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Report: Cost of Fuelling Generators Estimated to Hit N5tn by 2017



Cost of Fuelling generator
  • Report: Cost of Fuelling Generators Estimated to Hit N5tn by 2017

Given the increase in the pump price of petrol and diesel this year, the total amount spent by households and businesses to power their generators may rise to N5trillion by 2017, higher than the N3.5 trillion it was before the price hike, a report has projected.

The Financial Derivatives Company Limited stated this in its latest Business and Economic Bulletin for October obtained recently. The report pointed out that the shortage and unreliability of power and the need for Nigerians to generate their own electricity adds unnecessary cost inefficiencies to households and businesses.

It noted that with companies such as MTN reportedly spending about N8 billion on power generation annually, that shows that the present power situation has negative connotations for business operations and profitability.

In its Ease of Doing Business Report, the World Bank drew a parallel between Nigeria’s frail power sector and its business environment. Accordingly, the procedures, time and costs involved in getting connected electricity, combined with the unreliability of the power supply and the per unit electricity bills are factors that contribute to making Nigeria a tough place to do business.

Using Lagos State as a proxy, the FDC report revealed that it takes 184 days (6 months) on average from the moment you submit an application for electricity connection to initial electricity flow.

In the 2016 World Bank rankings, Nigeria came 182 out of 189 countries in the ‘Ease of getting electricity’ sub- index. Furthermore, Nigeria scores zero out of eight on the reliability of supply and transparency of tariff index.

“The importance of electricity lies in its status as a necessary intermediary in the economy. It does not represent an end in itself but it is required for the success of other initiatives or activities. These activities can generate welfare or leisure, increase efficiency or productivity, and generate income.

“It means that if Nigeria is to realise the dream of becoming the number one Foreign Direct Investment (FDI) destination in the world, with a booming economy and tourism, then something needs to be done about power- and fast! Constant and reliable electricity will cut business costs; this will translate into increased efficiency, productivity, output, job creation and economic activity,” it stressed.

Furthermore, the report stated that the challenges the power sector faces are deep-rooted and multi-faceted.

It explained that at the generation level, the GENCOs continue to produce at sub-optimal levels; saying even if they did not, their total installed capacity would still be unable to meet electricity demands. Outdated technology, poor maintenance, low investments etc. are some reasons for this.

Also, the GENCOs that use natural gas are affected by pipeline vandalism and exchange rate illiquidity, both of which lead to gas shortages and shortfall in generation.

At the transmission level, the national grid’s carrying power is too modest, such that even if GENCOS were to generate more, the grid would not be able to handle it, it further explained. In addition to this, great amounts of electricity are lost in transmission.

“Although TNC claims an average transmission loss of about 8.5 per cent, the loss is estimated to be much greater due to deteriorating infrastructure. Furthermore, the DISCOs battle with customers who do not pay their bills- the biggest culprit being the Nigerian government.

“As at first quarter 2016, the government had about $300 million in unpaid electricity bills. While it is easier for DISCO agents to threaten the aver-age citizen with notices and written warnings, it more difficult to do so with national departments such as the army barracks. Operators also complain that the current tariff levels are not sufficient to break even,” it added.

The Nigerian Electricity Regulation Commission had been ordered to reverse its 45 per cent hike in tariffs by the Federal High Court in Lagos. Backed by the Ministry of Power, the NERC is seeking appeal at the Supreme Court.

“It is no surprise that these energy industry players have huge debt burdens. As at March 2016, GENCOs had outstanding loans of N367 billion in total. TCN and DISCOs have a joint debt of N162 billion. This increases the profitability risk of the sector and discourages further private investments.

“The major problem of the power sector is one of funds and infrastructure, which can only be tackled with investments into procurement, maintenance and operation,” it added.

The government had initiated a N213 billion Nigerian Electricity Market Stabilisation Facility (NEMSF), out of which a total of N55.4billion has been disbursed so far. Additionally, according to a Memorandum of Understanding with Chinese firms, about $50 million would be invested into gas infrastructure, pipelines, power etc. If implemented efficiently and completely, this brings large promise to the power sector.

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

Crude Oil

Brent Crude Rises to $69 on IEA Report



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Oil prices rose after the release of the International Energy Agency’s (IEA)  closely-watched Oil Market Report, with WTI Crude trading at above $66 a barrel and Brent Crude surpassing the $69 per barrel mark.

Prices jumped even though the agency revised down its full-year 2021 oil demand growth forecast by 270,000 barrels per day (bpd) from last month’s assessment, expecting now demand to rise by 5.4 million bpd. The downward revision was due to weaker consumption in Europe and North America in the first quarter and expectations of 630,000 bpd lower demand in the second quarter due to India’s COVID crisis.

The excess oil inventories of the past year have been all but depleted, and a strong demand rebound in the second half this year could lead to even steeper stock draws, the IEA said yesterday, keeping an upbeat forecast of global oil demand despite the weaker-than-expected first half of 2021.

However, the upbeat outlook for the second half of the year remains unchanged, as vaccination campaigns expand and the pandemic largely comes under control, the IEA said.

Moreover, the global oil glut that was hanging over the market for more than a year is now gone, the agency said.

“After nearly a year of robust supply restraint from OPEC+, bloated world oil inventories that built up during last year’s COVID-19 demand shock have returned to more normal levels,” the IEA said in its report.

In March, industry stocks in the developed economies fell by 25 million barrels to 2.951 billion barrels, reducing the overhang versus the five-year average to only 1.7 million barrels, and stocks continued to fall in April.

“Draws had been almost inevitable as easing mobility restrictions in the United States and Europe, robust industrial activity and coronavirus vaccinations set the stage for a steady rebound in fuel demand while OPEC+ pumped far below the call on its crude,” the IEA said.

The market looks oversupplied in May, but stock draws are set to resume as early as June and accelerate later this year. Under the current OPEC+ policy, oil supply will not catch up fast enough, with a jump in demand expected in the second half, according to the IEA. As vaccination rates rise and mobility restrictions ease, global oil demand is set to soar from 93.1 million bpd in the first quarter of 2021 to 99.6 million bpd by the end of the year.

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Crude Oil

OPEC Expects Increase In Global Oil Demand Raises Members’ Forecast on Crude Supply



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The Organisation of Petroleum Exporting Countries (OPEC) yesterday lifted its forecast on its members’ crude this year by over 200,000 bpd and now expects demand for its own crude to average 27.65mn bpd in 2021.

This is almost 5.2mn bpd higher than last year and around 2.7mn b/d higher than an earlier estimate of the group’s April production.

According to the highlights of the organisation’s latest Monthly Oil Market Report (MOMR), OPEC crude is projected to rise from 26.48 million bpd in the second quarter to 28.7 million bpd in the third and 29.54 million bpd in the fourth quarter of the year.

The report also indicated a fall in Nigeria’s crude production from 1.477 bpd in February to 1.473, a difference of just about 4,000 bpd before rising again in April to 1.548 million bpd, to add 75,000 bpd last month.

OPEC stated that its upward revision of members’ crude was underpinned by a downgrade in the group’s forecast for non-OPEC supply, which it now expects to grow by 700,000 bpd to 63.6mn b/d against last month’s report’s projection of a 930,000 bpd rise to 63.83mn bpd.

The oil cartel projected that US crude output would drop by 280,000 bpd this year, compared with its previous forecast for a 70,000 bpd decline.

On the demand side, OPEC kept its overall forecast unchanged from last month’s MOMR, stressing that it expects global oil demand to grow by 5.95 million bpd to 96.46 million bpd this year, partly reversing last year’s 9.48mn bpd drop.

Spot crude prices fell in April for the first time in six months, with North Sea Dated and WTI easing month-on-month by 1.7 percent and 1 percent, respectively.

On the global economic projections, the cartel said stimulus measures in the US and accelerating recovery in Asian economies might continue supporting the global economic growth forecast for 2021, now revised up by 0.1 percent to reach 5.5 percent year-on-year.

This comes after a 3.5 percent year-on-year contraction estimated for the global economy in 2020.

However, global economic growth for 2021 remains clouded by uncertainties including, but not limited to the spread of COVID-19 variants and the speed of the global vaccine rollout, OPEC stated.

“World oil demand is assumed to have dropped by 9.5 mb/d in 2020, unchanged from last month’s assessment, now estimated to have reached 90.5 mb/d for the year. For 2021, world oil demand is expected to increase by 6.0 mb/d, unchanged from last month’s estimate, to average 96.5 mb/d,” it said.

The report listed the main drivers for supply growth in 2021 to be Canada, Brazil, China, and Norway, while US liquid supply is expected to decline by 0.1 mb/d year-on-year.

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Crude Oil

Oil Rises Over Concerns of Fuel Shortages



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Oil prices rose on Tuesday, as lingering fears of gasoline shortages due to the outage at the largest U.S. fuel pipeline system after a cyber attack brought futures back from an early drop of more than 1%.

Brent crude futures rose 35 cents, or 0.5%, to $68.67 a barrel. U.S. West Texas Intermediate (WTI) crude futures rose 49 cents, or 0.8%, to $65.41.

Benchmark gasoline futures prices rose 1 cent to $2.14 a gallon.

On Monday, Colonial Pipeline, which transports more than 2.5 million barrels per day (bpd) of gasoline, diesel and jet fuel, said it was working to restore much of its operations by the end of the week.

Right now there’s a generalized anxiety premium being built into prices because of Colonial and it’s keeping a floor under the market,” said John Kilduff, partner at Again Capital LLC in New York.

Fuel supply disruption has driven gasoline prices at the pump to multi-year highs and demand has spiked in some areas served by the pipeline as motorists fill their tanks.

Traders booked at least four tankers to store refined oil products off the U.S. Gulf Coast refining hub after a cyber attack that knocked out the pipeline, shipping data showed on Tuesday.

North Carolina, the U.S. Environmental Protection Agency and Department of Transportation issued waivers allowing fuel distributors and truck drivers to take steps to try to prevent gasoline shortages.

OPEC on Tuesday raised its forecast for demand for its crude by 200,000 bpd and stuck to its prediction of a strong recovery in global oil demand this year as growth in China and the United States counters the coronavirus crisis in India.

Meanwhile, the rapid spread of infections in India has increased calls to lock down the world’s second-most populous country and the third-largest oil importer and consumer.

India’s top state oil refiners have already started reducing runs and crude imports as the new coronavirus cuts fuel consumption, company officials told Reuters on Tuesday.

On the bullish side for crude, analysts are expecting data to show U.S. inventories fell by about 2.3 million barrels in the week to May 7 after a drop of 8 million barrels the previous week, a Reuters poll showed.

Gasoline stocks are expected to have fallen by about 400,000 barrels, analysts estimated ahead of reports from the American Petroleum Institute on Tuesday and the U.S. Energy Information Administration on Wednesday.

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