2.0 STATUS OF STORAGE AND LOGISTICS FACILITIES IN NIGERIAN DOWNSTREAM SECTOR
2.1 NNPC DOWNSTREAM LOGISTICS FACILITIES
NNPC/PPMC has over 5,000 KM of pipeline network connected to the three (3) national refineries with installed capacity of 445,000 barrel/day, 21 storage depots with 2.2 Billion Liters product capacity (PMS: 1.5 Billion Liters), 21 pump stations, 7 jetties and 8 LPG butanization plants.
The jetties at Atlas Cove, Apapa, Okrika, Calabar and Warri are very critical to the successful operation of PPMC coastal movement of vessels to convey petroleum products to the designated coastal depots.
However, the poor state of the jetties consistently hampers the evacuation and movement of bulk petroleum products by marine vessels. This is mainly as a result of the shallow draft of the jetties, which only allows for the reception of vessels with limited capacity. Furthermore, the bureaucracy in government agencies granting clearances to discharge petroleum products at the jetties is a major bottleneck in the smooth supply and distribution of petroleum products, not to mention the financial impact the delays cause the industry in form of aggravated demurrage and high freight rates.
NNPC’s storage depots suffer under capacity utilization, because majority of the connecting pipeline network are unavailable due to age of the pipelines and incessant vandalism. Although, significant progress was recently recorded in curbing the activities of vandals, specifically along pipeline segments of system 2B following the deployment of the Nigerian Armed Forces to secure the pipelines, however, due to insufficiency of logistics and the difficult terrain (creeks and swampy areas) of some pipeline segments, the vandals continued to perpetrate their criminal activities leading to total shutdown of pumping operations sometimes across the Corporation’s critical supply and distribution network with attendant negative consequences on the country.
The challenge has over the years resulted in NNPC/PPMC relying heavily on 3rd party storage facility owners to facilitate bulk distribution of petroleum products on its behalf on throughput basis at huge cost often attributed as part of loss by NNPC.
Nonetheless, even if the current Nation’s refineries were well maintained and operated at full capacity it is still inadequate as the combined installed refining capacity has stagnated at 445,000 barrels per day since 1980 when population was about 68 Million. Population has more than doubled since then to about 178 Million as often quoted by policy analysts, this divergence between population growth and refining capacity is depicted in the chart 4 below:

there is clearly an urgent need to increase the Nation’s domestic refining capacity as Nigeria has the lowest refining capacity per capita with 445,000 barrels/day to 178 Million people, while, Saudi Arabia has almost 3 Million barrels/day to only 31 Million people.
2.1.1 OPPORTUNITY COST OF DOMESTIC REFINING CAPACITY EXPANSION VERSUS EXPENDITURE ON CASH-BASED SUBSIDY REGIME
The table below depicts both actual and estimated costs of constructing brand new refineries with installed capacities ranging from 40,000 to over 600,000 barrels/day, with a view to deriving the number of brand new refineries and additional domestic refining capacity that could be achieved with the sum of N8 Trillion being the total amount expended on petroleum subsidies from 2006 to 2014.
S/N Name Capacity Cost ($) Cost (N) Remark
1 Pakistan State Oil Islamabad 40,000BPD $600M (Est.)
Final cost TBD after feasibility studies N119.34B (with N8 Trillion, 67 refineries of 40,000 B/d could be constructed with combined capacity of 2.7 MB/d) • Expected to be fully commissioned in 2016/2017

2 Ugandan Petroleum Refinery 60,000BPD $2.5B (Est.)
Final cost TBD after feasibility studies N497.3B (with N8 Trillion, 16 refineries of 60,000 B/d could be constructed with combined capacity of 960,000 B/d) • Construction will start in 2015
• By 2017 production will start with 30,000BPD
• Full production of 60,000BPD starts in 2019
3 BYCO Oil Petroleum Ltd. Pakistan 120,000BPD Above $750m as at 2012 N149.18B (with N8 Trillion, 53 refineries of 120,000 B/d could be constructed with combined capacity of 6.4 MB/d) • Commissioned in 2014
• First stage of production is 50,000BPD as at 2014
• Next Phase is 90,000BPD
• Final stage is 120,000
4 Dangote Refinery Complex 650,000BPD $11B (Est.) N2.2TR (with N8 Trillion, 4 refineries of 650,000 B/d could be constructed with combined capacity of 2.6 MB/d) • Expected to come on stream by end of 2016
• Includes a fertilizer plant
5 Jamnagar Refinery (Owned By Reliance Industries)
668,000BPD $6B N1.2TR (with N8 Trillion, 6 refineries of 668,000 B/d could be constructed with combined capacity of 4.5 MB/d) • Commissioned in 1999
• built within 36 months
CBN EXCHANGE RATE AS AT 30TH NOVEMBER 2015 – $1= N198.9
The table above illustrating the various cost of building brand new refineries reveals the opportunity cost in terms of possible domestic refining capacity expansion lost by Nigeria in favour of cash-based subsidy regime implementation, aside the derivative incomes from petrochemical industries and employment opportunities for a host of unemployed Nigerians
2.2 PRIVATE SECTOR OWNED DOWNSTREAM LOGISTICS FACILITIES
Private sector participation and investment in the downstream sector has thrived over the years. This is largely attributable to the enactment of the local content act in the Country.
There are over 70 tank farms scattered along the Nigerian coast with over 2 Billion liters product capacity (PMS: over 1 Billion liters), over 7,000 filling stations and 28,000 trucks.
Remarkably, the nation has adequate and operational infrastructure in the downstream sector, however, the integrity of the public facilities are constantly being compromised by vandals, poor maintenance due to a host of reasons ranging from poor planning to constraints of fund. On the other hand, the private sector facilities in the downstream sector are suffering from under capacity utilization arising from financial constraints to maximally operate the asset in supporting the economy.
3.0 PRICE REGULATION AND CASH BASED SUBSIDY REGIME IN NIGERIA
3.1 COMPLEXITIES IN PETROLEUM PRODUCTS PRICING UNDER A REGULATED REGIME
The pricing of petroleum products (specifically PMS) is driven by eighteen (18) cost elements as published in the PPPRA product pricing template. It is important to emphasize that majority of the cost elements are dynamic in nature and respond to the international crude oil and products markets, hence, are uncontrollable and are based on import parity pricing principle. For instance, the product cost exhibits linearity with the crude cost and constitutes about 65% – 75% of the total Expected Open Market Price (EOMP), therefore, any slight movement in this cost element significantly impacts the EOMP.
Subsidy in the context of the pricing template is the difference between the EOMP and approved retail price (or the difference between the landing cost and Ex-depot price). Therefore, whenever government makes slight change in the retail pump price, it translates into reduction or increase in subsidy element without necessarily changing all other elements of the pricing template. As previously highlighted, changes in exchange rates between the Naira and US Dollar as well as access to foreign currency at CBN rates have a significant impact on the subsidy cost itself, exposes importers to transactional currency risk (i.e. difference in exchange rate between time of petroleum product import and subsidy settlement), aggravates the landing cost and erodes operator’s margins.
Nevertheless, there are some controllable cost elements which are fixed based on the inherent economic realities of importing petroleum products into the Country. It is equally vital to note that the controllable cost elements are directly or indirectly linked to other sectors of the economy, for example, the financing cost element is a function of interest rates arising from CBN Monetary Policy Rate (MPR) and commercial bank lending rates. It is expected that in post-deregulation regime, the government via the commercial regulator (PPPRA) would enthrone policies that will positively impact the controllable cost elements to bring about reduction in landing cost and the EOMP of petroleum products.
The pie above illustrates the average percentage contribution of the various cost elements for January to August 2015
CHART 5: AVERAGE % CONTRIBUTION OF COST ELEMENTS IN PPPRA PRICING TEMPLATE FROM JAN. – AUG. 2015
Figure 2 depicts the significant events that have affected the cost elements on the PPPRA pricing template over the last 5 years with attendant impact on retail pump prices and subsidy obligations of government.
CULLED FROM POLIGIST,COM
www.poligist.com/towardsseamlesspetroleum/

Beautiful article