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Fuel Crisis Looms over Non-Supply of Crude to Oil Traders, Forex Challenges

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Barely four months after the federal government adjusted the pump price of petrol upwards from N86.50 to N145 per litre to stabilise product importation and distribution, oil traders have raised concern over likely scarcity of the product.

The fear expressed by the marketers stemmed from the alleged inability of the Nigerian National Petroleum Corporation (NNPC) to supply crude to some oil traders and refineries in exchange for refined products, under the Direct Sales-Direct Purchase (DSDP) contractual arrangements initiated with some selected oil traders and foreign refineries some months ago.

The marketers were also alarmed by the increasing challenges facing them in accessing foreign exchange, and threatened that they might abandon petrol importation in the hands of only the NNPC, potentially plunging the country into another energy crisis.

They warned that the pegging of the pump price at N145 was based on N285 exchange rate and that the depreciation of the Naira in the inter-bank market to an average of N315 has created a huge gap left to be filled. Warning that it was not feasible for the price to remain at N145 with the current FX reality.

But the Group Managing Director of NNPC, Dr. Maikanti Baru has dismissed the fear of possible scarcity, saying that the corporation has continued to meet its obligations to marketers and foreign refineries in the areas of foreign exchange allocation and supply of crude oil under its DSDP contracts with the oil traders.

While the marketers alleged that the corporation has defaulted in the supply of crude oil to the foreign refineries, Baru dismissed this claim, revealing that NNPC currently accounts for 90 per cent of petrol imported into the country and has 1.3 billion litres of petrol in reserves “and is not about to let the country go through another crisis of scarcity”.

Following the controversy, which trailed the NNPC’s Offshore Processing Arrangement (OPA, the corporation had adopted the DSDP framework under which it provides crude to selected traders and refineries in return for petroleum products in full and extra margins, unlike the OPA.

DSDP also eliminates all the cost elements of middlemen and gives NNPC the latitude to take control of sales and purchase of crude oil transaction with its partners.

But sources close to the marketers said the corporation had defaulted in the supply of crude oil to the foreign refineries, thus threatening the steady supply of petroleum products in the country.

According to them, lack of crude oil due to the attacks on oil facilities in the Niger Delta, has hampered the corporation’s ability to meet its contractual obligations under the DSDP.

The marketers said that since the programme started, the NNPC had not been able to supply crude oil to the oil traders.

“The militants stopped almost all the onshore production and because of this, NNPC has no crude to supply to the traders. The oil traders supplied petrol initially but stopped when the NNPC was not bringing crude. The traders had to stop because they did not want a repeat of the 2008/2009 crisis when they were indebted to the tune of over $3 billion due to NNPC’s inability to meet obligations. Fresh crisis is looming.”

Having lost over 70 per cent onshore and shallow water production to militant attacks, the NNPC can no longer access the 445,000 barrels per day allocation to the refineries, which is used to service the corporation’s DSDP agreement.

With the loss of production from the traditional terrains, the country’s oil revenue is currently derived solely from deep offshore production where the NNPC has Production Sharing Contracts (PSCs) arrangement with some international oil companies (IOCs).

The deep offshore fields sustaining Nigeria’s crude oil production include: Shell’s 225,000 barrels per day capacity Bonga field; Chevron’s 250,000 barrels per day capacity Agbami field; Total’s 185,000 bpd Akpo and 180,000 bpd Usan deepwater fields; as well as ExxonMobil’s 190,000 barrels per day Erha field.

Also Total’s 200,000 bpd Egina deepwater field being developed at the cost of $16 billion will start production in 2017 after the $3.3 billion Floating Production Storage Offloading (FPSO) vessel arrives the country in March or April 2017.

However, some of the five producing fields have not attained their nameplate production capacity.

Baru however in a telephone chat yesterday said there was no looming scarcity.

On the issue of alleged non-supply of crude to the traders, Baru said “at the moment, we have been giving them and I have also done a tender as a backup in case I have any issue.”

“So, there is no cause for alarm,” he added.

Also speaking on the foreign exchange challenges, Baru stated that NNPC has been assisting some of the marketers with proven financial capacity to pay for foreign exchange provided by International Oil Companies (IOCs).

“The criteria is important because we could give some of them the foreign exchange, but they may not have the capacity to pay for it. We checked with their banks to confirm that they have the financial capacity because we don’t want a situation where we give them the forex and its diverted or they can’t pay for it. So we carry out a thorough evaluation. We have NNPC, Central Bank and also PPPRA representatives on the committee that evaluates them on the basis of capacity to perform.

“And once we are satisfied on that basis, we now give them forex. To say there is no forex, I don’t think it is correct. At the moment as I am talking to you, I have over 1.3 billion litres and that is more than enough for this September. We have sufficient quantities and not in any scarcity. And we also have direct sales, direct purchase where I give them crude oil and they bring in petrol for me or any product that I choose to bring in,” Baru explained.

But some marketers who faulted Baru’s claim, alleged that the challenges of accessing foreign exchange has also hampered their ability to import petrol, thus threatening product availability.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Oil and Gas Companies in Nigeria

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Oil - Investors King

Nigeria is an oil reach nation with several oil and gas companies operating in Africa’s largest economy.  However, only ten oil and gas companies are listed on the Nigerian Exchange Limited (NGX).

Before we discuss in detail each of the listed oil and gas companies in Nigeria. A short background on Africa’s largest economy will help throw more light on the significance of the oil and gas companies or the entire oil sector to the Nigerian economy.

Nigeria is a petrol-dollar economy, which means Africa’s most populous nation, sells crude oil and use its proceed to service the economy. In fact, the Nigerian Naira is backed by crude oil like Canadian Dollar and other commodity-dependent economies.

But because the Central Bank of Nigeria (CBN) pegged the Naira against its global counterparts, the local currency does not reflect succinctly the fluctuation in global oil prices like other crude oil-dependent currencies.

Since global oil prices rebounded with the gradual reopening of economies, the oil and gas companies in Nigeria have also rebounded from the 2020 record low of $15 per barrel. The oil and gas sector has gained 62.76 percent from the year to date, according to the NGX Oil and Gas Index.

The index gauge price movements in 10 listed oil and gas companies in Nigeria.  However, there are several oil and gas companies in Nigeria not listed on the Nigerian Exchange Limited.

Oil and Gas Companies Listed on the Nigerian Exchange Limited (NGX)

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Oil Prices Extend Gains on Friday After Saudis Dismiss Supply Concerns

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Oil prices extended gains on Friday after Prince Abdulaziz bin Salman, Saudi Energy Minister dismissed calls for more crude oil supply on Thursday.

Brent crude oil, against which Nigerian oil is priced, rose to $84.92 per barrel at around 8:31 am Nigerian time. The U.S West Texas Intermediate crude oil also responded positively to the comment, rising to $81.56 per barrel on Friday.

Prince Abdulaziz had stated on Thursday that OPEC plus efforts were enough to protect the oil market from wild price volatility seen in coal and natural gas markets.

“What we see in the oil market today is an incremental (price) increase of 29%, vis-à-vis 500% increases in (natural) gas prices, 300% increases in coal prices, 200% increases in NGLs (natural gas liquids) ….”

He further stated that the Organization of the Petroleum Exporting Countries and allies led by Russia, have done a “remarkable” job acting as “so-called regulator of the oil market,” he said.

“Gas markets, coal markets, other sources of energy need a regulator. This situation is telling us that people need to copy and paste what OPEC+ has done and what it has achieved.”

Prince Abdulaziz explained that OPEC plus will add 400,000 barrels per day in November and do the same in December and subsequent months. The increase will be gradual he said.

“We want to make sure that we reduce those excess capacities that we have developed as a result of COVID,” he said, adding that OPEC+ wanted to do it “in a gradual, phased-in approach”.

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Lack of Investment in Clean Energy Compromising Fight Against Climate Change and Poverty

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Renewable Energy - Investors King

New research highlights a chronic lack of finance that will leave billions of people in Sub-Saharan Africa and Asia without electricity or clean cooking by 2030; Urgent action to accelerate investment in clean energy for developing countries is needed from global leaders assembling at COP26 to ensure a just energy transition.

This year’s Energizing Finance research series – developed by Sustainable Energy for All (SEforALL) in partnership with Climate Policy Initiative (CPI) and Dalberg Advisors – shows the world is falling perilously short of the investment required to achieve energy access for all by 2030 for the seventh consecutive year.

In fact, tracked finance for electricity in the 20 countries that make up 80 percent of the world’s population without electricity – the high-impact countries – declined by 27 percent in 2019, the year before the onset of the Covid-19 pandemic. The economic strain caused by Covid-19 is expected to have caused even further reductions in energy access investment in 2020 and 2021.

Energizing Finance: Understanding the Landscape 2021, one of two reports released under the series, finds committed finance for residential electricity access fell to USD 12.9 billion in 2019 (from USD 16.1 billion in 2018) in the 20 countries. This is less than one-third of the USD 41 billion estimated annual investment needed globally to attain universal electricity access from 2019 to 2030.

Meanwhile, there is an abysmal amount of finance for clean cooking. Despite polluting cooking fuels causing millions of premature deaths each year and being the second largest contributor to climate change after carbon dioxide, only USD 133.5 million in finance for clean cooking solutions was tracked in 2019. This is nowhere near the estimated USD 4.5 billion in annual investment required to achieve universal access to clean cooking (accounting only for clean cookstove costs).

These findings have been released just ahead of COP26 in Glasgow, where global leaders will focus on how to spark meaningful progress on fighting climate change. As part of this, they will need to consider how to reduce global emissions from the energy sector while also increasing energy access in developing countries to support their economic development.

“We are at a critical moment in the energy-climate conversation,” said Damilola Ogunbiyi, CEO and Special Representative of the UN Secretary-General for Sustainable Energy for All and Co-Chair of UN-Energy. “What is clear is that the path to net zero can only happen with a just and equitable energy transition that provides access to clean and affordable energy to the 759 million people who have no electricity access and 2.6 billion people who lack access to clean cooking solutions. This requires resources to mitigate climate change and create new opportunities to drive economic development and enable people everywhere to thrive. Energizing Finance provides an evidence base of current energy finance commitments and the finance countries require to meet SDG7 energy targets.”

In 2018, 50 percent of total electricity finance flowed to grid-connected fossil fuels in the high-impact countries compared to 25 percent in 2019. While this is a positive trend for the climate, tracked investment in off-grid and mini-grid technology also declined and represented only 0.9 percent of finance tracked to electricity.

Dr. Barbara Buchner, Global Managing Director at CPI, who partnered with SEforALL on Energizing Finance: Understanding the Landscape 2021, said: “Achieving both the Paris Agreement and universal energy access requires far greater investment in grid-connected renewables and off-grid and mini-grid solutions than what has been tracked in Energizing Finance. These solutions are essential to helping high-impact countries develop their economies without a reliance on fossil fuels.”

To better illuminate the challenges high-impact countries face, the second publication in the series, Energizing Finance: Taking the Pulse 2021, offers a detailed look at the estimated volume and type of finance needed by enterprises and customers to achieve universal energy access for both electricity and clean cooking by 2030 in Mozambique, Ghana and Vietnam. Importantly, it illustrates the energy affordability challenges people face in these countries and the need for financial support for consumers, such as subsidies.

The report finds that providing access to clean fuels and technologies, i.e. modern energy cooking solutions, in Ghana, Mozambique and Vietnam will cost a total of USD 37-48 billion by 2030; 70 percent of which will be for fuels (e.g., LPG, ethanol and electricity). A more achievable scenario would be for all three countries to deliver universal access to improved cookstoves at a total cost of USD 1.05 billion by 2030.

“Ghana, Mozambique and Vietnam each have unique challenges to achieving universal access to electricity and clean cooking,” said Aly-Khan Jamal, Partner at Dalberg Advisors, who partnered with SEforALL on Energizing Finance: Taking the Pulse 2021. “This research digs deep into these national contexts to identify solutions that can make Sustainable Development Goal 7 a reality.”

Providing results-based financing for energy project developers and exploring policies that facilitate demand-side subsidy support and reduce taxes on solar home systems are among several policy recommendations presented for Ghana, Mozambique and Vietnam.

Energizing Finance also advocates for increased innovation in financial instruments to reach the scale of finance needed for universal clean cooking access; for integration of electricity access, cooking access and climate change strategies; and for national governments, bilateral donors, philanthropies, and DFIs to all increase their efforts to mobilize commercial capital to Sub-Saharan African countries.

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