In case you missed it
THE REAL COST OF NIGERIA PETROL
By Dr. Izielen Agbon
December 15, 2011
On December 10, 2011, if you stopped at
the Mobil filling station on Old Aba Road
in Port Harcourt, you would be able to
buy a litre of petrol for 65 naira or
$1.66 per gallon at an exchange rate of
$1/N157 and 4 litres per gallon. This is
the official price. The government
claims that this price would have been
subsidized at N73/litre and that the
true price of a litre of petrol in Port
Harcourt is N138/litre or $3.52 per
gallon.
They are therefore determined to
remove their subsidy and sell the gallon
at $3.52. But, On December 10, 2011, if
you stopped at the Mobil Gas station on
E83rd St and Flatlands Avenue in
Brooklyn, New York, USA, you would be a
able to buy a gallon of petrol for $3.52/
gallon. Both gallons of petrol would have
been refined from Nigerian crude oil.
The only difference would be that the
gallon in New York was refined in a US
North East refinery from Nigerian
crude exported from the Qua Iboe Crude
Terminal in Nigeria while the Port
Harcourt gallon was either refined in
Port Harcourt or imported. The idea
that a gallon of petrol from Nigerian
crude oil cost the same in New York as in
Port Harcourt runs against basic
economic logic. Hence, Nigerians suspect
that there is something irrational and
fishy about such pricing. What they
would like to know is the exact cost of 1
litre of petrol in Nigeria.
We will answer this question in the
simplest economic terms despite the
attempts of the Nigerian government to
muddle up the issue. What is the true
cost of a litre of petrol in Nigeria? The
Nigerian government has earmarked
445000 barrel per day throughput for
meeting domestic refinery products
demands. These volumes are not for
export. They are public goods reserved
for internal consumption. We will limit
our analysis to this volume of crude oil.
At the refinery gate in Port Harcourt,
the cost of a barrel of Qua Iboe crude
oil is made up of the finding /
development cost ($3.5/bbl) and a
production /storage /transportation
cost of $1.50 per barrel.
Thus, at $5 per barrel, we can get
Nigerian Qua Iboe crude to the refining
gates at Port Harcourt and Warri. One
barrel is 42 gallons or 168 litres. The
price of 1 barrel of petrol at the Depot
gate is the sum of the cost of crude oil,
the refining cost and the pipeline
transportation cost. Refining costs are
at $12.6 per barrel and pipeline
distribution cost are $1.50 per barrel.
The Distribution Margins (Retailers,
Transporters, Dealers, Bridging Funds,
Administrative charges etc) are N15.49/
litre or $16.58 per barrel. The true cost
of 1 litre of petrol at the Mobil filling
station in Port Harcourt or anywhere
else in Nigeria is therefore
($5+$12.6+$1.5+$16.6) or $35.7 per
barrel. This is equal to N33.36 per litre
compared to the official price of N65
per litre. Prof. Tam David West is right.
There is no petrol subsidy in Nigeria.
Rather the current official prices are
too high. Let us continue with some basic
energy economics.
The government claims we are currently
operating our refineries at 38.2%
efficiency. When we refine a barrel of
crude oil, we get more than just petrol.
If we refine 1 barrel (42 gallons) of
crude oil, we will get 45 gallons of
petroleum products. The 45 gallons of
petroleum products consist of 4 gallons
of LPG, 19.5 gallons of Gasoline, 10
gallons of Diesel, 4 gallons of Jet Fuel/
Kerosene, 2.5 gallons of Fuel Oil and 5
gallons of Bottoms. Thus, at 38.2% of
refining capacity, we have about 170000
bbls of throughput refined for about
13.26 million litres of petrol, 6.8 million
litres of diesel and 2.72 million litres of
kerosene/jet fuel.
This is not enough to meet internal
national demand. So, we send the
remaining of our non-export crude oil
volume (275000 barrels per day) to be
refined abroad and import the
petroleum product back into the
country. We will just pay for shipping
and refining. The Nigerian government
exchanges the 275000 barrels per day
with commodity traders (90000 barrels
per day to Duke Oil, 60000 barrels per
day to Trafigura (Puma Energy), 60000
barrels per day to Societe Ivoirienne de
Raffinage (SIR) in Abidjan, Ivory
Coast and 65000 barrels per days to
unknown sources) in a swap deal. The
landing cost of a litre of petrol is
N123.32 and the distribution margins
are N15.49 according to the
government. The cost of a litre is
therefore (N123.32+N15.49) or N138.81.
This is equivalent to $3.54 per gallon or
$148.54 per barrel. In technical terms,
one barrel of Nigerian crude oil has a
volume yield of 6.6% of AGO, 20.7% of
Gasoline, 9.5% of Kerosene/Jet fuel,
30.6% of Diesel, 32.6% of Fuel oil /
Bottoms when it is refined.
Using a netback calculation method, we
can easily calculate the true cost of a
litre of imported petrol from swapped oil.
The gross product revenue of a refined
barrel of crude oil is the sum of the
volume of each refined product
multiplied by its price. Domestic prices
are $174.48/barrel for AGO, $69.55/
barrel for Gasoline (PMS or petrol),
$172.22/barrel for Diesel Oil, $53.5/
barrel for Kerosene and $129.68/barrel
for Fuel Oil. Let us substitute the
government imported PMS price of
$148.54 per barrel for the domestic
price of petrol/gasoline. Our gross
product revenue per swapped barrel
would be (174.48*0.066+148.54*0.207+172
.22*0.306+ 53.5*0.095+129.68*0.326) or
$142.32 per barrel. We have to remove
the international cost of a barrel of
Nigerian crude oil ($107 per barrel)
from this to get the net cost of
imported swapped petroleum products to
Nigerian consumers. The net cost of
swapped petroleum products would
therefore be$142.32 -$107 or $35.32
per barrel of swapped crude oil. This
comes out to be a net of $36.86 per
barrel of petrol or N34.45 per litre.
This is the true cost of a litre of
imported swapped petrol and not the
landing cost of N138 per litre claimed by
the government. The pro-subsidy
Nigerian government pretends the price
of swapped crude oil is $0 per barrel (N0
per litre) while the resulting petroleum
products is $148.54 per barrel (N138
perlitre). The government therefore
argues that the “subsidy” is N138.81-
N65 or N73.81 per litre. But, if landing
cost of the petroleum products is at
international price ($148.54 per barrel),
then the take-off price of the swapped
crude oil should be at international price
($107 per barrel). This is basic economic
logic outside the ideological prisms of the
World Bank. The traders/petroleum
products importers and the Nigerian
government are charging Nigerians for
the crude oil while they are getting it
free. So let us conclude this basic
economic exercise. If the true price of
38.2% of our petrol supply from our local
refinery is N33.36/litre and the
remaining 61.8% has a true price of
N34.45 per litre, then the average true
price is (0.382*33.36+0.618*34.45) or
N34.03 per litre. The official price is N65
per litre and the true price with
government figures is about N34 per
litre (even with our moribund
refineries).
There is therefore no petrol subsidy.
Rather, there is a high sales tax of
91.2% at current prices of N65 per litre.
The labor leaders meeting the President
should go with their economists. They
should send economists and political
scientists as representatives to the
Senate Committee investigating the
petroleum subsidy issue. There are many
expert economists and political scientists
in ASUU who will gladly represent the
view of the majority. The labor leaders
should not let anyone get away with the
economic fallacy that the swapped oil is
free while its refined products must be
sold at international prices in the
Nigerian domestic market.
The government should explain at what
price the swapped crude oil was sold and
where the money accruing from these
sales have been kept. We have done this
simple economic analysis of the Nigerian
petroleum products market to show that
there is no petrol subsidy what so ever.
In the end, this debate on petrol subsidy
and the attempt of the government to
transfer wealth from the Nigerian
masses to a petrol cabal will be decided
in the streets. Nigerian workers,
farmers, students, market women,
youths, unemployed, NGO and civil
society as a whole should prepare for a
long harmattan season of protracted
struggle. They should not just embark on
3 days strike/protests after which the
government reduces the hiked petroleum
prices by a few Nairas. They must
embark upon in a sustainable struggle
that will lead to fundamental changes.
Let us remove our entire political subsidy
from the government and end this
petroleum products subsidy debate once
and for all. It is time to bring the Arab
Spring south.
Izielen Agbon Izielen Agbon writes from
Dallas, Texas. izielenagbon@yahoo.com
He is former HOD, Petroleum Eng Dept,
former ASUU chairman University of
Ibadan, trained many operators in
nation's energy industry with pratical
experience on our practices and policy
focus in the last 20yrs

#Yawns

Chei, I dey try to read up. Will be back.

Odikwa serious. See calculations.

Labour leaders?
When our so called profs are incapable of making an argument.
There was never a Subsidy. The government should simply cut off all the middle men