₦airaland Forum

GodsMercy1:
This could serve as a thesis for sure with all the graphic presentations. Kudos to @op. We pray things work out for the best.


Please check my signature too. Thanks.

Lildreezy:
very insightful article. u should be out next petroleum minister.


this was one of the reasons I said that Jonathan and Dezianni had a foresight on how to operate a 21st century crude oil industry with the advent of the PIB.. but too many folks were blind to see it. If Buhari is who people wish he'd be, passage of that PIB should be a front burner of his agenda, else... everything is hogwash!

laniyi07:
I read only two paragraphs of your epistle and all I could decipher is that you are one of the many Nigerians who dont deserve to get to the promise land because you are a victim of corruption. lemme go and complete the reading before I retract or give you the full dose of your melecine

I give up! your write-up is nauseating, could only manage five paragraphs. my advice is get a complete overhaul of your mental faculties.

in a nutshell I believe that what happens in the international markets shouldn't control us. if we play our cards right, we can run the international market since we have the crude ( check the arabian countries). building a refinery cost money, the question is; does Nigerian government have the money? YES.

away with your backward thinking mentally

princejayboss:
Why the abuse .. He did a wonderful write up which you can never be so creative to do....if you really knows the principle in the oil business.... You will realize that you have just disgraced your sorry self

Sunnybobo3:
Bros with all due respect you are yarning theoretical economics here.

My question is simple, if PMS were to be sold in Nigeria at 130 naira per litre and 140 naira per litre in say Benin Republic, Togo, Ghana,, Cameroon, Niger and Chad, where would you as a private investor prefer to sell your product?

This has got nothing to do with Bretton woods. By the way, PMS is being subsidised heavily in Saudi Arabia.

jpphilips:
If you use this as a thesis and your lecturer is experienced, not academic experience, but industry wide experience, you will fail so woefully that you will wish you were a carpenter!!

tonychristopher:
Now you have displayed your knowladge here and let me answer you..as an investor okay let me use myself and as an igbo guy I will invest in Nigeria selling 130 instead of Togo and Benin..ask my why

it boils down to what i told you before, economics is not theory but common sense..... and this simple common sense determines how we react to money amtters and as a shrewd Igbo dude i will dump TOGO AND BENIN selling 140 per litre and invest in NIGERIA selling one 130 per litre

let me make it simple the way I can make it for my 6 yr old girl

NIGERIA HAS ABOUT 180 million population and the market is vast and while TOGO and GAHANA,WITH BENIN doesnt not have upto 80 million so street wise economics comes to play

NIGERIA IS A BIGGER MARKET AND RICHER, I will sell faster in Nigeria and that is turnover in business and the dude in togo will be selling to a country that has about 10 million cars all together while I in nigeria is in a market that have about 70 million cars with higher disposable income...in economics it is called TURN OVER nad higher ROI


Now we are selling the same products lets say bottled water and you are selling 100 naira per bottle and i decide to sell 80 naira per bottle...our cost price is 50 naira but your margin is 50 naira as profit mine is 30 naira ...dont think i am crazy(I am playing Julio Inglesia here) I will sell 10 you will sell 5 and that is turnover..i did not learn this in school, i learnt it from ALABA international

so to answer your question..i will invest in NIGERIA selling 130 and forget TOGO,GHANA AND BENIN selling 140...

the answer is turn over


Thankls bro


Streetwise economics

Which of these industries does Nigeria have an advantage? Only one. The business of having crude oil. We have crude oil and many others don’t. Does Nigeria have an advantage in the business of getting crude oil out of the ground? Not really. It is of course cheaper to drill oil in Nigeria than it is to extract shale oil in Canada. However if you think of the advantage in terms of Nigerian firms vs foreign firms drilling for oil in Nigeria then there is no real advantage. Although we have tried to rectify this by making that section of the industry very hostile to foreign firms. It is kind of working but the side effect of that strategy is the increase in costs for all firms. Which is not necessarily a good thing but more on that in a bit. Do we have an advantage in the transporting of crude oil? No. Do we have an advantage in the refining of crude oil? No. Marketing? No. So in essence the only part of the industry that we have a real advantage is in having crude oil.

You are wrong here, Nigeria has the crude oil advantage and extraction advantage as well, we have quality advantage which gave birth to market advantage. Our Bonny light is the most traded oil on the commodity market world over, so you need more research.

As a matter of fact, No derivative of crude oil need advertisement to be sold, the Nigerian market alone can swallow as much we can never imagine. If the first real paragraph of your article is superfluous I wonder what the rest of your article hold.

You can not make the Nigerian oil industry hostile to foreigners, Jonathan scammed you with his local content policy, the foreigners still own the technology and you can not easily replicate the technology because it is always under a patent, so what you call "hostile" is a fabricated fallacy kissing the lips of madueke.
The so called local content company will get the technology from the foreigners, inflate his contract sum (mark up) to accommodate his "middle manship", the IOC, NNPC by extension pays a higher contract sum while the middle man smile to the bank for doing nothing and the foreigner still does the job, guess who the middleman is??

NIGERIAN POLITICIANS

In general fuel will be imported if it is cheaper on international markets compared to local markets. Does having crude oil imply that it would be cheaper to refine locally? The answer is no. Many countries may not have crude oil, but every country can buy crude oil. If any country can buy crude oil then having crude oil is not really an advantage. International fuel markets are highly competitive given that any country can buy crude oil, refine it and sell. So if the local industry cannot compete on efficiency and costs then fuel will be cheaper on international markets. And marketers will opt to import fuel rather than buy locally. Which then means your local refineries will disappear.

Why can’t our local oil industry compete?

The next obvious question is why our local refineries cannot compete with international players. The simple answer is the way our local industry is structured. Picture 2 below explains it perfectly.

Basically the NNPC and its subsidiaries run the entire oil industry. Prices across the entire industry are also set by the government, with the exception of the export price of crude oil which is beyond its powers. In essence you have the perfect worst case scenario for business. On the one hand you have a government corporation controlling everything from oil drilling, to crude oil pipelines, to refineries, to fuel pipelines, to marketing and distribution. On the other hand you have a government that sets prices of everything from the retail price of fuel to pipeline use chargers etc. Yes there are independent private players across the industry but most are mandated to partner in some form with the NNPC. The result of this industrial structure is an entire local industry that cannot compete with international players. First there are almost no legal private refineries. So we are not even at the point where locally refined fuel is available but more expensive. It is not even available. The government owned refineries are unsurprisingly in a state of perpetual turn-around maintenance. And so we import.

So what is the plan?
According to most the plan for the oil industry revolves around the petroleum industry bill. The bill aims to break up the NNPCs hold on the oil industry and make it look something like this see picture 3 below.

The idea is to break up the industry into bits to reduce some of the corruption and lack of transparency. Disclaimer: there are many other agencies in the PIB not in the diagram above. Plus the positions of the new agencies in the industry are not as rigid. Will this new structure lead to the resurgence of refineries? Probably not. The new refineries will still have to compete with international players and it is not clear that they will be able to do so. The PIB also doesn’t say much about deregulation implying that the government still plans to keep the price controls. All this implies that the post PIB oil industry will probably not  be able to compete with international players. Which means we will probably still import fuel.

What do we need to do to have a fighting chance?

First we need to get rid of the idea that government run refineries can work if we just try harder. They can’t. And even if by some kind of miracle they did finish their perpetual turn-around-maintenance, they cannot possibly compete with international players. Its difficult to imagine a scenario where government run refineries will be more efficient and reliable than the cut throat international market.

Second, pricing across the entire industry needs to be deregulated. The government needs to allow a more efficient market driven pricing structure from intermediate supply contracts to the retail end of the industry. Given that we know government run refineries cannot possibly compete, the only alternative is private refineries. But private refineries will not move anywhere near an oil industry where the prices are dictated by the government. Consider the current scenario where the private refineries have to buy crude oil at international prices but sell their refined products at the government mandated prices. No private player will knowingly enter a guaranteed loss making business.

Third, we need to use the natural advantage we have to tip the scales in favor of domestic use of crude oil. Recall the part of the industry we actually have an advantage is in having crude oil. And the determining factor influencing importing or domestic refining of fuel is the relative price. Selling fuel to private domestic refineries at a discount could provide the necessary incentive to build a refinery. Of course by discount I do not mean a fixed price for crude sales to local refineries but a fractional discount. So actual prices paid will still move in tandem with international prices. How much of a discount should be given? Obviously not a Tam David-West style discount where he argues to just give away crude oil for free. Intuitively the discount should be less than the welfare gains from jobs created in refining, Forex savings from not having to import  fuel, and perhaps even gains from becoming a fuel exporter. If the discount is larger than the potential gains then its really just a net loss for the entire country.

Finally we need to think small and long term. The government seems to be stuck on the idea of few giant players with giant mega refineries and short term profitability. Nothing wrong with having big players but small players might be key to a fluid and flexible domestic industry. Strategies for multiple small players need to be explored. Small scale refineries with long term crude oil discount deals and expropriation risk guarantees might be the best shot we have at domestic refining.

Irregardless of these ideas it may be that the myriad of problems make domestic refining in Nigeria impractical. Oil refining is after all a cutthroat business globally with relatively small margins. It would be a shame though if we can’t make it work somehow.

tonychristopher:
Now you have displayed your knowladge here and let me answer you..as an investor okay let me use myself and as an igbo guy I will invest in Nigeria selling 130 instead of Togo and Benin..ask my why

it boils down to what i told you before, economics is not theory but common sense..... and this simple common sense determines how we react to money amtters and as a shrewd Igbo dude i will dump TOGO AND BENIN selling 140 per litre and invest in NIGERIA selling one 130 per litre

let me make it simple the way I can make it for my 6 yr old girl

NIGERIA HAS ABOUT 180 million population and the market is vast and while TOGO and GAHANA,WITH BENIN doesnt not have upto 80 million so street wise economics comes to play

NIGERIA IS A BIGGER MARKET AND RICHER, I will sell faster in Nigeria and that is turnover in business and the dude in togo will be selling to a country that has about 10 million cars all together while I in nigeria is in a market that have about 70 million cars with higher disposable income...in economics it is called TURN OVER nad higher ROI


Now we are selling the same products lets say bottled water and you are selling 100 naira per bottle and i decide to sell 80 naira per bottle...our cost price is 50 naira but your margin is 50 naira as profit mine is 30 naira ...dont think i am crazy(I am playing Julio Inglesia here) I will sell 10 you will sell 5 and that is turnover..i did not learn this in school, i learnt it from ALABA international

so to answer your question..i will invest in NIGERIA selling 130 and forget TOGO,GHANA AND BENIN selling 140...

the answer is turn over


Thankls bro


Streetwise economics

Sunnybobo3:
You are not talking to a Fulani guy dude. You are talking to a full blooded Igbo guy from Anambra state who is in the trenches doing his thing from Idumota right on front of the Oba's palace along Iga Idungaran.

I'm being practical with you here as I've been in Import and export business for years having also been involved in oil marketing in Apapa.

Your argument above shows you have little knowledge of the downstream market operations in Nigeria.

Now, why do you think Nigeria was always experiencing fuel scarcity when PMS was heavily subsidised and do you honestly think Nigeria consumes the over 40 million litres of PMS for which subsidy us being collected per day?

The truth is that Nigeria subsidies fuel which goes to our neighbouring countries.

You said as an investor, you'd sell in Nigeria. Now let me tell you this, the refineries are not the one to ultimately decide where there products end. They sell to distributors who have outlets and it's the distributors especially those living in border areas that move these products across borders where there is an available market for it with a much wider profit margin.

Your economic analysis is more if theory and not practicable on the ground. More like what my relationship managers from the banks come up with abd I just laugh at them

By the way, I hold an MBA from a UK uni but doing my thing in the 'market' as nwa Anambra.

jpphilips:
You really compared the oil industry with street economics? such a talent!!

baralatie:
guy if you did not understand that simple explanation.it will be better you have a 6 months crash in sales management.

baralatie:
every thing you talk up there is assumption!

1.how much and in how many years will a new refinery be built.
2.what is the capacity of three refineries and what is the demand of Nigeria now
3.does The Fg have the enabling law protecting investor (local or indigenous) to do business in the upstream.
4.do local or indigenous firms have resources to partake and engage in oil and gas business without denying The country its revenue.

989900:
1. "A new refinery", is an ambiguous phrase (non-definitive), how long to construct will largely depend on the capacity of the refinery. If we could build 100,000 barrels/day capacity in 3 years thereabout 30 years ago, we should be able to do that in a little less now.

2. OTOH, we do NOT have to wait for new refineries to get going, as we have an installed capacity of 445,000 barrels (71 million litres/day or roughly 30 million litres of PMS/day) already. The demand we have now according to our faithful gov't and cabal, is roughly 35 million litres of PMS/day (story for the gods). We all know a large chunk of that is consumed on paper/Cotonou and co.

3. Yes.

4. Yes, if there is transparency and accountability. About 11 licences are already issued for oil refineries since OBJ, but none built, 'cause the subsidy money is sweeter -- who won't?
------------------------------------------------------------------------------------------------------------------------------------------------------------------

Now scratch the above ^^, I know some will disagree and bla, bla.... but I'd say like I said before we got the full PWC report, do not be surprised that:
1. A large chunk of the imported refined products we consume are part of the 400,000 barrels crude stolen everyday, refined, and brought back.

2. And a large chunk of the refined products we consume daily, are actually refined by NNPC/cabals by the same refineries said to be functioning at 30% thereabout.

How come if the 3 refineries needed just N99b for TAM to so start functioning at 90%+ capacity, it wasn't started until last year October? Yet Diezani could spend N10b on flights! And this scam goes as far back as OBJ's tenure. That is why you have people like GMB and TAM David saying, there is no subsidy!

Sunnybobo3:
You are not talking to a Fulani guy dude. You are talking to a full blooded Igbo guy from Anambra state who is in the trenches doing his thing from Idumota right on front of the Oba's palace along Iga Idungaran.

I'm being practical with you here as I've been in Import and export business for years having also been involved in oil marketing in Apapa.

Your argument above shows you have little knowledge of the downstream market operations in Nigeria.

Now, why do you think Nigeria was always experiencing fuel scarcity when PMS was heavily subsidised and do you honestly think Nigeria consumes the over 40 million litres of PMS for which subsidy us being collected per day?

The truth is that Nigeria subsidies fuel which goes to our neighbouring countries.

You said as an investor, you'd sell in Nigeria. Now let me tell you this, the refineries are not the one to ultimately decide where there products end. They sell to distributors who have outlets and it's the distributors especially those living in border areas that move these products across borders where there is an available market for it with a much wider profit margin.

Your economic analysis is more if theory and not practicable on the ground. More like what my relationship managers from the banks come up with abd I just laugh at them

By the way, I hold an MBA from a UK uni but doing my thing in the 'market' as nwa Anambra.

Eazeee:
pls save us all dis long story about international comparative advantage. all we want now is 2 have local refineries that can produce enough for our local consumption. as for our export it can still b in d natural state for now pending when we can produce more than enough for local consumption as that will definately occur with d private sector coming in gradually into d mkt with time. smaller n weaker countries hav built refineries n are perfectly taking care of dia local consumption so stop dis mirage thing about establishing n running refineries

baralatie:
guy if you did not understand that simple explanation.it will be better you have a 6 months crash in sales management.

jpphilips:
You really compared the oil industry with street economics? such a talent!!

tonychristopher:
Bro you see that UK did not teach you that oil is a product and like other products follows same principle

Petroleum economics 101

Now buy me oh mpa

jpphilips:
Hero!!

baralatie:
bros refining supplies the Downstream!

baralatie:
examples please!

Sweetguy25:
These aren't reasons why the refineries can't work. The refineries can work if they're fixed and managed properly.
What you gave are reasons why there's a lack of private investment in the downstream sector.

baralatie:
1.the cost 30 years ago inorder to be build those three refineries was a total $1.2 billion.
2.the current product demand(PMS) is 40 million litres/day.the three refineries at max. production will give at a crazy figure 20 million litres per day.
prefer a y solution here(importation or a new facility)

jpphilips:
lolzzzzzzz

onegig:
Your analogy is not only wrong but faulty. Does Nigeria produce Oranges in large scale? Would it make sense if we did to first export raw oranges to South Africa and later reimport extracted juice at cut throat prices. Wont it make sense to extract and make such juice here.?

There are some things you cant rationalize away. Local refining is one of it. The price of petrol is tied to virtually everything in Nigeria. A significant reduction in pump price would lead to reduction in cost of running business, reduced price of food stuff, reduced cost of transport which in turn give more Nigerians especially the middle class and lower more disposable cash to pursue more project thus spurning retail sales and spendings and this in turn create real economic growth not the ones we hear on paper.


Also, we daily lose around 400, 000 barrels of oil. Lets assume we have a serious government that stems the theft of crude oil by 50%. that's almost 200k barrels.

If you plough into local refining . That's around 18million litres of petrol or pms. That is if you multiply by 90litres derivable from each barrel of oil. 18million litres is half the estimated daily comsumption. So question i ask you is with all these information. Do you still think we can afford it or not ;or would you rather give untaneable excuses why government is abdicating in its responsibilities.


I would prefer kunu or zobo. Lol.

Sunnybobo3:
Dude that was a theoretical eexplanation. First of all, the guy got me wrong by alluding that I proposed investing in Togo other than Nigeria, I never did. Yes, the refining company sets up business in Nigeria, sells to distributors, I as a retailer who own a filling station go to the depot to lift my 30,000 litres tanker load of PMS, will I sell in Nigeria or just take the consignment across the border where I can get immediate cash at a substantially high margin instantly from readily available buyers?

If tonychristopher is an Igbo man, he will definitely do the later.

jpphilips:
You are wrong here, Nigeria has the crude oil advantage and extraction advantage as well, we have quality advantage which gave birth to market advantage. Our Bonny light is the most traded oil on the commodity market world over, so you need more research.

As a matter of fact, No derivative of crude oil need advertisement to be sold, the Nigerian market alone can swallow as much we can never imagine. If the first real paragraph of your article is superfluous I wonder what the rest of your article hold.

You can not make the Nigerian oil industry hostile to foreigners, Jonathan scammed you with his local content policy, the foreigners still own the technology and you can not easily replicate the technology because it is always under a patent, so what you call "hostile" is a fabricated fallacy kissing the lips of madueke.
The so called local content company will get the technology from the foreigners, inflate his contract sum (mark up) to accommodate his "middle manship", the IOC, NNPC by extension pays a higher contract sum while the middle man smile to the bank for doing nothing and the foreigner still does the job, guess who the middleman is??

NIGERIAN POLITICIANS





This is exactly the problem that we thought the PIB will address but it never did, rather it was busy advocating flaring permit for Madueke and cronies with DSO for Gas in 2015, imagine the insult!!






Nigerians are not asking for their oil industry to go and compete on the international stage yet, we are asking for our refining capacity to be competitive locally to discourage import and you don't have a solution yet, so what is the long article for?





Balkanizing the NNPC will not make refining viable and you don't need any PIB to balkanize the NNPC, it is a scam!!
you admitted the former though.





I want the government to privatize the refineries like yourself but the first privatization Yaradua reversed was done with noble intentions, Dangote had no plans of refining anything, he wanted to tear it down and use it for stacking cement and probably convert it to SS, distribution center for Dangote cement, Yaradua read between the lines and reversed it.
At the time of purchase, dangote had no oil to refine except now which is why he is doing a refinery project at the Lekki FTZ, sell it to Dangote tomorrow he will buy it triple what he bought it in 2005.






Competition does not work in the downstream sector I thought you learnt some lesson from AGO (Diesel). All those "competition will bring price down", "remember the telecom" nonsense spewed by Iweala and Sanusi were all lies. Sanusi is the biggest liar in Nigeria's history at least Diesel has explained to us why he failed to manage UBA and failed as a CBN governor.






How can you sell fuel to domestic refineries? do you mean nuclear fuel? let me for the sake of argument agree that you meant "crude oil", where will that crude come from?







Removal of Subsidy is possible same as refining locally but something drastic needs to be done, anything done in the short run will only amount to untying the Government and chaining the masses.
fortunately, Orient and Dangote understand perfectly the winning strategy.

Sunnybobo3:
Dude that was a theoretical eexplanation. First of all, the guy got me wrong by alluding that I proposed investing in Togo other than Nigeria, I never did. Yes, the refining company sets up business in Nigeria, sells to distributors, I as a retailer who own a filling station go to the depot to lift my 30,000 litres tanker load of PMS, will I sell in Nigeria or just take the consignment across the border where I can get immediate cash at a substantially high margin instantly from readily available buyers?

If tonychristopher is an Igbo man, he will definitely do the later.

jpphilips:
You really wanna divert products in a Buhari's administration? ?