Page 5 - AfrOil Week 23

AfrOil COMMENTARY AfrOil

Nigeria had capped the pump price of gasoline Oyebanji urged the government to intro-
at NGN145 ($0.40) per litre since 2016. But it duce “a proper legislative framework to guide
cut the price by 10% to NGN130 in March and the deregulation of the downstream sector and
NGN108 in May, in response to falling interna- protect the interests of private investors.”
tional prices and a drop in domestic demand. “The recent reform must be institution-
alised,” analysts at Lagos-based Chapel Hill
Risk of backtracking Denham were quoted as saying by Bloomberg
Initially, the deregulation is expected to cause in mid-May. “This will ensure that the subsidy
prices to fall further. But they will rebound as regime is abolished by a legislative act, and may
economies are reopened after COVID-19 lock- require rigorous legislative procedure to appeal.”
downs and international markets recover. Fuel
prices are contentious in Nigeria. In the past, Domestic refining
riots have broken out over even mere rumours Nigeria would be better placed to liberalise its
of hikes. The move to liberalise them is therefore fuel market while providing its population with
politically fraught, and the industry fears that affordable prices if it produced enough gasoline
the government could backtrack on reforms at domestically to meet demand. But the country’s
a later stage. four state-owned refineries, built between the
The population is likely to be even more 1960s and 1980s, have fallen into disrepair and
incensed by price increases given the recession can only operate at a fraction of their 445,000
Nigeria is facing – its second in four years. The barrel per day (bpd) capacity.
country relies on oil exports for two-thirds of Meanwhile, poverty has led to rampant theft “
government revenue and over 90% of its export of oil in the Niger Delta region – the country’s Nigeria is pinning
revenues, which have plummeted as Brent has main hub for oil production. NNPC recently
lost over 35% of its value since the start of the said it would close down these plants completely its hopes on the
year. while it searches for financing to upgrade them.
The Major Oil Marketers Association of The search will be all the more difficult under new Dangote
Nigeria (MONAN) welcomed the reform, but current economic conditions.
warned that more clarity was needed. Nigeria is pinning its hopes on the new refinery, due to
“While we welcome the removal of the sub- 650,000 bpd Dangote refinery, due to come on come on stream
sidy on fuel, we need clarity on the government’s stream in late 2021. The plant, owned by Afri-
claim that the market has been deregulated,” the ca’s richest man, Aliko Dangote, will not only in late 2021
group’s chairman, Adetunji Oyebanji, com- cover the country’s fuel consumption but even
mented on June 6. “Many of the institutions support exports. This will help ease pressure on
supporting the former regime such as the Petro- Nigeria’s foreign currency reserves, which are
leum Equalisation Fund, the Petroleum Subsidy being drained by fuel imports.
Fund and the [PPPRA] are still operational. So Nigeria’s fiscal crisis may well ensure that
there is a bit of confusion whether we have fully the fuel subsidy regime does not return, as the
deregulated the sector or whether the govern- International Monetary Fund (IMF) and other
ment just decided that they won’t pay the sub- financiers will insist on austerity measures as a
sidy anymore.” condition for funding. ™

OPEC+ group breaks deadlock

After a week’s wrangling, OPEC+ has agreed to extend the production cuts agreed for May and June

LAST week, we looked forward to OPEC+ and production curbs for another month until the
its allies coming together to decide whether to end of July. On the news, Brent crude, the global
WHAT: prolong historic output cuts. The length and benchmark, edged higher, nearing $40 a barrel.
OPEC+ have agreed to extent of production curtailments remaining in The 23-nation partnership between the
extend the oil production place would be crucial to sustaining crude’s rally Organisation of Petroleum Exporting Countries
cuts for a further month. after a record rebound last month. and other major producers has helped engineer
A week on and after considerable wrangling a doubling in Brent prices since April. The oil
W H Y: and hitting a temporary impasse, the group price surge has revived the fortunes of major
The possible end of the agreed a tentative deal, which crucially, included energy companies such as ExxonMobil and
deal at the end of June holdout member Iraq. Saudi Arabia and Russia Royal Dutch Shell, and reduced the fiscal hole
threatened oil’s recovery. applied pressure on Iraq to get it to agree to make in the budgets of oil-rich nations.
its share of cuts and to compensate for failing to Failure to reach an agreement this month
WHAT NEX T: comply in the past. could have brought millions of barrels of oil onto
The new quotas will stay The agreement, which is still to be ratified, the market, undermining a tentative recovery as
in place until July 31. would mean that OPEC+ will extend its record the coronavirus (COVID-19) lockdown eases.

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