By Okuneye Moyosola
The recent ordeal of Nigerian pilgrims from Saudi Arabia whose travel arrangements were disrupted due to scarcity of aviation fuel (Jet A1) in the domestic market brings to the unending dilemma of aviation fuel scarcity. Is this scarcity real or fictitious? What are the causes? How can the nation overcome them? These are some questions that this write-up intends to answer.
While the recent scarcity of aviation fuel also affected some other Nigerian carriers involved in the Hajj operations, the Nigerian National Petroleum Corporation (NNPC) earlier this month advised airline operators and other consumers to disregard reports about aviation fuel scarcity. The Corporation in a press statement affirmed that the current nationwide aviation Fuel stock holding is robust enough at over 80 million Liters, translating to more than 37 days sufficiency. The state oil corporation assured Airline operators and other consumers of aviation fuel of adequate stock to meet their energy needs.
Despite the re-assurance, this incident is just one of the several cases of scarcity of Jet A1 as domestic airline operators and passengers have continued to suffer this nightmare. The scarcity has also led to the huge financial losses for operators caused by disruption in flight operations.
Aviation fuel, also known as Jet A1, accounts for 30 per cent to 40 per cent of airlines’ operating costs. Apart from cost, the supply of the product is sometimes epileptic, resulting in flight disruptions.
Currently, the product is imported and the prices fluctuate according to landing cost and availability, as the prices could go up without warning, which hampers long term planning. Nigerian airlines would significantly increase their revenue and spend less on operations if aviation fuel is produced locally because the prices would be lower than what is currently obtained and would also be more stable.
At a recent International Air Transport Association (IATA) Forum which held in Dubai, Emirates’ President, Tim Clark, complained that foreign airlines flying to Africa were refueling abroad because jet fuel supplies had become more expensive and scarce in countries like Nigeria.
The decaying fuel hydrant infrastructure at the airports has not helped the situation either, as tankers are used to transport fuel to the tarmac. MMS Plus findings reveal that the pipelines that supply fuel from Mosimi/Ejigbo to Murtala Muhammed Airport (MMA) have remained unserviceable for more than two decades. This has forced airlines into using tankers to convey fuel to the airport with the attendant cost of bridging and demurrage, apart from other charges paid to access the airport.
Despite these challenges, the International Civil Aviation Organization (ICAO), the global aviation regulatory body projects that Nigeria will need two billion litres of jet A1 annually by 2030, occasioned by rise in travelling public. Recently, African Airlines Association also said that fuel costs in Africa was the highest, adding that high taxes and charges were the reasons the continent’s airlines were less competitive than their counterparts in other regions of the world.
Speaking to MMS Plus on this issue, the Chief Executive Officer of Topbrass Aviation Limited, Mr. Roland Iyayi called on the government to dedicate one of the refineries in the nation solely for the production of aviation fuel.
“Our refineries are not working so we have to import. Unfortunately, the number of individuals or organizations licensed to import is quite few. That has created a situation where it seems like a cartel. Until that is broken, the issue of managing the cost of the product will be almost impossible. If one of the refineries in Nigeria was fully geared towards producing aviation fuel, we would have competing prices. Since there are less organizations and individuals to import, it’s possible to have collision among the participants so they can maximize profit to the detriment of the industry”, Iyayi said.
Iyayi opined that the government could correct this unfortunate trend by managing the production of aviation fuel locally.
“They have to ensure that the refineries are working and a dedicated line is provided for the production of jet A1 fuel so that airlines in the country will have unhindered supply. The reliability of supply is very key as well as the pricing. If we have a refinery working, dedicated to the production of Jet A1, chances are that we would overcome the current issue of shortage and uncontrolled pricing”.
He noted that most airlines around the world have adopted the system of fuel hedging to reduce cost and avoid scarcity.
“On the other hand, if the airline can negotiate as a block with a supplier, it is also possible to peg the cost of jet A1 fuel on a annual basis. This is called hedging. When you hedge, you hedge for a period of 12 months. This is also something that can be done but it is not done in Nigeria because we don’t have a volume to justify hedging. Major airline in the world with large fleets can afford to hedge knowing that they have 300-400 airplanes in their fleet. But in Nigeria, if you put together the entire domestic fleet, I doubt if we have more than 50 airplanes. That is still not enough volume to justify hedging” he added.
Fuel hedging is a contractual tool some large fuel consuming companies, such as airlines, cruise lines and trucking companies, use to reduce their exposure to volatile and potentially rising fuel costs. A fuel hedge contract is a futures contract that allows a fuel-consuming company to establish a fixed or capped cost, via a commodity swap or option. The companies enter into hedging contracts to mitigate their exposure to future fuel prices that may be higher than current prices and/or to establish a known fuel cost for budgeting purposes.
However, the Executive Secretary of Major Oil Marketers Association of Nigeria (MOMAN), Mr. Clement Isong, disclosed that there was no problem with the supply of the jet A1 in spite of the challenge.
“There is aviation fuel; there is no problem with it. Our members have it in their tanks. I am not sure why it is not available to airline operators” he said.
According to him, aviation fuel is a deregulated product, so marketers are at liberty to sell based on their cost price. “l confirm to you that MOMAN members have Jet A1 product in stock and members have increased loading out and selling at our aviation storage tanks. We (MOMAN) have also increased loading at our facilities at airports across the country including our Joint Users Hydrant Installation at the Murtala Mohammed Airport in Lagos. We also have stock at our import reception facilities at Apapa and we are working with NNPC to ensure continuous import and supply of the product”.
Buttressing this point, Group Captain John Ojikutu (Rtd) is a former Commandant of the Murtala Muhammed Airport, told our correspondent that Jet A1 is always available. He observed that the product becomes scarce as a result of the inability of some airlines to pay the debts it owed to marketers.
“NNPC told us two weeks ago that they have sufficient fuel to last for 37 days. Who are the people complaining? Are the foreign airlines complaining? Are the marketers saying that they do not have fuel? From my experience, I know that once they are complaining like this, a lot of them owe. The marketers get their money through payments and they do not want to allow credits. If you owe me and you want to buy again, I will increase the price. If I have been selling it 100 naira, I will increase it to 150 naira. This is what they are battling with. The airlines that fly are those that pay. The airlines that do not fly have gotten accumulated debts” Ojikutu, who is also the Secretary General of the Aviation Safety Round Table Initiative, said.
The analyst also stressed the need for the fuel Hydrant System at the airports to be repaired in order to facilitate transportation of the products and avoid contamination.
“Even if Dangote starts selling fuel tomorrow, what is happening now will still happen. The bridging of fuel from the Wharf to Apapa and to the airport is also another issue. Before, it was done through pipe but the pipes got spoilt and they haven’t been repaired. The marketers and the airlines are not ready to repair it in order to reduce cost. If you use tankers to carry fuel to the airports, when it gets there, it has to stay for almost a week before it is discharged. This leads to demurrage and when this happens, it influences the cost of aviation fuel. If this is added to the cost of transportation of the fuel to airports, the price increases”
He stressed that as soon as the pipelines are repaired, these problems would be solved, noting that importation of the product wasn’t the problem but the dangers of contamination.
“It’s not about whether we are importing on not. We also have to remove the danger of contamination which is high when the product is conveyed via tankers. Although this does not relate directly to the cost but if any aircraft gets its engine damaged, it will add to the cost too” he added.
The solution to this scarcity would be the establishment of refineries to produce aviation fuel, while in the short term there would be need to get the piping system working.
Although the establishment of Dangote’s refinery in Lagos, which is under construction, plans to start selling petrol, diesel and aviation fuel in early 2020 would ensure the availability of Jet A1; it would not reduce the cost as a result of the decaying fuel hydrant infrastructure at the airports. This necessitated the use of tankers to transport fuel to the tarmac. To maximize the benefit of the refinery, the fuel hydrants systems has to be repaired to save cost for the airlines.
Nigeria is placed as one of the largest crude oil producers in Africa; it is disheartening that the country imports its aviation fuel, like other byproducts of crude oil. In some cases, airlines recorded estimated losses of $1.6 million per day as fuel scarcity grounded at least two in every three flights nationwide. The nation could correct this lingering aviation crisis which could influence the charges for air transport in the country.