capacity. In fact, there would be more than enough petrol and an excess of 30.43 million barrels daily that could be exported. Unfortunately, the refineries are producing far below their installed capacity to the extent that they are not even meeting the meagre 40.32 million litres needed daily in Nigeria.

Following years of low performance and high Turnaround Maintenance (TAM) cost, the Federal Government, wrongly, decided to hands off the building and running of refineries and allow private investors to take over. As for the existing refineries, the immediate past Jonathan administration offered an equity share of 51 per cent to the oil industry unions to assuage them. The aim was to privatise the refineries, which the unions vehemently opposed. That leaves the country in quandary. The refineries are not functional in government hand and at the same time not privatised. It is a self-inflicted pain that Nigerians are living with.

If the truth must be told, despite being a major oil producing and exporting country, Nigeria has not made appreciable investment on refineries. The two refineries built in Port Harcourt in 1965 and 1989 were merged into one in 1993. That of Kaduna was built in 1980. The technology used in building those refineries has changed. The refineries are antic.

Imagine the cars that were used in Nigeria in 1980 – Peugeot 504, Volks Wagen Beetle, Lada, etc. Today, those cars are outdated. Nobody is buying them anymore.  Reason is that there are new computerized cars now in vogue. How do you compare a 1980 Peugeot 504 car with a 2015 Nissan Pathfinder or Toyota Land Cruiser? There is no basis for comparison.

That is how Nigeria’s 1980 refineries cannot compare with the latest computerized refineries in vogue in other countries. No amount of turnaround maintenance will change the obsolete technology of the 1980 refineries, the same way no amount of refurbishment will change a 1980 Peugeot 504 car.

Second, the total refining capacity of all the three refineries in Nigeria at full capacity is a meagre 445,000 barrels per day. The world’s largest refinery, Jamnagar Refinery in Gujarat, India, produces 1,240,000 barrels per day! Paraguana Refinery Complex in Falcon, Venezuela, produces 940,000 barrels per day. And GS Caltex Yeosu Refinery in Yeosu, South Korea, produces 730,000 barrels per day. Egypt has nine refineries with a combined output of 732,550 barrels per day. The 10th refinery is under construction. South Africa has six refineries with combined output of 626,000 barrels per day.

These examples show why fuel scarcity will not end in Nigeria until modern refineries are built by government or private concerns. Depending on importation will continue to nourish corruption. As it were, government should not hand off the building of refineries. Private investors should also take up the challenge and let there be local production of petrol in Nigeria. Operators of modular refineries are equally welcome.

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1 Comment
  • Thompson Iyeye

    Fuel scarcity will not end until the government deregulates the downstream sector the petroleum business. No private organisation will build a refinery under the present situation of government control of the sector. Government should deregulate, remove fuel subsidy and get out of the refining business altogether by selling off the three refineries which it has woefully failed to run to any sensible level of efficiency.