Africa’s largest oil producer Nigeria could be on the verge of another fuel shortage crisis as the government tries to adapt to the various changes that have taken place in the way it imports gasoline.
The Nigerian government is caught between handing its entire second-quarter gasoline import permits to state oil firm Nigerian National Petroleum Corporation or allowing private companies a share of the allocation, as a scarcity of foreign exchange fueled by low oil prices continues to bite, sources said March 23.
The government has also recently introduced the direct-sale/direct-purchase [DSDP] import model into the country, under which international refineries are allocated equities of crude in exchange for delivery of equal values of gasoline to NNPC subsidiaries.
This new model was supposed to be finalized this month but the contracts are yet to be signed, further hampering imports and adding to the uncertainty.
Sources said seven companies had so far been shortlisted for this model with volumes at 330,000 b/d.
The Pipelines and Product Marketing Company (PPMC), a subsidiary of NNPC, is currently the main active importer of wholesale gasoline market in Africa because independent marketers are struggling to access foreign exchange and letters of credit, according to sources.
PPMC normally imports about 30%-50% of Nigeria’s gasoline requirements but this number has been closer to 70%-80% so far this year.
The rest is normally imported by independent fuel marketers which would typically participate in the import allocations under the framework of the Petroleum Products Pricing Regulatory Agency (PPPRA), the country’s regulator, which pays a subsidy to traders.
PPPRA handed 78% of the Q1 gasoline import allocation to PPMC and the remaining 22% to private companies and fuel marketers, according to sources.
PPPRA sources told Platts that the agency was set to allocate permits for the import of about 3.5 million mt of gasoline for Q2 — higher than the 3 million mt allocated in Q1 due to the near zero local production.
But this process has been stalled following pressure by Nigeria’s main fuel marketers for more allocation.
“The PPPRA will issue permits for Q2 [gasoline] imports any moment from now. The only thing delaying it are the ongoing consultations among stakeholders whether to increase allocation to major marketers or issue all the permits to NNPC based on the first-quarter performance,” a PPPRA source said.
A spokesman from the PPPRA could not be reached for comment. The spokesman for the Major Oil Marketers Association of Nigeria (MOMAN), Femi Lawore, confirmed that companies wanted to increased allocations.
Lawore also said marketers had resumed gasoline imports in February, adding that the challenge of securing foreign exchange to place orders for gasoline cargoes was being resolved by the government.
Increased flows from Europe
Meanwhile, gasoline flows from Europe to West Africa are expected to surge especially to Nigeria, as the country’s gasoline new import program is boosting its gasoline requirements, sources said.
Despite producing a little above 2 million b/d of crude, Nigeria imports more than 90% its fuel requirements, with its four state-owned refineries running at very low utilization rates.
Over six medium-range tankers were heard to be fixed on the Europe-WAF voyage this week, almost double last week’s fixtures.
Blending and loading activity for West African grade gasoline in Northwest Europe has intensified in recent days, trading sources said.
Traders said this was lending some strength to the West African gasoline market.
“We have seen some interest for WAF barrels. [One trader] has sold 200,000 mt into WAF. This blending has consumed quite a few naphtha barrels that were unplaced,” a gasoline trader said.
According to sources, the DSDP model references Northwest European 10 ppm premium unleaded gasoline barges, the typical trading benchmark for WAF-grade gasoline.
This assessment is typically subject to seasonality, with April reflecting the typically more expensive low Reid Vapor Pressure gasoline.
WAF-grade gasoline has been trading at a steep discount to 10 ppm premium unleaded barges of around $60/mt, encouraging more flows from Europe, according to sources.
The value of deliverable gasoline to NNPC subsidiaries is calculated on the basis of 10 ppm premium unleaded gasoline barges, incentivising more volumes to go to West Africa.
“No one would have wanted to load out for the first three weeks of March unless they had confirmed shorts or could pay up,” another trader said.