Evaluating Critical Issues For Nigeria’s Strategic Roadmap Input Nigeria Downstream Oil & Gas Sector Strategic Outlook Nigeria Subsidy Cost Comparative Analysis A Proactive Approach to Subsidy Implementation in Nigeria Nigeria Existing Refineries Performance Review The Need to Increase Nigeria’s Local Refining Capacity Refined Products Imports Opportunity Cost to Nigeria Demystifying Reasons for Low Investments in Local Refining Capacity in Nigeria Nigeria Existing Refineries Revamp Strategy Existing Refineries Revamp Proposed Ownership Structure New Refining Capacity Investment Outlook Nigeria Refining Capacity Investments GVA Potential Market Prospects for Nigeria as a Regional Refining Center Nigeria Refining Center Benefits to Targeted Markets in West Africa Volume 3-14| Mar 2015 Usman Suleman MBA (Oil & Gas ); B.Eng (Civil) Hosea 4:6 My people are destroyed for lack of knowledge
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Evaluating Critical Issues
For
Nigeria’s Strategic Roadmap Input
Nigeria Downstream Oil & Gas Sector Strategic Outlook
Nigeria Subsidy Cost Comparative Analysis
A Proactive Approach to Subsidy Implementation in Nigeria
Nigeria Existing Refineries Performance Review
The Need to Increase Nigeria’s Local Refining Capacity
Refined Products Imports Opportunity Cost to Nigeria
Demystifying Reasons for Low Investments in Local Refining Capacity in Nigeria
Market Prospects for Nigeria as a Regional Refining Center
Nigeria Refining Center Benefits to Targeted Markets in West Africa
Volume 3-14| Mar 2015
Usman Suleman MBA (Oil & Gas ); B.Eng (Civil)
Hosea 4:6 My people are destroyed for lack of knowledge
A Comparative Analysis of Nigeria’s 2013 Estimated Subsidy spend was carried-out, by peer reviewing Nigeria against India.
The evaluation was based on mirroring India's 2013 Subsidy Burden against its GDP and Population. The key highlighted indices used
were the percentage of GDP spend on Subsidy and the Subsidy Cost per Capita. From the analysis the percentage of GDP spent for
Subsidy in India stood at 1.25%, while the spend per capita was 18.69 $ per capita. The percentage spend on Subsidy for Nigeria, while
assuming a 1.25% of its 2013 Re-Based GDP, was about 6.51 Billion USD and 37.47 $ per capita, compared to the most likely estimate of 6.73
Billion USD, representing about 1.29% of the 2013 GDP.
Though the difference in spend on subsidy as a percentage of GDP for India and Nigeria are marginal, there is however a huge disparity in
the subsidy cost incurred per capita, 18.69 and 37.47 $ per capita for India and Nigeria Respectively.
Now, in order to set the subsidy cost burden in Nigeria at Parity with India’s Subsidy Cost per Capita for 2013; the percentage of GDP
spend on subsidy will have to be set at 0.62% equating to Fixed Subsidy Benchmark of 3.24 $Billion USD, thus reducing the average
subsidy cost per litre for PMS and HHK to 0.14 and o.32 $ per liter as compared to the likely actual subsidy cost incurred of o.29 and 0.67
$ per litre for PMS and HHK respectively. This equates to an average cumulative subsidy spend of 0.17 $ per liter as compared to 0.35 $
per litre of PMS and HHK distributed in 2013.
Going forward, the critical meeting point for the next Government is to adopt a “Fixed Subsidy benchmark” using the subsidy cost per
capita Parity with India as reference. This Scenario will provide for a fixed yearly subsidy benchmark that will be adjusted YOY to take
into consideration GDP Projections and Population Growth. This Strategy will ensue a Win-Win Scenario for both the Government and
Nigerians as Government will set subsidy as a percentage of the OMP levels in the time of both high and low crude oil prices rather than
using a “Fixed Regulated Price level” . The extra-budgetary savings from this new subsidy regime could be applied to setting –up Social
Security Fund, Downstream Investments, Youth Entrepreneurship Programmes, Power Sector Support Fund; Infrastructure
development and other Critical Sector Investments based on a PPP Model.
Nigeria Strategic Roadmap Input| Vol_3: Mar 2015
Nigeria 2013 Subsidy Spend Comparative Analysis
Source: India Energy Subsidy Review_Global Subsidies Initiatives_Issue 1. Volume2’ December 2014PPPRA PMS Jan 2015 Template (Assessed from www.pppra.ng.com)World Economic Outlook_IMF, October 2014 & Authors Analysis
23.40 $Billion USD
6.73 $Billion USD
18.69 $ per Capita
37.47 $ per Capita
1.25%
1.29%
1.22%
1.24%
1.26%
1.28%
1.30%
0.00 $Billion USD
10.00 $Billion USD
20.00 $Billion USD
30.00 $Billion USD
40.00 $Billion USD
India Nigeria
Nigeria Refined Petroleum Subsidy Cost Comparative Analysis for 2013(India Vs Nigeria)
2013 Subsidy Cost 2013 Subsidy Cost per Capita 2013 Subsidy Cost as a % of GDP
PMS HHK
2013 Actual National Distribution (lpd) 43,546,496.9 8,475,535.7
India 2013 Actual Subsidy Cost 23.40 $Billion USD
India Projected 2013 Population 1,252,139,596 people
India 2013 Actual Subsidy Cost per Capita 18.69 $ per Capita
India 2013 Nominal GDP 1,876.81 $Billion USD
India 2013 Actual Subsidy Cost as a % of 2013 GDP 1.25%
Nigeria 2013 Nominal GDP (2013 Re-Based GDP) 521.81 $Billion USD
Projected 2013 Nigeria Subsidy Cost using India as ref 6.51 $Billion USD
Nigeria Projected 2013 Population 173,615,345 people
Nigeria Projected 2013 Subsidy Cost per Capita 37.47 $ per Capita
Projected 2013 Nigeria Subsidy Cost 0.34 $ per litre of Distibuted PMS and HHK
2013 Average Value of Imports ($Billion USD) 10.8 1.7 1.3
Extra –Value Added as Offshore Refining Margin and Freight Costs using 2013 Imports as against Refining Locally ($Billion USD)
2.5 0.3 0.3
Average Value added from Refining Crude (%) 130.00% 125.00% 125.00%
Average C+F Price using PPPRA Template for the 1H of 2013 1,016.89 $/mt 1,016.89 $/mt 900.60 $/mt
Nigeria 2013 Imports from Various Refining Centers
Crude Exports to Refining Centers Overseas
DPK
5.95mlpd
AGO
4.51mlpd
PMS
39.00mlpd
Source: Nigeria 2013 Budget (assessed from Nigeria Ministry of Finance and Budget Office Website)PPPRA Product Pricing Template for PMS and HHK (Assessed from www.pppra.ng.com)Opec Crude Oil Open Basket RegimeAuthors Analysis
Allows for a Competitive Refinery Transfer Price (RTP) against Import Parity Price levels
Increases the chance of maintaining a marginal gap between deregulated and Open Market Prices for refined petroleum products
Reduced subsidy budget burden due to competitive ex-Refinery Prices as compared to the Import Parity Price (C&F) of imports from offshore refining centers.
Increases infrastructural development by redeploying savings to better use ; while also contributing to enhance Nigeria’s nominal GDP
Increasing Local Refining Capacity2013 Refined Petroleum Products Imports
In the past, the non-progress made in increasing investments in the domestic downstream sector, have been alluded to the non-
deregulation of the sector. But, the underlying critical question we must ask as a Nation, is the current scenario of importing refined
petroleum products from other refining centers abroad beneficial to our economy?; the answer is an affirmative“No”.
In 2013 the existing refineries produced only about 10%, 30% and 42% of demand for PMS, DPK and AGO respectively, while 90%, 70% and
58% of national demand for PMS, DPK and AGO respectively were imported from Offshore Refining Centers. These scenario clearly
indicates that the Nigeria Downstream Sector can thrive in a regime were the domestic refineries operate their pricing system based on
the international crude oil market pricing regime. The critical meeting point here is that, Nigeria’s Downstream Sector have already in-
place, established institutions backed by law to fix in-country refined petroleum products prices to ensure a fair pricing system that is
modelled after Platt’s for every liter of imported and domestically produced product based on the import parity pricing system.
Thus, if the existing system in Nigeria can guarantee investments made in importing refined petroleum products in an atmosphere
characterized by more risks in terms of price volatility, high in-security from piracy, unfavourable marine conditions and demurrage, then
investing in increasing domestic refining capacity to meet national demand, will only contribute to reduce these risks; whilst
contributing to a more competitive pricing system to rival other offshore refining centers for other available markets in Africa.
Nigeria Strategic Roadmap Input| Vol_8: Mar 2015
Demystifying Reasons for Low Investments in Local Refining Capacity in Nigeria
Direct International Crude Oil Price Discount to domestic refineries will help to boost gross refining margins
Source: NNPC 2013 Statistical BulletinPPPRA Template (Assessed from www.pppra.ng.com)Authors Analysis
Refined Petroleum Products
Offshore Refining Center
Domestic Refining Center
Reduced freight cost due to proximity of pipeline to crude oil source and cheaper crude delivery cost
Provides a wider window of fixing a more favourablegross refining margin due to the above factors & others
More competitive Ex. Refinery Price
Reduced Refined Product inland evacuation and delivery cost to existing Primary Depots
Lower Traders Margin to PPMC and other Major Marketers
Lower Lightering Expenses
Lower financing cost
The existing refineries upgrade strategies, will be premised on providing a deeper conversion capabilities to
meet the deficit production capacity of the existing refineries to meet national demand for PMS.
The underlying objective of the “Deep Conversion Upgrade” is to produce more gasoline and less fuel oil, This
will also help to reduce in the near-term the in-country refining capacity investments required by 2018 to a more
likely capacity of 400,000 bpsd; thereby reducing the near-term investments required for “Greenfield
Refineries”.
The most likely scope of investments for the proposed PMS Optimization Programme for the existing Refineries
are highlighted below, with the estimated revamp cost.
New Isomerization Units
New Continuous Catalytic Reforming (CCR) Units
New Alkylation Units
New and Upgraded Fluidized Catalytic Cracking Units (FCCU)
Existing Refineries Revamp Cost Estimate
(to operate @ 90% Nameplate Capacity)
Nigeria Strategic Roadmap Input| Vol_9: Mar 2015
Nigeria Existing Refineries Revamp Strategy
PHRC Projected Total Revamp Investment Estimate: $1.692 Billion USD
WRPC Projected Total Revamp Investment Estimate: $1.249 Billion USD
KRPC Projected Total Revamp Investment Estimate: $1.148 Billion USD
ISBL Facilities Upgrade
ISBL-Isom Complex
ISBL-CCR Platformer
Alky/Acid
FCCU Upgrade
OSBL Facilities OSBL facilities new and upgrade
Project management
Others(Lic/Catalysts/et.c)
Contigencies
Source: Petrofin Presentation_Trinidad and Tobago Energy Conference ,2013Authors Analysis
Nigeria Refining Capacity Target from Revamp of existing Refineries and New Investments
=1.045 mmbpsd
Source: National Refineries Special Taskforce Report August, 2012Proceedings of the Nigerian Refining Capacity Summit (Uyo 2012)NNPC Greenfield Refinery Initiative (Assessed from http://www.nnpcgroup.com/nnpcbusiness/midstreamventures/greenfieldrefineryinitiative.aspx) Authors Analysis
Investments in New refining Capacity, together with the revamping of the existing refineries inNigeria; will have a strong impact our national economy and job market.
These attended economic impact will culminate into providing a Gross Value Addition (GVA) asdepicted in the figure below.