Business
Nigeria Struggles To Sell Oil Despite Price Cut
Despite the significant reduction in its official selling prices aimed at wooing buyers, Nigeria is still struggling to sell its crude oil as Indian refiners are cutting back on output while European plants are considering closures.
Nigeria, Africa’s biggest oil producer, relies on crude for 90 per cent of its foreign exchange earnings. Its foreign exchange reserves fell to $35.66bn on March 25 from $36.26bn on March 2, according to the Central Bank of Nigeria.
The country has had to grapple with an unprecedented excess of oil triggered by the coronavirus outbreak and a price war between Saudi Arabia and Russia for market share.
The Nigerian National Petroleum Corporation (NNPC) was reported last Monday to have cut its April official selling prices for Bonny Light and Qua Iboe, two of the nation’s major grades, by $5 per barrel to dated Brent minus $3.29 and minus $3.10 per barrel, respectively.
Most producers are offloading their oil for below $20 per barrel as the coronavirus pandemic dampens demand and global supply rises amid a battle between Saudi Arabia and Russia for market share, according to traders, state oil firms, major refiners and prices quoted in physical markets.
While some crude grades typically sell at a discount to Brent, the market environment is making that gap even wider and other grades that usually cost more than the European benchmark are now cheaper for the most time ever.
The discounting is leaving revenue per barrel at a fraction of the prices factored into many 2020 budgets, which is likely to put even more pressure on government finances in some oil producing countries, according to Reuters.
In extreme cases, once discounts and other costs have been applied, the value of some producers’ oil is close to $10 per barrel while Venezuela’s Merey crude sold for as little as $8 last week, according to Refinitiv data and traders.
While all types of crude have been hit, so-called light and medium sweet grades are the least in demand, meaning the outlook is bleaker for countries such as Nigeria, Azerbaijan and Kazakhstan, according to traders in oil from those countries.
Light grades with low density and sulphur are mostly used to make naphtha, petrol and jet fuel, refined products that are both out of favour because of the economic fallout from the pandemic and also hard to store for long.
While Moscow and Riyadh remain locked in their battle, physical oil traders said a glut might push prices even lower as more countries lock down and trade slows.
Last week, Russia got as little as $18 per barrel for its benchmark export grade medium sour Urals while Saudi Arabia was selling its Arab Light in Europe for $16, according to Reuters calculations based on official Saudi prices and Urals deals.
Canada’s key Western Canada Select grade was worth $15 per barrel on March 16, the last day of its monthly trading cycle, and will now probably sell closer to $10 if its last discount of $13.6 to the US West Texas Intermediate benchmark is applied.
Traders said the pressure on prices and the desire on the part of sellers to offload crude quickly was evident in the way deals were being struck at the moment.
“Normally, we used to discuss cargoes at bid versus offer spreads of around 10 to 20 cents for several weeks before we closed a deal. Now, we have bid versus offer spreads of $2 to £3 a barrel and they’re done immediately,” one trader at a major refining firm was quoted as saying.
Some Commercial drivers in Port Harcourt have said that the Federal Government’s N1,350 fuel discount is yet to reduce their daily operating cost.
A cross session of commercial drivers who spoke to The Tide correspondents in Port Harcourt said they are yet to feel the impact of the government discount, adding that most filling stations in the city are even selling above the pump price
A driver Jude Ogbo who operates the mile 1 Rumuokoro axis of Port Harcourt said plies the discount has not reflected in his daily fuel expenses.
“Since the discount was announced, many filling stations still sell at the old price. When you go there, you discover they sell you two litres at the price of one. For now, we have not seen any reduction,”_ he said.
Another commercial driver, Comrade Ishmael Uzeho who operates within the Port Harcourt metropolis, said the discount is not being implemented across the country.
“How has the discount affected us? I will say it has not. Many stations are not working. Only NNPC is working and that is just one person in the whole country. If government really wants to help, let the fuel price go down properly,”_ he said.
Uzeho added that if the price of fuel goes down, transport fares will also go down. He noted that his route fare has remained at N500.
On his part, Mr. Moses Dapa, Supervisor at Sam Jaja Foundation Transport Company, said the company has not increased its fares despite the high cost of fuel.
“We are still running normal price. We charge N2,000 and N5,000 depending on the destination. We will not increase our price. I don’t know about other parks, but for Sam Jaja, we are maintaining normal price,”_ Dapa said.
He appealed to passengers to understand that drivers are not using high fuel price as an excuse to charge excessive fares.
Other drivers who spoke said the federal government should monitor the NNPCL retail stations to ensure that the directive is implemented.
Recalled that The Federal Government in abid to reduce transportation cost in the country had announced a 30-day margin discount at NNPC Retail stations across the country from October 1 to 31,
However investigation revealed that the policy is yet to affect transportation cost in the country.
By; Stephens Sopakriba and Saint Davies
In a press statement released to The Tide’s source on Friday in Abuja, the group said Nigeria had a significant resource advantage due to its vast natural gas reserves.
“At a time when global energy markets face unprecedented volatility and rising operational costs, Nigeria stands on a massive resource advantage with its vast natural gas reserves,” the group said.
Highlighting this potential, Alfa Designs urged the nation to move past complaints over energy costs and aggressively embrace Compressed Natural Gas (CNG) as a sustainable engine for economic growth.
While federal policy adjustments have sought to cushion the impact of global energy shocks, industry experts emphasised that long-term relief hinges on a rapid, nationwide transition to gas.
“Transitioning away from expensive traditional petroleum products promises to ease the financial burden on ordinary citizens.
“It will also reposition Nigeria as an attractive industrial hub capable of drawing foreign direct investment and driving job creation,” it said.
To demonstrate the practical feasibility of this transition, the group said it recently partnered with a global Original Equipment Manufacturer (OEM) to lower the entry barriers for commercial drivers.
“By negotiating directly with the manufacturer, we reduced the total cost of acquiring and installing a CNG conversion kit for commercial tricycles (commonly known as Keke NAPEP) from up to N700,000 down to under N450,000.”
The group said this shift offers dramatic immediate financial benefits for local operators, with petrol currently selling at roughly N1,390 per liter.
It said that, in comparison, at a CNG equivalent price of about N98 per liter, a daily commercial driver using 10 liters of fuel reduces its daily energy expenditure from N13,900 to N3,980.
“This represents a daily net savings of N9,920, or more than 71 per cent.
“Over a standard 26-day working month, drivers save over N257,000, allowing them to fully recover the cost of the CNG conversion in less than 46 operational days.”
The company further stated that when scaled nationally, the economic implications are monumental.
“Nigeria consumes approximately 50 million liters of gasoline daily, costing roughly N69.5 billion per day.
“A nationwide 71 per cent reduction in fuel expenditure would generate daily national energy savings of N49.6 billion.
“On an annualised basis, this shift equates to approximately N18.1 trillion, or $13.5 billion, kept within the domestic economy.”
The group added that those recurring national savings would offer a vital mechanism to help address Nigeria’s estimated $2.3 trillion infrastructure deficit.
It said reinvesting those funds into the economy helps eliminate the 30 to 40 per cent operational overhead currently consumed by imported fossil fuels.
“The resulting boost to corporate margins expands the national tax base, generates reliable user-fee revenues to make major transit projects bankable, and creates a self-sustaining financial cycle,” it said.
