Why Nigeria is exposed to import parity prices - THE NATION
Vice President, Crude and African Markets, Argus Media, James Gooder, has explained that the price of diesel and aviation fuel are higher than those of petrol globally because the supply of diesel and aviation fuel (middle distillates) was mainly from Russian refineries which are under sanctions, noting petrol is from Northwestern Europe refineries.
Gooder spoke during a virtual Major Oil Marketers Association of Nigeria (MOMAM) Energy Correspondents Workshop Series with the theme ‘’Current market dynamics: Crude and refined products’’.
“The market is in an unusual state of turmoil and uncertainty, fuel prices are high everywhere, Nigeria is an integral part of the world market and thus exposed to the same trends,” he noted.
He observed the Russia-Ukraine conflict had supercharged existing upward market momentum, recovering global demand and constrained Organisation of Petroleum Exporting Countries (OPEC) output, low stocks and high refining costs had all played a part.
Russia is one of the three largest oil producers along with the United States and Saudi Arabia. Market unwillingness to buy Russia oil in the spot market means there is greater competition for alternatives, hence higher prices.
Diesel is driving the oil complex. Russia is a major exporter of diesel as well as crude. Crude is expensive but diesel is at a strong premium, he explained, adding prices are highly volatile and unpredictable.
Gooder who noted that West Africa relied on imported products, attributed it to lack of sufficient regional refining capacity. Hence, European surplus of PMS/gasoline finding a natural home in Nigeria.
In a global market, product flows is directed by price, Nigeria is competing with other destinations for products. Even if Nigeria has sufficient refining capacity, it would still be in a competitive market and exposed to import parity prices. Gooder added regulated PMS prices were out of step with market reality.
Capped retail prices for PMS may be popular, or even expected, among those that can afford to own a car. But current delivered prices for PMS are around three times as high as the pump price, he noted.
Gooder noted an unfortunate but clear incentive to smuggle subsidised fuel out of Nigeria to neighbouring countries where retail prices were higher.
Argus, he said, was the first agency to publish independent, market based daily assessments of the price of key products delivered to Nigeria including PMS/gasoline, AGO/diesel and Jet/Kerosine. It also publishes prices for the source markets Europe, US, Mideast, Asia, Russia, among others.
Gooder explained methodologies were designed to reflect market activity and were based on data-gathering and discussion with many market actors.
Argus, he said, was headquartered in London and had bureaux and representatives throughout the world, including in Lagos.
President, MOMAN, Mr. Clement Isong said the backbone of distribution was based on diesel, from transport (vessels and trucks) to energy costs (depots and stations). This, he said, affected not just petrol distribution but also the distribution of aviation fuel.
According to him, total distribution margin under the PMS pricing template accounts for 11.5 per cent of the PMS pump price despite significant increase in costs.
Isong noted that operators were struggling along the supply chain to get petrol out of nuzzles into the cars which according to him, is difficult to sustain.