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Refineries Begin Operations: Forex Demand to Drop

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The pressure on the Central Bank of Nigeria (CBN) to devalue the naira due to dwindling foreign exchange reserves, is likely to ease with the resumption of operations of the Port Harcourt and Warri refineries, THISDAY’s investigations have revealed.

This is coming as the managing directors of the refineries will today present status reports on the plants to the management of the Nigerian National Petroleum Corporation (NNPC).

NNPC operates three refineries with a combined capacity of 445,000 barrels per day (bpd). They are the 210,000bpd Port Harcourt refinery, the 125,000bpd Warri refinery and petrochemical plant, and the 110,00bpd Kaduna refinery and petrochemical plant.

The commencement of operations at the Port Harcourt and Warri plants, will boost the country’s local refining output and reduce the volume of petroleum products imported into the country, thus easing pressure on the naira and foreign exchange demand by at least 50 to 60 per cent.

According to CBN data, fuel imports alone account for 35 per cent of forex demand in the market.
Officially, the Petroleum Products Pricing Regulatory Agency (PPPRA) puts Nigeria’s consumption of petrol at 40 million litres daily.

However, several industry analysts have put the nation’s actual consumption of petrol at 30 million to 35 million litres a day, claiming that the figure had been inflated due to the subsidy regime that encourages smuggling across Nigeria’s borders.

The subsidy regime, notwithstanding, almost all of the country’s petroleum requirement for over a decade has been imported because of the suboptimal performance of the nation’s three  refineries, which have the capacity to meet about 50 per cent of the country’s fuel demand.

An official with one of the refineries informed THISDAY yesterday that with the commencement of operations of the Port Harcourt and Warri plants, Nigeria’s over-dependence on imported products would be drastically reduced.

He said with the emergence of President Muhammadu Buhari, who has a zero-tolerance for corruption, the refineries, which were intentionally kept moribund despite the repairs carried out by the management of the plants with external contractors, have suddenly come alive.

When contacted, NNPC spokesman, Mr. Ohi Alegbe, confirmed at the weekend that both the Port Harcourt and Warri refineries had commenced operations.

Alegbe, however, did not provide further details on the output from both plants. But the refinery official, who preferred not to be named, told THISDAY that the managing directors of the plants would today present status reports on the refineries, starting with the Port Harcourt plant, to NNPC’s management.

“The situation reports will determine the exact state of operations. Until this is done, we cannot give you details of the volume of products being produced.

“If your car is down for several months, you have to test-run the engine before you go to town with the news that you have repaired your car. That is what we are doing now,” he said.

Also confirming the resumption of operations at the Port Harcourt and Warri refineries at the weekend, the Chairman of PPP Fluid Mechanics, Capt. Hosa Okunbor, said his firm, which has the contract to convey crude oil to both refineries with its very large crude carrier (VLCC) had commenced the supply of crude oil to the plants.

He said: “Currently, we lift 950,000 barrels to the Warri refinery twice a month and approximately 1.6 million barrels twice a month to the Port Harcourt refinery using our VLCC.

“We then use our shuttle vessels for lightering or ship-to-ship (STS) transshipment to the Port Harcourt and Warri refinery jetties where the crude oil is discharged to the tanks there.”

However, he added that the movement of his company’s shuttle vessels into the Escravos channel to discharge crude oil for the Warri refinery was proving to be a challenge due to the shallow draft in the channel.

“If we can move crude oil to the Warri refinery with ease, more crude oil could be pumped through the NNPC System 2C pipeline to the Kaduna refinery which could also refine products for northern Nigeria.

“But our operations are slowed down by the draft, so we will have to make a case to the Nigerian Ports Authority (NPA) to dredge the Escravos channel to ease movement in the area,” Okunbo said.

PPP Fluid Mechanics is the sole company owned by Africans on the continent that operates a VLCC with the capacity to ship two million barrels of crude oil.

Okunbor expressed hope that the company’s investment in marine vessels would ease access to the Cabotage Fund that would see PPP Fluid Mechanics transit from a transshipment carrier for the refineries to an exporter of Nigeria’s crude oil.

A Nigerian firm, Ocean Marine Tankers (OMT) Limited, also founded by Okunbor, Tunde Ayeni and others, was previously awarded the contract to move crude oil from the Escravos terminal to the Warri refinery before the 445,000bpd allocated to domestic refining was awarded by NNPC to international and local traders under the crude oil swaps and Offshore Processing Agreements (OPAs).
With the refineries up and running, it is expected that the crude swaps and OPAs will be slashed by 50 per cent.

Meanwhile, the United Arab Emirates (UAE) – OPEC’s second largest oil producer and the second largest economy in the Gulf – has said it will let domestic fuel prices move more freely in a politically sensitive reform that could save the government billions of dollars and begin reducing the wealthy country’s love of gas-guzzling cars with big engines.

Petroleum and diesel will be deregulated from August 1 and a new pricing policy linked to global levels will be introduced, the country’s news agency WAM quoted the energy ministry as saying last week.

“Deregulating fuel prices will help decrease fuel consumption and preserve natural resources for future generations,” said energy minister Suhail bin Mohammed al-Mazroui.

“It will also encourage individuals to adopt fuel-efficient vehicles, including the use of electric and hybrid cars.”
Matar al-Nyadi, undersecretary of the ministry and chairman of its new Gasoline and Diesel Prices Committee, told Reuters that petrol prices might initially rise slightly because of the reform, while diesel would fall.

At present, the state subsidies keep petrol and diesel in the Arab world’s second biggest economy at some of the lowest prices in the world.

Motorists pay 47 US cents for a litre of gasoline, less than a third of levels in western Europe.
Cutting subsidies and letting fuel prices rise could boost UAE state finances, which have been weakened by a plunge of oil export revenues since 2014 due to the fall in global crude prices.

The International Monetary Fund (IMF) projects the UAE will post its first fiscal deficit this year since 2009; it estimates the country spends $7 billion annually on petroleum subsidies.

The ministry’s statement did not give details of the new pricing policy, beyond saying the prices committee would announce on the 28th of each month prices for the following month, basing its decision on “average global prices with the addition of operating costs”.

The global price of Brent oil is currently around $56 per barrel, not far from six-year lows. But linking UAE prices to global levels could clear the way for substantial hikes in the future, if Brent starts to recover.

Mazroui said fuel price changes would not raise the UAE’s cost of living significantly, while diesel’s expected fall next month would help the economy.

“This will stimulate the economy as a lower diesel price would mean lower operating costs for a wide number of vital sectors like industry, shipping and cargo among many others.”

The announcement put the UAE at the front of economic reform among the rich Gulf oil states. Other governments are grappling with similar financial pressures but have mostly not had the political will to push through major change.
Kuwait raised its domestic diesel and kerosene prices in January but partially reversed the hikes a few weeks later after criticism by some members of parliament.

Abu Dhabi, the biggest emirate in the UAE, hiked electricity and water tariffs in January as part of efforts to cut subsidies

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