Brazil’s quest for fuel self-sufficiency: Any lessons for Nigeria?

Brazil is targeting fuel self-sufficiency by 2020. At the center of this target is the state-run oil company Petrobras. The Brazil na¬tional oil company believes that if they will be allowed to bring domestic fuel prices in line with world prices; that would help fund new refineries and create fuel self-sufficiency. Gov¬ernment fuel-price controls, aimed at controlling inflation, have forced Petrobras to subsidize domestic con¬sumers. In the past two years, Petro¬bras’ refining division has been hit with $15.7 billion of losses.
Petrobras’ current refining capac¬ity of about 2 million barrels per day is insufficient to meet rising domes¬tic demand. According to its plan to wean Brazil from growing depen¬dence on US and Indian refineries, Petrobras expects refining capacity to rise 50 percent to 3 million barrels per day by 2020 and nearly a third more to 3.9 million barrels per day by 2030. Demand for fuels is expected to grow 2.5 percent a year during the 2014-2018 period, and 2.2 percent a year between 2019 and 2030.
Subsidies drain cash
Raising the money needed to fi¬nance refining and other plans be¬comes difficult as the current subsi¬dies drain cash and Petrobras’ debt has soared. Maria das Graças Foster, chief executive of Petrobras said; “We can’t improve our investment situ¬ation without a convergence in fuel prices.”
The convergence in prices is still a long way off. Despite two increases in the price of gasoline and three for die¬sel in 2013, the gap between domes¬tic and international prices remains wide, about 11 percent for gasoline and 19 percent for diesel.
Petrobras is therefore counting on new refineries to boost results of the refining unit as a whole. The two low-sulfur diesel refineries, Premium I and Premium II, will be built but will do little to help to the company’s investment position. The new refiner¬ies will have the latest technology to improve the efficiency of our refining system.
Petrobras is expected to take a $12 billion charge against earnings in 2015 on the 235,000 barrel per day RENEST refinery. One of two under construction by Petrobras, the refin¬ery cost nearly $20 billion and is ex¬pected to start operations at the end of this year.
According the U.S. Energy In¬formation Agency, Brazil will be the world’s sixth-largest oil producers by 2030. Brazil is also expected to be the single largest contributor of new-field oil output by 2020.
Lessons for Nigeria
Nigeria is endowed with over 37 billion barrels of crude oil reserves and with a daily production of about 2.3 million barrels of crude. The four refineries (Warri, Kaduna and Port Harcourt) with a combined capacity for refining 445,000 barrels of crude oil per day operate far below capacity. The four refineries has consistently failed to meet international bench¬marking standards of about 80 to 90 per cent capacity utilisation and 90 per cent on-stream time efficiency for continuous operation, thus, unlike most oil producing countries, Nigeria depends hugely on imported fuel.
Spending on fuel subsidy is an equivalent to about a fifth of the country’s budget. Nigeria currently imports about 38.298 million litres of Premium Motor Spirit (PMS) daily into the country, thereby, spending over N146.9 billion on fuel impor¬tation every month. Nigeria spent about N971 billion on fuel subsidy payments in 2013 up from N950 bil¬lion in 2012. N971.1 billion has been budgeted for fuel subsidy in 2014.
But Nigeria can borrow a leaf from Brazil’s initiative for fuel self-sufficien¬cy. Nigerian National Petroleum Cor-poration (NNPC) like its Brazilian counterpart should be the pivot of Ni¬gerian’s quest for fuel self-sufficiency. Petrobras’ plan is hinged on weaning Brazil from subsidy and investing hugely on more refineries.
NNPC has should take the first step by either making the existing refineries work or sell them off to competent private hands who can turn them around for better. Instead of building more refineries as Petro¬bras is doing, NNPC should rather concentrate on the regulatory side of
Nigeria currently imports about 38.298 million litres of Premium Motor Spirit (PMS) daily into the country, thereby, spending over N146.9 billion on fuel importation every month
ensuring that new refineries come on stream soon.
Since 2002, federal government has issued over 39 licences to private operators to establish refineries of var¬ious capacities in the country but not much has been heard until recently when Africa’s richest man, Aliko Dan¬gote, announced that his refinery, pet¬rochemical and fertilizer complex in Nigeria would to take off in 2016 with the target of cutting down importa¬tion of refined petroleum products by about 50 per cent. The proposed larg¬est private refinery project is being fi¬nanced by $3.5 billion equity from the Dangote Group and $6 billion loan capital from a consortium of banks.