Increase Crude Production, Forex Will End Fuel Scarcity — NNPC

The only way to tackle the rising price of diesel and cooking gas in Nigeria is to increase the production of crude oil in the country.

Group managing director of the Nigeria Nation Petroleum Company (NNPC) Ltd Mele Kyari said this when he appeared before the House of Representative Committee on Petroleum (Downstream), headed by Hon Abdullahi Gaya, over the rising cost of the products.

Kyari, who rued acts of vandalism oil facilities, which he said was responsible for the decline in production.

He said three days ago there was a massive attack on one of their facilities and 27, 000 barrels were lost overnight.

He also attributed the problem to the non-functioning refineries in the country.

Kyari said besides the fact the Russia-Ukraine war was affecting the supply of products across the world, most major oil companies were also shutting down due to the energy transmission to eliminate fossil fuels.

He said the unavailability of Foreign Exchange (FX) as a result of inadequate exports, was another reason for the problem.

He said interventions were in place to ensure production improves in July to address some of the FX challenges.

Kyari also cautioned against suggestions that subsidies should be made available for diesel.

“In our country, we do not produce AGO (diesel) and we regret that our refineries are not working. Are we doing anything about it? Yes. We are working on getting them back to work not come back tomorrow.

“As a matter of fact, we have decided to do a quick fix for the Warri refinery. The reason is simple. We do not want to go the long route of doing comprehensive turnaround maintenance because we are concerned.

“Today when you buy gasoline or AGO you must pay for it. The traders don’t care. The only way you can pay for it today in the market is that you must USD to pay. We do not have another means of getting USD more reliable than the production from the crude oil that we sell.

“Today we are net importers of everything, perhaps with the exception of food. So when you don’t export you cannot have foreign exchange. Therefore there is a limit to the call the CBN governor to provide for FX. There is a limit to what he can do, because for as long as we are not productive.

“The only solution is to restore crude oil production in this country. Our current crude oil production including condensate is 1.49 million barrels. The budget level as you are all aware is 1.8 million barrels. So we cannot meet it today.

“Today we have over 205 illegal refinery sites. There are over 295 insertions on our crude oil production line. We have over 200 illegal connections on our oil pipelines. Companies shut down because there is no further need to produce and that is what we are containing. There is massive intervention happening and we believe that we would restore the production through the intervention that we are doing.

“If we cannot take this back, we cannot even have the FX to fund even the AGO importation. So it is not possible. I can assure you that by the end of July, we would restore the product to a level that we can say we are comfortable with and hopefully address some of the FX issues. When you go to the FX window of the CBN if the dollar is not available, if you give it out, it is simply another FX subsidy.

“Therefore there is a supply gap and one of the reason and we are proud to say that it is good reason, is that we took down many of these illegal refineries and I can tell you potentially the AGO you use may be coming from illegal refineries and we took a significant number of them down and that is why you are seeing the supply challenge.

“I don’t think we should regret this. It is better that we should have zero from the illegal refineries than have them at all because it is a national disaster and we are poised to ensure that we take them down.

“But as you do this, you must bring in supply and that is why NNPC intervening sparingly but sufficient enough to cover the gap the other marketers are doing but not enough to provide 100 percent of supply into the country.

The Fuel Subsidy Question

“The suggestion I am going to make is that the Federal Consumer Protection Council, the regulator and including NNPC, we have some level of control around this, at the fuel depots when we bring our products, we ensure that they sell at a mark off that is not beyond cost of acquisition and reasonable margin. This we are already doing.

“But you cannot say the same for the man who went to acquire FX at N600 to the dollar and brings in products and say you have to sell at the price NNPC is selling. So what we are doing is a dilution of the market, because we have access to FX at N418 and therefore our prices are lower than what they would bring and ultimately it would dilute the market not necessarily competing with them.

“Can we increase supply from NNPC? Yes, provided we are able to restore crude oil production, otherwise the limit of our intervention cannot be endless. Lastly, we should not consider putting subsidies on AGO. We simply cannot afford it. We should not do it. This is the reality. Can we manage the price within a range that is rational? That is free of excessive arbitrage. I think we can focus on this and work together the price so that exploitation does not come in,” he said.