Again, FG Rules Out Total Deregulation, Oil Falls to Six-week Low

• Kachikwu: Nigeria has a refining gap of 900,000bpd

Chineme Okafor in Abuja

The federal government has again stated that it will not completely deregulate Nigeria’s downstream petroleum sector, stressing that the move could increase the prices of petroleum products, especially petrol, which would have negative consequences on the country.

Acting President Yemi Osinbajo stated this Thursday in Abuja at the 2017 African Modular Refinery Discussion organised by the Modular Refiners Association of Nigeria (MRAN).

His statement came just as crude oil prices dropped to a six-week low due to pressure from high global inventories and doubts about the ability of the Organisation of Petroleum Exporting Countries (OPEC) and non-OPEC producers to implement agreed production cuts.

Osinbajo, who equally blamed government’s involvement in the Kaduna, Warri and Port Harcourt refineries operated by the Nigerian National Petroleum Corporation (NNPC) for their failure and near collapse, stated that in the new modular refineries’ initiative that the government is pursuing, oil-producing communities would be made to acquire stakes in the refineries set up in their localities.

He also said the federal and state governments would have some stake, as well as private investors in the modular refineries.

Osinbajo stressed that government was committed to creating an enabling environment for private sector participation and investment in modular refineries, noting however that it was aware of the challenges and complications posed by the non-deregulation of the sector.

He said in spite of the challenges, government could not afford to undertake complete deregulation of the sector, as it would bring untold hardship to a vast majority of Nigerians.

According to him, the government had reached the conclusion that it would focus on moderating the sector and continue to intervene to ensure it creates a balance.

“There are those who are saying we need to deregulate fully. Why are they saying that, it is because if we do not deregulate it will not be cost effective for those who are producing petrol to sell.

“At the same time, if you deregulate completely, prices of everything else are going to go up. So there are those complications, meaning we’ve got to moderate all those things.

“Government has to come in at a certain level and this is what is currently going on to try and balance things, because we cannot have, just overnight, another massive deregulation.

“If you do that, obviously, the consequences would be very dire for the economy,” said Osinbajo.

On the failure of NNPC’s refineries, which government has also ruled out their concession, he noted that it would be necessary to create the right atmosphere for private investors to come in and invest.

“Government cannot just go and be setting up refineries. If government sets up refineries and uses its people to run it, it won’t work. We have good examples in all the refineries that we have seen.

“If you look at the refineries we have today – Warri, Port Harcourt and Kaduna – the primary reason they are not working today is because they are government-run,” the acting president explained.

He further noted: “Government cannot do business. Government’s business is to create the enabling environment for business. And then government would put some investment into it.

“Government should not be in the business of setting up refineries all over the place; that is just a waste of time and resources.”

Osinbajo equally argued that the country owes itself the responsibility of exploiting the massive petroleum resources that it has.

According to him, this was responsible for the decision of the government to establish modular refineries across the Niger Delta.

He stated that in ensuring increased community participation in the process, the people of the Niger Delta region should, however, not feel a sense of entitlement just because they are from the oil-bearing region.

“They are entitled not because they live in the Niger Delta, but they are entitled to it because they also have the brains, the resources to be able to make it happen, and this is what I have seen from my engagement with people in the Niger Delta.

“They themselves are bringing in the investors; they themselves are talking to private investors, locally and internationally, and they are bringing them here,” Osinbajo stated.

In his remarks at the discussion, the Minister of State for Petroleum Resources, Mr. Ibe Kachikwu, who was represented by Mr. Olumide Adeleke, a deputy director in the Department of Engineering and Standards of the Department of Petroleum Resources (DPR), stated that at present, the country has a refining gap of about 900,000 barrels per day to meet the daily national consumption.

Kachikwu explained that to close the identified gap, the government would have to set out some incentives to encourage investments in private refineries.

The minister said committed and qualified investors in the refining sector would continue to enjoy statutory support and prevailing government incentives, as well as other measures being put in place for them to meet their aspirations and sustain profitability.

But as the Nigerian government remained obstinate about the measures to revamp its downstream oil sector, oil prices Thursday dropped to a six-week low owing to the pressure from high global inventories and doubts about the oil producers’ ability to implement agreed production cuts.

Global benchmark, Brent crude, fell 30 cents to $46.70 a barrel, its weakest since May 5 and just above a six-month low, before recovering slightly to trade around $46.90.

US light crude was down 25 cents at $44.48, also not far off its six-month low.

Reuters reported that both crude benchmarks have lost all the gains made at the end of last year after OPEC agreed with other big producers to cut output in an effort to prop up prices.

Crude prices have also fallen by about 12 per cent since May 25, when OPEC agreed to extend its output limits by six months until March 2018.

OPEC and its allies have promised to restrict output until at least the end of the first quarter of next year to try to drain surplus supply.

But inventories are near record highs in many parts of the world, and many traders expect further price falls.

Despite the deal, some OPEC members, including Nigeria and Libya, have been exempted from cutting and their rising output is seen to be undermining efforts led by Saudi Arabia.

While Saudi Arabia has reduced output, Nigeria and Libya are pumping more to the market.

OPEC’s pledge was to cut some 1.2 million bpd, while other producers including Russia agreed to bring total reduction to almost 1.8 million bpd.

But production in the United States, which is not part of the deal, has jumped 10 per cent over the past year to 9.33 million bpd.

The US government’s Energy Information Administration (IEA) has raised its forecast for domestic output growth in 2017 to 460,000 bpd from a predicted decline of 80,000 bpd in December.

OPEC now expects U.S. production to increase by 800,000 bpd in 2017, a pointer that global oversupply will persist for a while.

The IEA said it expected oil supplies next year to outpace demand despite consumption hitting 100 million bpd for the first time.

According to the energy adviser to over 26 industrialised countries, the growth in crude oil supply next year is expected to exceed the anticipated pick-up in demand.

The Paris-based agency said production outside OPEC would grow twice as quickly in 2018 as it will do this year, when OPEC and 11 partner nations have restrained output.

“For total non-OPEC production, we expect production to grow by 700,000 bpd this year, but our first outlook for 2018 makes sobering reading for those producers looking to restrain supply,” IEA said.