₦airaland Forum

I would have liked a statement that read, petrol subsides will be stopped by 2018.

VolvoS60:
^^^^
Excellent point which strengthens mine considerably.

Nigerian governments DO subsidize agriculture. But note that they subsidize local production and NOT importation. We have the distortion in the oil sector because this government and its predecessors chose to subsidize importation rather than local production.

For nearly 9 pages now, I and others have been saying: Build new refineries and cut off the gravy train (of refined petroleum product importation). No matter how you dice it, it makes no sense to claim the government cannot build new refineries locally, only for the same government to then 'subsidize' imports at exponentially higher costs. For the last time I will ask you: Does this make sense?

NO it does not strength any of your argument. Let me tell you straight, when Dangote finishes his refinery, the product NNPC buys from him or any other reseller will follow the same formula. dangote will not buy crude in the open market and sell it to you for less. He does not love Nigeria that much. You people keep confusing the subside with importation, please, it not the same thing. Petrol subsides is social welfare program in Nigeria, where government, absolves some portion of petrol cost to her citizen. The source of the product being subsides here is immaterial. It would come from anywhere.

If you build your refinery today in Nigeria, your product will cost more than N97. If NNPC decides to buy from you, you simply become our new
mother vessel.

VolvoS60:
^^^^
As I asked you in one of my earlier posts: what is the extent of your advocacy for 'appropriate' (i.e. 'global') pricing in local transactions involving ofada rice, palm oil, cocoa, cotton, maize and groundnuts? These are commodities too. Why your insistence on crude oil?

I have made several points to which you have not given a response. You know what these points are so there's no need to repeat them.

I knew this was how it would end.

By the way the price of cocoa and most commodities in Nigeria are based on global pricing. Due to our high cost of production some items are higher in price than the international market. Cassava chips readily comes to mind, a product where Nigeria is the world leading producer of cassava.

VolvoS60:
^^^^
As I asked you in one of my earlier posts: what is the extent of your advocacy for 'appropriate' (i.e. 'global') pricing in local transactions involving ofada rice, palm oil, cocoa, cotton, maize and groundnuts? These are commodities too. Why your insistence on crude oil?

I have made several points to which you have not given a response. You know what these points are so there's no need to repeat them.

I knew this was how it would end.

Is there a government subsidy program for these commodities? Nobody stops you today from importing rice, palm oil, groundnut cotton in Nigeria. As long as you pay your duties, no one really cares. Also, you have no guaranteed profit from government(like our petrol importers do). On the other hand, you invest locally and resell this same product for whatever price the market is willing to pay. Your comparisons here is off.

VolvoS60:
^^^^
That's not good enough sir.

People have given very cogent reasons why the principal actors in the current government (and others before it) should be in the dock answering hard questions. You can't give a perfunctory defence and leave it at that.

This government (like others before it) is criminally incompetent. It cannot cut the waste at the highest levels in its operations but it is remarkably purposeful when it comes to policies which hurt the most vulnerable. What is sad is when people like you come here and try to defend the indefensible.

The government sells crude oil to the NNPC at international prices (if what you say is true). No doubt the reasons given for this will be something along the lines of 'instilling discipline to compete at market rates and prices', etc. Things begin to unravel when we consider the actual outcomes - outcomes such as the inexplicable refusal of this government (like others before it) to invest in new refineries. Is granting 'subsidies' to import refined PMS/DPK/AGO a sensible course of action? 'Subsidies' which far exceed the cost of new refineries? Whose interests are served by this?

You can't privatize the gains (among a chosen few) and socialize the losses.

Nigerians are being held hostage by their own docility and stupidity. We do not want to hold our governments accountable!!! This is the price we pay for our actions.

If the government cannot build refineries, it might as well privatize the provision of all public goods and all forms of infrastructure. It has become fashionable for irresponsible governments to abdicate their responsibilities in the provision of public goods. Interestingly though, these same governments retain a monopoly on the so-called 'legitimate' use of force. This is one area the government is not willing to privatise or deregulate. As things stand today, I or any other citizen who so desires cannot set up and run a private army or a private police force. Why is this so?

What a great line, ask yourself who is privatizing the gains and socializing the loses? I don't care what petrol sells for, frankly it makes no difference to me. Nigeria is poor a very poor country any how you dice it. You can make all assumption you want, but treat crude oil like a commodity. That all I really care about.

Ghanaian President, John Mahama, on Friday expressed West Africa’s support to Nigeria in its fight against terrorism.

He also urged Nigerians to stand in solidarity with the Federal Government in its efforts aimed at restoring peace to troubled parts of the country.

Mahama said this while briefing State House correspondents of the outcome of a closed-door meeting he had with President Goodluck Jonathan at the Presidential Villa, Abuja.

He said he was hopeful that Nigeria would be able to tackle insecurity because the country’s destabilisation would translate to the destabilisation of the entire sub region.

He said, “We also discussed the issues of security and we are optimistically hopeful that Nigeria will continue to be able to deal with the issue of Boko Haram.

“We believe that the people should stand in solidarity with the government, you must be one in dealing with this threat to your national survival.

“And for us in West Africa, we believe that the destabilisation of Nigeria is destabilisation of the whole of the West African subregion.

“It is not only because of the size of Nigeria, but it is the largest economy in the whole of the subregion and indeed the whole of Africa. We will continue to express solidarity with Nigeria in your fight against this insurgency.”

Mahama who is the chairman of the Economic Community of West African States said he was considering convening an emergency meeting of the regional body because of the danger posed by the spread of Ebola Virus Disease.

While saying that there is outbreak in three of the body’s member countries, he said the ECOWAS doing its best to support the countries to be able to contain the outbreak.

He commended Nigerian government for successfully containing the disease in the country, therefore becoming a model for the world.

He added, “It is important for us to assist them to contain the outbreak so that we do not have a situation where it spreads throughout the subregion.

“I also commended President Jonathan for the very diligent manner the government and people of Nigeria dealt with the outbreak that occurred here.

“Indeed, the Nigerian experience has become a model for the rest of the world and Nigeria is assisting other countries in terms of their Ebola preparedness and how to handle such outbreaks.

“We are looking to call an emergency meeting of ECOWAS Heads of States sometime in the first week of November to update ourselves on the issues of Ebola and how to work together to be able to contain the situation.”

As co-members of the West Africa Gas Pipeline, he said he and Jonathan also discussed the issues of raising the volumes of gas supply so that they can boost power supplies not only in Ghana, but in Togo and Benin that are also beneficiaries of the pipelines.


http://www.punchng.com/news/terrorism-ghanaian-president-assures-nigeria-of-wafricas-support

Akainzo:
Bros, you do certainly mix things up. A futures trader is talking about "Cost of Lifting", which translates to Upstream Cost and not production Cost.

Nigeria does not pay for it at International price, it is only used to account for the crude oil used for the subsidy system. At the worst, one would use a weighted average system and not use the spot price considering that there are other associated costs with spot cargo that are not incured by local refining.

I like your nice semantics. "Cost of lifting" and "account for crude oil with international price". In my world is Naira and kobo. You've said nothing different.

Thanks for this chat, I have to go.

blym4real:
I am baffled by your answer. Nigeria government does not have the money to build refineries.

Nigeria does not have money to build roads,modern railway, hospitals and schools. Just add refineries to the long list. The reality is, most of us in this country make assumption about Nigeria that are so far from reality. Nigeria is a poor country.

VolvoS60:
^^^^
Another poster is disputing your assertions about NNPC's purchase of crude at international prices. He has also disputed your claims about local production costs per litre. Remember I asked you these same questions. Are you absolutely sure of what you have said so far?

The fact NNPC pays for our local 445,000 barrels in Nigeria at the international price is not a secret. There's nothing to dispute here. The local production cost in Nigeria is about 20-40. Talk to any futures trader, they will tell you what numbers their firms use in hedging cost in Nigeria.

Akainzo:
That change was to be able to calculate the differential that should be the "Subsidy" to be accrued to NNPC. This helps to determine a true and fair value for the cost of the unused crude allocated for local refining.

So please do not muddle things up.

You muddled it, I don't get what you are talking about.

Akainzo:
Bros, If it cost $70 per barrel to produce crude from the Shale in US, no single oil company will touch it talk less of the $75 in Canada.

I will repeat, you are mixing cost of production per barrel with Final upstream cost. The highest per barrel cost in Naija as of 2014 is $12.

How many companies have already suspended new projects in last 2 weeks? When oil hits $70, expect massive shut downs in North america. The Saudi and Russians know this, that why OPEC has refused any production cuts. Even though the market is over supplied by almost 2 million barrels per day.

VolvoS60:
^^^^
Its getting murkier and murkier. I am still trying to decipher the link between the cost price and pumphead price per litre of PMS (petrol) sold here AND the export sale price to oil majors AND the price of gasoline in the USA.

But some things are remarkably clear now. Apparently you do not believe that crude oil should be sold to the NNPC at cost price, and that global prices should apply to local transactions. If we apply that logic I would like to believe that cocoa and tea extracts sold by Nigerian farmers to the likes of Nestle, Cadbury or anyone else should be sold at international prices. I would like to believe that you have advocated the sale of palm oil in Wuse market at international prices. I want to buy Ofada rice and Idah cassava at international prices in our local markets and I want the government to superintend this. Isn't that a fair argument?

I do not want to go off on a tangent sir. The kernel of my argument is that if the cost price per litre of locally produced PMS/DPK/AGO is lower than the pumphead price, (low enough to make normal profits) then it makes absolutely no sense for the Nigerian government to dis-invest in local refining capacity and then turn around to run a criminal and thoroughly compromised petroleum product import scheme. Does it make sense?

Whatever pricing formula you look at, the facts start with NNPC paying the same price for 445,000 as you would in the international market. The race starts from there.

blym4real:
Tell me the reason why new
refineries hasn't been built either by
private or the government for the past 12
years.

The government does not have the money,and the private sector hates the business model.

Akainzo:
I like the way you avoided answering. It shows you do not know.

To help you, what you were probably referring to will be the Final Upstream cost of a barrel of crude in Nigeria (which entails the total production cost + Other costs of doing the business in Nigeria)

For local refining, what we need to use in the production cost/barrel and that is still max $12 as of 2014. (And my guy, I KNOW.)

We actually had this price discussion yesterday. As the price of crude keeps falling, we trying to review our options. The following is our breakdown.

Nigeria $20-40
Sauidi $10
United states $70
Canadian sand $75

Just like you, I have my little knowledge. You don't need to shake a stick at me.

Akainzo:
At the Bold part in your above comment, are you by any chance implying that NNPC buys Crude Oil in the spot market? Or are you trying to imply that NNPC buys crude oil for refining at International Price?

Please clarify!

NNPC does not need the spot market. In 2005 Obj changed the price formula, where NNPC contract are based on the 30 days NYSE price average, for the 445,000 barrels allocated for our local refineries.

Akainzo:
Bros, first the cost of Production per barrel in Nigeria is maximum $12.
Secondly, a barrel of crude and a litre of PMS are 2 different things. So if our government sells PMS at cost price, then we should be paying far less than N97.

Your chewing gum argument, will get you far with me.. Like I said, you people should lead a demonstration and demand for crude pricing at cost. Happy driving on cheap oil.

Akainzo:
Bros, you need some education/enlightenment big time.

The highest Production cost per barrel in Nigeria is $12, at a time it went as low as $8 until the Niger Delta militancy. So please read more!

I like this my needing education. Even Saudi oil stand at $10 per barrel.

VolvoS60:
^^^^
I see.

I do not quite understand the math here. (My limited education was obtained in a provincial setting with angry, disgruntled math teachers but that is a story for another day). But again, let's take your figures as given.

If 'all in' costs amount to NGN40 per litre (I assume we are talking about PMS here) and the pumphead price is NGN97 per litre, could someone explain what is going on? Is there any markup or subsidy in this equation?

The price NNPC pays, is based on the 30 days NYSE average. NNPC is not buying crude at cost, they pay the same price as shell, chevron and Exxon. Back in 2012 when price was set at N97, a barrel was almost $120. Today price is down to $81, we are actually paying more for petrol in Nigeria today, than someone in west Texas, today. This was the same thing that happened with Yaradua, when he reduced price to N65, only to regret it 6 weeks later. Because crude jumped by almost 40%.

There are people that want to sell oil at cost. I am not one of them. Oil is a commodity, like cocoa, rice, palm oil etc. Let try it that way. That's all Nigeria is trying to do.

What is funny, is the price of crude has dropped to about $82 in last 3 months, it has been almost I trillion dollars saving to customers, just not in Nigeria.

blym4real:
you should know there is a cabal seeing to that.

There is no cabal, just business men staying away from a losing business. dangote is building a refinery, all he will do is become the new Trafigura, Glencore or Vitol. NNPC will be buying from him.

VolvoS60:
^^^
Let me see if I understand you. So it costs $30 to get a barrel of oil from the ground to a terminal at Escravos. Let us take your figures as given.

I do not know how you arrived at a pump price of N40 though. Is that the pumphead price per litre before or after all refining and associated costs have been factored in?

I am trying to post the PPRA template, without much success. If we use the current price of N97, based on a barrel of crude oil selling for $95 including refining and landing cost. N40 becomes an approximate pump price.

blym4real:
. Bros saudi arabia is the second largest country in the world subsidizing fuel for it citizen but still yet all this companies can invest in there refineries.

Has Nigeria stopped anybody from investing in refineries?

VolvoS60:
^^^^
Your post above quotes Nigerian crude barrel costs at between $20 and $40 per barrel. (again your figures, sir).

Once again, I ask, what does that translate to in Naira per litre?

I just answered you in a post above.

VolvoS60:
^^^^
Kindly explain your point above, sir.

I notice you are comparing production costs (your figures, sir) of $30 per barrel with a N40 per litre price. Apples and oranges?

The price to get crude from the ground to a loading docking in Bonny or Escarvos is about $30 per barrel for Nigerian oil.

If, as some of you demand, the government sells to NNPC at cost, instead of the current system, where the 30 day NYSE average is used in setting the price. Then the price at the pump will be about N40.

VolvoS60:
^^^^
Sir, I have been watching the exchange between you and that other fellow. I noticed he has carefully avoided giving answers to the questions you asked. I will be asking him a few questions of my own too in a few minutes. I hope he responds.

When bushdoc started this thread, some posters commended him for his points and called (those who disagreed with him) illiterates. Their mistake is that no one really knows who is lurking behind any given keyboard.

My repeated questions about cost profiles for local PMS/DPK/AGO production are based on my 'crude' understanding of the concept of price discrimination. I expect local producers/refiners to pay less than the international price of crude oil for very compelling reasons which should be clear to all. That is the basis for my shrill questions (which by the way still stand and demand answers).

Some of us know the drill. We know a little bit about what's going on behind the scenes but we need the defenders of the status quo and the forces of reaction to state their own side and slowly expose themselves bit by bit. That's why we ask the questions we ask. If only more Nigerians could ask more questions AND demand answers. If only...

Please shoot off your questions

hercules07:
What the heck are you saying, Total refines oil in Saudi why can they not refine in Nigeria, they started the project 4 years ago, if your government had their head screwed on tight, that refinery will be in Nigeria not Saudi Arabia, the roles will be reversed, they will refine in Nigeria and sell in Nigeria, they are playing the mother vessel game because the government allows them to, why dont they try that nonsense in Saudi and see how far they will get.

Has Nigeria stopped total from refining here? Did we stop Shell, Exxon or Chevron from refining, the question you should ask yourself, why are they are not doing it.. Chevron just completed their GTL refinery plant in Escavos, why are they not selling any of that product here? Nobody is trying to invest in a losing business, not even yourself.

playboy19:
LOL, funny. Now i know where your problem lies. With your above statement, i can tell you are still living in the '70s. Get enlightened dude, Nigeria has shortlisted the number of NNPC importers back to the original 7 right after the subsidy saga. Plus the 7s can't even source the product from any other company outside the trio of Trafigura, Glencore or Vitol S.A. Any document of delivery from any other company outside of these three will not be accepted. Like i said, get enlightened. Let's talk about something else.

Below is the list of your (7) anointed PPRA importers. You need to enlighten yourself, before you even worry about me. Trafigura, Glencore or Vitol have their mother vessels 100 km off our shores, they sell to anybody bringing cash.

The participating companies include: the Nigerian National Petroleum Company (NNPC), Aiteo Energy, Ascon Oil, Avidor Oil and Gas, A-Z Petroleum, Bovas, Conoil Plc, Dee Jones Petroleum and Gas, Dozzy Oil and Gas, Folawiyo Energy, Fresh Synergy Ltd and Forte Oil Plc.

Others are: First Deepwater Discovery Ltd, Gulf Treasure Ltd, Heyden Petroleum, Ibafon Ltd, Integrated Oil and Gas Industries, IPMAN Refining and Marketing Ltd, Mobil Oil Plc., MRS Oil and Gas Ltd, MRS Oil Plc., NIPCO Plc., Northwest Petroleum & Gas Ltd, Oando Plc., Obat Petroleum Ltd, RainOil Ltd, Rahamaniyya Oil & Gas, Sahara Energy Ltd, Shorelink Oil Ltd, Swift Oil Ltd, Techno Oil Ltd and Total Nigeria Plc.

hercules07:
Total dropped the cash to build a refinery for export, they are refining in Saudi Arabia, a stonethrow away, SADARA is building a petrochemical plant to use the products from the refinery, Total will sell the refined oil in Saudi Arabia if a market exists there, there is a huge market for refined products in Nigeria seeing as we import refined products, so, what stops the government from doing the same thing as the Saudi Arabian government? Total needs to earn, it will sell to the devil if he can pay on time, Nigeria can pay on time, why are we not doing this in our country, the number of people employed in that refinery is over 2 thousand, the added value is more than the $20bn used to build it.

Total does not sell refined oil in Saudi Arabia, why all the twist and turn. Total sells refined oil in Nigeria, because, they are one of the companies playing the mother vessel game. You can can them in Saudi and ask for quote for a delivery to Nigeria.