NNPC targets 80-day stockpile in response to marketers strike threat

To avert a possible disruption in fuel supply, the Nigerian National Petroleum Corporation, (NNPC) is stockpiling about 80-day supply of fuel going by the average consumption of 35 million litre per day BusinessDay has learnt.

 

This has led to an accumulation of 1.640 billion litres of petrol in stock which will last the country up to 46 days of petrol consumption; an additional 1.125 billion litres is expected to be delivered by the end of the month, raising the country’s storage to about 79 days of petroleum consumption (35 million litres daily) according to analysts at Ecobank research.

 

“The purpose of stockpiling petroleum is to secure a stable supply while the refineries undergo some rehabilitation and to prevent any significant social, economic and political problems in the event of oil supply shortages,” said the Ecobank energy research team led by Dolapo Oni.

 

The Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) last week called on the Federal Government to settle all debts allegedly owed oil marketers to avert strike by oil marketers and massive retrenchment of their workforce.

 

Oil marketers are demanding for over N720 billion subsidy arrears which comprises outstanding subsidy owed on the importation of petroleum products, accrued interest on loans from banks and exchange rate differential, which made them to halt importation of refined petroleum products leaving only the Nigerian National Petroleum Corporation doing the business.

 

As a result of this stockpile by the NNPC, petrol pump prices have reduced marginally from N145/litre to N142/litres. But this is coming at a cost.

 

“In our opinion, the actual landing price of gasoline is likely higher than the current N130/litre at which marketers are able to lift products at the depots. Adjusting for transport time (thus, using prices from July/August), the average tonne of gasoline from Europe would have landed offshore Nigeria at an estimated N143.55/litre,” says the EcoBank research team.

 

EcoBank further said, “Pump prices would have risen to N161, if current distribution margins were retained. This implies an implicit subsidy of about N31/litre on products. This explains to some extent, NNPC’s under recovery of about N79.5bn by the end of June 2017,” said the analysts.

 

Marketers have been unable to source foreign exchange to carry out imports leaving commercial storage levels at an all-time low but NNPC’s stockpile is helping to increase their storage volumes, as well as for its depots in Mosimi and Ejigbo. This is increasing fuel inventory is helping to keep the retail band of PMS between N143 and N146 around the country.

 

Meanwhile has improved foreign exchange from its upstream operations buoyed up by rise in crude oil prices and crude oil volumes. Oil prices rose to $55.57 per barrel yesterday, on the back of a drop in US rig count by seven, the highest since January and Nigeria’s oil production rose to 1.8m bpd, after a lull in militancy.

 

“With the increase in Nigeria’s crude oil production and oil prices above the budget benchmark price of $44.50/barrel, the NNPC is able to use its dollars to fund imports of products and earn naira revenues for the government from sale of the imported products. Once the rehabilitation of the refineries is completed and capacity utilization is restored back above 30%, lesser imports will be required and less demand on NNPC’s revenue to subsidize pump prices,” said the bank’s analysts.

 

Ecobank believes that this stockpile is essential considering events in the global oil market. With oil prices being forced upwards due to the hurricane season in the Atlantic, which has forced closure of many oilfields in America and now in Mexico, global demand for crude oil has forced petroleum product prices upward.

 

“There has been a 9.6% and 6% increase in the price of gasoline in the US and Europe respectively.  This increase in prices could have translated to significant increase in pump prices, especially as there has been no commensurate appreciation in the Naira against the dollar to mitigate the impact,” said the analysts.