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The Real Cost Of Nigerian Petrol(pms) - Politics - Nairaland

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The Real Cost Of Nigerian Petrol(pms) by jidewin(m): 9:19am On Jan 13, 2012
I got this from an economist on Punch newspaper




THE REAL COST OF NIGERIAN PETROL(PMS)
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*3
3.36+ 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.
FG MUST REVERT TO =N=65 PER LITRE.
Please check the Features Column of Economic
Confidential for similar articles and rejoinders on
the Removal of Fuel Subsidy in Nigeria
Re: The Real Cost Of Nigerian Petrol(pms) by jidewin(m): 9:52am On Jan 13, 2012
Eventually,if this gross anomaly on the part of government is allowed to continue,currently this is what daily food items will cost now
1.A bag of rice will move from N8,500 to N16,000 (I.e before march when jona finally stops importation of rice)
2.A loaf of bread (agege) N50 will now N90-N100 considering the cost of sugar and flour which all increases
2.B loaf of bread (sliced) N200 will now be N380-N400
3.Bean cake (akara)/moin moin N30/N50 will now be N60/N90
4.Yam tuber -abuja yam from N500 now will be N750-N900 per tuber, same applies to the type brought in from onitsha,however the only cheap yam will be the kwara type from N350 to N500
5.Expect beverages and juice drinks to rise astronomically too
Beer N150-N180/N200 for the lesser brands while I'm certain star/gulder/big-small stout/harp/HEINEKEN will be from N200-N350.
6.Medications,clothings,foot wears,school fees,office rents,all will shoot up.business centers and Internet cafes won't be left out
My analogy may seem comical but in few weeks to come,don't be surprised when u hear from market places or see adverts on papers and other media aboout price adjustments due to new pump price.
GEJ's diesel engine 1600 buses to cater for transport if shared among the 36 state governors does not change anything.in fact I see the buses as a gifts of appreciation from mr presido to the state governors for agreeing to the "subsidy removal" quietly.
These people (govt :Fed,state,LG)does not have the interest of their citizens at heart at all.

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