Leadership (Abuja)
Jerry Uwah
12 November 2007
Abuja — Oil prices sailed perilously close to the $100 per barrel mark last week.
Even with concerted efforts by the Organisation of Petroleum Exporting Countries (OPEC) to close the yawning supply deficit and reduce pressure on prices, trends in the international oil market suggest that cheap crude may still be several months, if not years away.
The soaring oil price is the product of a combination of positive and negative developments in the global economic and political scene.
On the positive side, China's economy is still surging along at an alarming annual growth of about 10 per cent. The Chinese produce about 3.5 million barrels of oil a day and consume well over seven million barrels daily.
In fact, the growth in China's economy is so noticeable that even the International Air Transport Association (IATA) has tipped the country to top the growth of air passengers traffic in the next two years.
India is another factor in the surging oil prices. India's economy is growing at well over eight per cent per annum and is not relenting. Like China, IATA has also tipped India for remarkable growth in air passenger traffic next year. India and China put together, harbour close to one third of humanity. So the massive economic growth rates in two of Asia's giant cannot but impact heavily on oil prices.
The United States on its part is adding to the catalogue of positive developments that have combined to push oil prices to the roof. Even as it has been on war footing in the past four years, the American economy has shown very little signs of slowing down.
On the negative side of the surging oil prices are events taking shape in Iran, Iraq and Turkey. The Ayatollahs running the Islamic theocracy in Teheran are bent on building something of an Islamic bomb to send a strong signal to the 'infidels' in Jerusalem and Washington that the country they adjudge the world's headquarters of terrorism could no longer be kicked around.
However, even with massive backing from Moscow and Beijing for Iran, the men in Washington are bent on stopping a country dubiously tagged the evil axis from building a nuclear bomb. The first approach to that is through economic sanctions designed to choke foreign investment out of Iran.
That is already having the impact of scaring foreign investors from Iranian oil fields. Consequently, Iranian oil facilities are becoming obsolete and the country is in no position to boost oil production any time soon.
The tension between Turkey and Kurdish rebels in Iraq's semi-autonomous Northern region has added its own portion to the surging oil prices. Even as the U.S. is battling to restrain Turkey from a full fledge invasion of Northern Iraq given its potential for economic and political instability, oil marketers have already factored in the disruption that a Turkish invasion of Iraq's oil rich Northern province could cause to oil supply, thus pushing up price through speculative bidding.
The waning strength of the American dollar too is not helping matters in the brewing global energy crisis. The dollar has lost so much of its strength especially to the euro in recent times that some have opted to save in oil rather than in dollars since oil is priced in dollars.
In the final analysis, the U.S. Energy Information Administration (EIA) blames "strong demand, limited surplus capacity, falling inventories and geopolitical concerns" for the surging oil prices. And these are factors that would not easily go away. So oil prices are almost certain to hover above the $50 mark for quite sometime.
Nigeria, as a major oil exporter in OPEC, may be earning more from the surging crude oil prices. However, the ambivalence of Nigeria's situation is that while the men in the budget office may be praying for higher crude prices, the men in the Petroleum Products Pricing Regulatory Agency (PPPRA) and indeed the average Nigerian motorist, want the reverse of that. Nigeria imports virtually all its petroleum products needs which is more expensive than the crude it exports.
Right now, the landing cost of petrol has hit the N80 per litre mark. That means the government would be spending more than N15 billion monthly on fuel subsidy. In fact, the federal government is just bearing the rising cost of fuel subsidy out of political expediency. No one really knows how long the government could continue to hold down the cost of petroleum products as crude oil prices head for the $100 mark.
The failure of the nation's four refineries to produce finished products is being felt everywhere in the economy. The cost of low pour fuel oil (LPFO), a bye-product of refined crude used extensively by the crippled textile industry has hit the roof.
That explains why textile firms are closing shop on daily basis as they cannot produce with imported black oil and compete with cheap smuggled textile products from subsidized markets in Asia. Another consequence of Nigeria's zero refining capacity is the astronomical cost of cooking gas.
Nigeria is probably the only country in West Africa where a 12.5 kg cylinder of cooking gas retails for N3,000. In neighbouring Benin Republic, which does not produce crude oil the same quantity of domestic gas, sells for the equivalent of N1,200. Ironically Nigeria imports cooking gas from Benin Republic.
In fact, rather than gaining from the rising oil price, Nigeria is almost in the same shoe as other oil importing nations. The only difference is that while the developed oil importers buy cheap crude, refine and export at higher cost, Nigeria exports cheap crude and imports expensive finished petroleum products.
In the face of the surging oil prices therefore, Nigeria has to develop self-sufficiency in refined petroleum products to free more resources for the development of collapsing infrastructure.
Unfortunately, the Obasanjo administration did basically nothing in the last eight years to raise the nation's refining capacity.
Though, it may be too early to judge the Yar'Adua administration in that direction, the steps so far taken do not show any light at the end of the tunnel.
The first wrong step taken by the president was the decision to hand the refineries which Obasanjo sold to his friend at give-away prices, back to the Nigeria National Petroleum Corporation (NNPC).
The NNPC had over the years proved that it lacked the skill and integrity to manage refineries of that capacity.
The acting group managing director of NNPC, Lawal Yar'Adua had promised that the refineries would come on stream in December, 2007. No one in the land believes him.
Even his boss, the minister of state for petroleum, H. Odein Ajumogobia, has expressed doubts about the chances of achieving the feat.
The unfortunate thing about the refineries is that Yar'Adua, who is charged with the responsibility of reviving them is, ironically, part of the problem. He was the managing director of Kaduna Refinery and during his tenure, nothing positive happened in the plant.
Those who study business administration know how difficult it is for managers to solve the problem created by their own reforms. That simple logic dictates that the federal government should look elsewhere for managers to run the nation's crippled refineries.
Besides, there is need for government to work out terms for publicprivate sector partnership in the building and running of new refineries along the lines of the equity holdings of the Nigeria Liquefied Natural Gas (NLNG) project.
Obasanjo's experiment with private ownership of refineries has shown that the Nigerian private sector is yet to develop the integrity, skill and financial muscle to attract foreign investors into the capital intensive business.
A total of 18 firms were given provisional licenses to build refineries in the country. About five years down the road, none of them has gone beyond the endless search for foreign technical partners. While the licensees continue their search for funds, the nation's refining capacity has deteriorated abysmally as even the existing refineries went into coma.
The federal government must look for a way to partner with the private sector for the building of refineries that would get Nigeria out of the shameful act of exporting cheap crude and importing expensive petroleum products.
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