Dnt know how true the Dr.'S facts are, if true then wahala dey ooo Its reaaly long and can get boring bt its worth reading 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 per
litre). 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.
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