With limited capacity to build reserves via deadweight tonnage of tanker fleets through Very Large Crude Carriers (VLCC), Nigeria may be paying a huge price for lack of floating reserves. Already, over 20 cargoes of Nigerian crude oil, representing about 20 million barrels of crude oil and over $1.7 billion remain stranded, as buyers continue to shun the nation’s crude oil.
This is happening amid the country’s revenue shortfall, mounting debt, loan rejection, foreign exchange crisis and looming scarcity of Premium Motor Spirit (PMS) and other petroleum products.
The development, fuelled by current strike action by refiners in France and maintenance of refineries across Europe once again re-echoed the inability of the country to add value to its products locally because over one million barrels refining capacity in the country remained inactive.
Nigeria’s oil reserves, less than 40 billion barrels, are mostly untapped and sold on-the-spot, thus, weakening its capacity to get good deals compared with countries that have strategic inventories.
Indeed, many stakeholders expressed concerns about the inability of Nigeria to maintain crude oil reserves and hire large cargoes, pointing out that the cost could erode the gains from the sale of the nation’s crude oil.
Energy and economic experts were indeed worried about the development, insisting that the country’s 2023 budget of N21.83 trillion may face a serious setback.
While the House of Representatives, last week, approved the request by the Federal Government to borrow more money from China Development Bank, the China-Exim Bank had initially rejected Nigeria’s $22,798,446,773 loan request earlier approved by the National Assembly, just as the cost of borrowing continues to rise on the backdrop of inflation, a development which is compounding Nigeria’s over N77 trillion debt burden.
The prevailing situation, which coincided with the recent employment of a renowned oil trader and former Vice President of the Abu Dhabi National Oil Company (ADNOC), Jean-Marc Cordier, according to industry players, remained an indication that the essence of the Petroleum Industry Act, which prioritises local refining of products against export is being defeated.
Although the Chief Corporate Communications Officer of NNPC Limited, Garba Deen Muhammad, did not immediately respond to questions by The Guardian on the situation, Bloomberg reported that more than 20 shipments for April loading of Nigerian crude were still hunting for buyers.
Senior Director, Energy Market Intelligence for Industrial Info, Hillary Stevenson, was quoted by Hydrocarbon Engineering as saying that at least 900 000 bpd of France’s 1.15 million bpd refinery capacity is offline due to strike action, noting that the development has a supporting impact on refined product prices and a weakening impact on regional crude prices.
Reportedly, operations at all but one of the six operational oil refineries in France have been impacted by the strikes. TotalEnergies SE’s 119 000 bpd Feyzin refinery in Courbevoie, France was running at half capacity.
In the Netherlands where most of Nigeria’s refined crude come from, most refineries are undergoing maintenance, a development projected to distribute supply of petroleum products.
An oil and gas expert and economist, Henry Adigun, said the current situation would further affect the struggling state of the nation’s economy, adding that the country would always face similar challenges if local refining of crude oil is not prioritised.
“The impact is negative. It underscores why the PIA was passed and established. The purpose of that is to ensure that the national oil policy reduces the export of crude oil,” Adigun said. He noted that apart from the loss in value addition, the country faces serious challenges when cargoes are stranded.
Adigun insisted that the politics of oil continues to overshadow the economy of oil, thereby putting the country in a mess.
“When you produce your cargo internally, you get products that address the subsidy issue. There have been back and forth on the removal of subsidy and it appears people are more interested in looking for people to buy their cargo,” he said.
Energy lawyer, Emeka Okwuosa, said the country needs sufficient oil reserves in case of emergency and disruption of global oil supplies.
“There is now oil glut, supply is more than demand. We should find new markets to sell our oil. A situation wherein ships are hanging in the waters waiting for buyers doesn’t bode well for the Nigerian market. We need an aggressive, proactive and holistic strategy going forward. We are yet to see the gains in the NNPCL’s commercially driven new regime. It is the same business as usual,” he said.
Group Chairman/CEO at International Energy Services Limited, Dr Diran Fawibe, asked NNPCL to be more aggressive in marketing the crude and look for buyers.
He lamented that the development remained unfortunate at a time when oil producers are looking for ways to increase production after the challenges of crude oil theft.
Fawibe noted that it is unacceptable to say that the country could not sell its oil, adding that local refining remained a challenge. According to him, the slowness in overhauling the Port Harcourt and Warri refineries is worrisome.
“If Nigeria’s refineries are working, there won’t be so much of a challenge. We would have been talking about exporting products. So if we are having challenges selling crude oil, that will only be after meeting our domestic needs.
“With the challenge, we may be paying a hefty subsidy. Since we are not refining locally, we may need to be ready for the price of products, which may go through the roof. The labour union will rise against that,” he said.
Diran said the prevailing challenges though may be temporary could affect the removal of subsidy as the price would go up. He advised Nigeria to do everything possible to push its oil production to 1.8 million barrels per day to make up for the losses due to theft, adding that the state oil firm must do everything possible to get buyers for the crude oil.
Managing Partner, BBH Consulting. Madaki Omadachi Ameh, said Nigeria’s unsold cargos of crude oil pose a huge challenge for the country’s finances, especially at a time when the economy is in dire straits with dwindling foreign reserves.
“It is to forestall situations like this that domestic refining is key. The turnaround maintenance on the Port Harcourt and Warri refineries need to be brought to conclusion as soon as practicable, even as it is envisaged that the strikes in France and the maintenance activities in the other European refineries will be sorted out soon. Nigeria must never plan its oil and gas industry in a manner that keeps us at the mercy of forces over which we have little or no control,” he said.