During a recent conference in Lagos, energy policy expert Mr. Henry Adigun from the Institute for Energy and Extractive Industry Law revealed that Nigeria is facing a significant financial loss of $1,000 for each barrel of crude oil exported. This unsustainable situation was addressed in Lagos during a roundtable discussion on ‘The Midstream and Downstream Petroleum Industry in Nigeria: The Role of NMDPRA in ensuring Energy Security’. Adigun pointed out that the country’s inability to maximise the benefits of its crude oil reserves, such as by engaging in local refining, was the cause of the deficit.
The Federal Government expressed its backing for local refinery operators but emphasised that the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) cannot endorse a Monopoly in fuel supply and distribution according to its regulations. Mr. Taiwo Ogunleye from the Institute also highlighted the importance of regulatory matters in improving efficiency and transparency within the value chain. According to him, the Petroleum Industry Act (PIA) stipulates that no individual or entity should have ownership and control of more than 40 percent of the fuel supply and distribution sector in Nigeria.
Petroleum products are crucial in powering the economy and energy systems.
Ogunleye stated that while most companies must follow this rule, the Nigerian National Petroleum Company Limited (NNPCL) is exempt as the PIA recognises it as the last resort provider. He emphasised the significance of petroleum products in today’s energy landscape, highlighting their crucial role in fuelling the Global Economy and powering modern energy systems. Petroleum is crucial in impacting daily lives by fuelling cars, creating electricity, and Manufacturing various products. The industry encompasses a diverse range of business practices, starting from locating reserves underground to selling the finished goods to consumers.
He explained that the sector is often named as a ‘value chain’, consisting of a series of steps carried out in succession to produce a finished product, encompassing upstream, midstream, and downstream sectors. Referring to a report released by the World Bank Oil, Gas, and Mining Policy Division, he noted that insufficient Regulation and enforcement can also impede the effectiveness of fuel distribution. He believes that outdated sector regulations, incomplete coverage, or obsolete fuel specifications could discourage experienced operators who follow high standards from entering the industry.
A fair and competitive market across the sector is needed.
In order to maintain a fair and competitive market in the downstream sector, it is essential to have a legal framework that clearly outlines the roles of both government and private entities. This framework should establish guidelines that prevent government interference while promoting transparent and healthy competition among all participants in the supply chain. The report emphasised that effective management of the downstream oil sector is crucial for providing petroleum products across all industries in the most cost-effective way possible.
Various factors influence end-user prices net of taxes for petroleum products on the global market. This includes market size, cost per litre of fuel transported over land (with the Pipeline being the cheapest option in some Sub-Saharan African cases), economies of scale, rail, and truck transportation modes. Additionally, the pricing protection provided to inefficient domestic suppliers can impact these prices. He explained the importance of maintaining a steady supply of energy in different forms at affordable prices. Energy Security involves ensuring that energy is accessible and acceptable to all.
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Availability is all about ensuring there is an abundant supply of energy resources, while affordability focuses on making sure these resources are priced reasonably for everyone to access. Ensuring energy accessibility for all citizens involves guaranteeing a reliable Infrastructure for a consistent energy supply. In practical terms, this means keeping energy prices affordable and reducing fuel Poverty to a minimum. Acceptability is a crucial concept that focuses on the detrimental effects of energy production, such as Pollution and harm to the environment. It is vital to minimize these impacts in order to gain acceptance from consumers.