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The real cost of Nigeria’s petrol

Let’s talk some numbers. The real cost of Nigeria’s petrol. THE PROBLEM: Our local refineries cannot produce enough petrol to meet our local demand put at 35million litres/day Ok, now let’s define some terms: barrel = bbl; gallon = gal; litre = L; bbl/day = bbl/d; million = m.

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The real cost of Nigeria’s petrol

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  1. Let’s talk some numbers..... The real cost of Nigeria’s petrol

  2. THE PROBLEM: • Our local refineries cannot produce enough petrol to meet our local demand put at 35million litres/day • Ok, now let’s define some terms: • barrel = bbl; gallon = gal; litre = L; bbl/day = bbl/d; million = m. • Next, 445,000bbl/d have been allocated for local refining • If 1bbl = 42gal = 168L, then 445,000bbl/d will give: • 445,000 x 168 = 74.76mL/d (mL = million litres). • Please keep this in mind as you go to the subsequent slides. Let’s start at the beginning

  3. The cost of 1barrel of locally refined PMS 2 1 Refining and transportation to Depot - $12.6/bbl Processing & Transportation Rig Development & Transportation costs from reservoir to refinery gate - $5/bbl Depot Refinery Reservoir Add Distribution Margins (Retailers, Transporters, Dealers, Bridging Funds, Admin Charges etc - $16.58/bbl Final Cost of a barrel of PMS = $(5+12.6+1.5+16.58) = $35.7/bbl At an exchange rate of N157/$1, This comes to N33.6/L Pipeline and Distribution Costs - $1.5/bbl 3 4

  4. The government says refineries are operating at 38.2% of refining capacity of 445,000bbl/d • Now, 38.2% of 445,000bbl/d = 170,000bbl/d. • Let’s digress a bit: • A barrel (42gal) of crude oil yields the following: Back to inefficient refineries.... LPG – 4 gal • As we already know 1bbl of crude contains 78L • From the diagram, local production (of 170,000bbl/d) will give 13.26mL/d of PMS (19.5*170,000*4) • The government says that national demand is 35mL/d. So..... PMS – 19.5 gal AGO – 10 gal DPK – 4 gal LPFO – 2.5 gal RESIDUALS – 5 gal

  5. ...so the government exports 275,000bbl/d in a refine-swap deal to make up the gap. The breakdown is as follows: Closing the inefficiency gap... Trafigura – 60,000bbl/d Landing costs (refining & transporting) – N123.32/L Duke Oil (UK) – 90,000bbl/d Add Distribution Margins (Retailers, Transporters, Dealers, Bridging Funds, Admin Charges etc – N15.49/L SocieteIvorienne de Raffinage(Cote D’Ivoire) – 60,000bbl/d • This comes to $3.54/galor $148.54/bbl Unknown – 60,000bbl/d • Again, please keep this in mind as you go to the subsequent slides.

  6. Volume-wise, upon refining, 1bbl of Nigerian crude yields: Now for the real costs....(1/3) • Now, using a netback calculation, we calculate the true cost of 1L of imported PMS for swapped oil: • Let’s define Gross Product Revenue (GPR) of a refined barrel of crude oil: LPG – 6.6% LPG – $174.48/bbl PMS – 20.7% PMS – $69.55/bbl AGO – 30.6% AGO – $172.22/bbl • i.e. GPR = Sum of volumes of each product (P) multiplied by the respective prices of the product ($) • Now, domestic prices are as follows: DPK – 9.5% DPK – $53.3/bbl Fuel Oils/Residuals – 32.6% Fuel Oils/Residuals – $129.68/bbl

  7. $142.32/bbl Now for the real costs....(2/3) LPG – 6.6% LPG – $174.48/bbl PMS – 20.7% PMS – $69.55/bbl AGO – 30.6% AGO – $172.22/bbl DPK – 9.5% DPK – $53.3/bbl • Since the swap crude is produced locally (and has been allocated for local consumption); to get its real landing cost: • We need to remove the International cost of the allocated crude; this is $107/bbl • And we get: $(142.32 – 107) = $35.32/bbl • Just hang on...... Fuel Oils/Residuals – 32.6% Fuel Oils/Residuals – $129.68/bbl

  8. Since the international cost of PMS is $148.54/bbl And the net-cost of swap crude is $35.32/bbl Now for the real costs....(3/3) • Then the net-cost PMS is: • This comes to $0.219/bbl or N34.45/bbl • This is the REAL cost fo 1L of PMS and not even the N65/L that we currently pay!

  9. Government claims a landing cost of N138/L for PMS but assume that the swap oil (275,000bbl/d) is sold for FREE! While the resulting refine/imported PMS costs N148.54/bbl (Talk about creating something out of nothing ) They argue that they subsidise each litre of PMS by N73 (N138.91-N65). But if the (‘international’) landing cost is at $148.54/bbl, then naturally, the take-off of swapped crude oil should be at ‘international’ price ($107/bbl). The traders/marketers and the Govt are charging us FULL PRICE for the swapped crude while they are getting it for FREE! The Deception

  10. If the true price of 38.2% of our PMS supply from our local refining is N33.6/L and the remaining 61.8% has a true (‘international’) price of N34.45/L, then the average (and TRUE) price of a litre of PMS is: • N(38.2%*33.36+61.8%*34.45) = N34.03/L • However, we have been paying N65/L In Conclusion...... • In short we have been paying a PMS tax of 91%! • We have the experts and professionals to prove this. • Let the Govt come up with a counter-analysis. • We cannot pay for refined product in the domestic market at ‘international’ prices while the swapped-oil is taken for FREE. Simply put that is stealing....... • ** This presenation is based on an article by Dr. IzilienAgbon, a former HOD, Petroleum Engineering Department, former ASUU Chairman, University of Ibadan, trained many operators in nation’s energy industry with practical experience on our practices and policy focus in the last 20 years, writes from Dallas, Texas. izielenagbon@yahoo.com. The article can be viewed at: http://thewillnigeria.com/opinion/11340-THE-REAL-COST-NIGERIA-PETROL.html

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