Jan 28th, 2012: Touted as the fifth largest exporter of crude oil in the world, Nigeria is one of the privileged members of the Organisation of Petroleum Exporting Countries (OPEC) that has also gained notoriety for importing refined crude from overseas at outrageous cost. But some discerning Nigerians have however argued that it costs far less to refine crude locally compared to imported refined products. How cost-effective is it to refine crude locally? Asks Ibrahim Apekhade Yusuf

ONE argument that has become hotly debated in recent times is that Nigeria may well be suffering from a serious resource “curse” of some of sort. What with the enormous billions if not trillion petro-dollars earned over the past five decades, with little or nothing to show for it.

Echoing similar views, Chief Frank Ovie Kokori, former Secretary General of the Nigeria Union of Petroleum and Natural Gas Workers (NUPENG) who spoke with The Nation from his base in Warri, Delta state, observed that: “Nigeria’s  oil has not really benefitted Nigerians because the gains have been frittered away by corruption at every level. In Nigeria today, you have some very rich, the nouveau riche and the very poor. Only 0.01% of Nigerians have principles…”

Kokori is on the same page with Comrade Baba Omojola, a renowned economist and World Bank consultant.  Omojola, while speaking with The Nation recently observed that over 95 per cent of the country’s population may not have reaped the benefits of the God-given resources and natural endowments.

According to him, “Among our natural resources is crude oil, which is still being discovered to add to the proven reserves we have. I’m also aware that we can obtain over 110 by-products from crude oil but it is so disheartening that we have only concentrated more on oil to the detriment of other high-yield investment products from crude. But worse still, not many Nigerians get to enjoy the benefits which should normally accrue from ownership of such resources like other citizens of the world with comparative advantage. “

Statements like the above mirror the overwhelming feeling of disenchantment with the system by Nigerians from all walks of life, many of who have continued to rue the day the country first discovered oil in commercial quantity.

Cost of refining crude locally

Following the storm caused by the removal of the fuel subsidy, questions are being raised as to the real cost of refining crude locally.  Expectedly, these questions have elicited few positive responses because the petroleum industry is not only riddled with corruption, but is a sector of the economy considered opaque, secretive and well-guarded.

Kokori alluded to this fact himself when our correspondent broached the subject: “What does it cost to refine crude locally?” “It is hard to find the actual cost of local exploration of crude because nothing is transparent”, Kokori said, with a tinge of melancholy. He was however quick to admit that the country boasts  the best crude in the world, a fact that is evident in the demand in the international oil market.

“I know that our crude is one of the cheapest to extract in the world compared to places like Texas, Norway, Britain, etc, which takes longer time to prospect because our crude is on the continental shelf.”

While noting that it may be difficult to place a price tag on the cost of refining crude locally, the erstwhile NUPENG boss who survived many epic battles with the Abacha military junta emphasised that: “The cost of production locally cannot be easily determined because the NNPC will not really give you the amount it cost.

“Our oil is not difficult to extract so; it is obvious that the cost will not be extremely high compared to those countries that have to explore for crude in the deep offshore.” Kokori who recalled that the price of petrol was stable for over 12 years said the late Abacha military junta increased it from N2.70 per litre to N11.00.”

Prof. Itse Sagay, while expressing his views on the cost of refining crude locally recalled that some experts who have carried out research in the sector have pointed out the fact that the cost is anything but exorbitant as the Federal Government and its agencies have made the public believe thus far.

Sagay, a professor of law, who spoke with The Nation, said Nigerians have had the misfortune of being deceived by past and present crop of leaders, who have appropriated the commonwealth for their personal and selfish aggrandizement.

A Pandora’s Box

Dr. Izielen Agbon, a renowned petroleum expert who once served as the Head of Department, Petroleum Resources, at the University of Ibadan, in an exclusive online interview with The Nation from his base in Dallas, Texas, USA, gave a fresh perspective on the raging debate on petroleum pricing, especially as it concerns the country’s local refining capacity.

As to whether Nigeria has the cheapest crude oil compared to countries like Britain, Norway, USA, Agbon answered in the positive.

According to the former chairman of the Academic Staff Union of Universities (ASUU) University of Ibadan chapter, “Finding and development ((F&D) costs in Nigeria are lower than USA and Norway. In Nigeria, most of our fields are onshore (deltaic region) and were found and developed in 1960-1990. The 1986 MOU and 1990 MOU between the Federal Government of Nigeria and foreign Joint Ventures partners used a F&D cost of N2.50/bbl to calculate a bonus of $2.00/bbl for additional reverses. F&D cost may vary depending on onshore ($2.5/bbl -$7.5 per barrel), shallow water ($7.5/bbl-$15/bbl) and deep water ($15/bbl-$30/bbl) conditions. The new offshore deep water fields are large (greater than 500 million barrel initial oil in place. Nevertheless, their F&D costs are high at $15/bbl -$30 /bbl. F&D cost of $3.5/bbl are average data for onshore old (brown) fields in the Niger Delta.”

The Nigeria National Petroleum Corporation (NNPC), he noted: “does not lift the more expensive shallow water or deep water offshore crude oil under the domestic allocation quotas. Production from these offshore fields is marked for export. Data collection and management is poor in Nigeria but this average is reasonable for the purpose of calculating the cost of petrol in Nigeria.”

Using what he described as a “netback calculation method”, the don, who is also the President of Equilibrium Energy, gave further insights into the different dynamics of oil pricing.

“There are many old (brown) fields near the Warri and Port Harcourt Refineries. At the refinery gate in Port Harcourt, the cost of a barrel of Nigerian crude oil is made up of the finding /development cost ($3.5/bbl) and a production/storage /transportation cost of $1.50 per barrel. Thus, at $5 per barrel, we can get Nigerian crude to the refining gates at Port Harcourt and Warri. One barrel is 42 gallons or 159 litres”, he stressed.

Expatiating, he said: “The price of one barrel of petrol at the depot gate is the sum of the cost of crude oil, the refining cost and the pipeline transportation cost. Refining costs are at $12.6 per barrel and pipeline distribution costs are $1.50 per barrel. The distribution margins (retailers, transporters, dealers, bridging funds, administrative charges etc) are N15.49/litre or $15.69 per barrel. The true cost of one litre of petrol at the Mobil Filling Station in Port Harcourt or anywhere else in Nigeria is therefore ($5+$12.6+$1.5+$15.7) or $34.8 per barrel. This is equal to N34.36 per litre compared to the old official price of N65 per litre or the new one of N97/litre.”

To many analysts, striking as Agbon’s treatise seems, authorities have continued to delude the rest of the public that things are right. But time will tell.

By The Nation NewsPaper