Tuesday, April 20, 2010

Petroleum Products Prices And Subsidies in Nigeria - Chief Martin Onovo

Lagos — Chief Martin Onovo, a Seasoned Petroleum Engineer And the National Leader of the Strategic Union of Professionals for the Advancement of Nigeria, Supa in This Analytical Presentation Argues, Using Relevant Figures And Data That the Federal Government's Deregulation Policy is Harmful to All, Including Itself...


The prices of petroleum products in Nigeria have been a source of contention and controversy. This paper proposes to clarify the actual total cost by adding the costs of all components in retail supply of Premium Motor Spirit (PMS a.k.a. Petrol or Gasoline) the most widely demanded and utilized petroleum product. The cost components are; finding, developing, developing, producing, refining, distributing and marketing. The amount of subsidy on the retail price is then determined by the difference between the actual cost and the retail price.

The method adopted for this cost determination is similar to that used by the American Petroleum Institute (API) for the analysis of the actual total cost of gasoline (PMS) in the U.S. It splits the retail cost into the major components cost of crude oil, the cost of refining and marketing and the sum of all taxes. This method is simple and accurate.

The most accurate industry data has been obtained from and confirmed independently for this effort by industry experts. The draft paper was also reviewed and endorsed by several other experts. The data and analysis herein are as at October, 2005. Exchange rate applied is N130/USD.

The Petrol Process

To purchase petrol in Nigeria, we typically drive to a fuel station. The fuel attendant pumps the request quantity and payment is made 'cash, electronically (Value card, Top card, etc) or otherwise.
The Fuel station typically receives its supply from road tankers which have been loaded at an NNPC or other fuel depots. The NNPC depots receive their supply from local refineries through pipelines. Imported petroleum products are evacuated from ocean-going tankers to local depots which then supply to Fuel stations by road tankers.
Local refineries receive their feed crude oil through pipelines iron oil terminals. The crude oil is produced by oil companies from wells in their OMLs (Oil Mining Lease). The Federal Government of Nigeria (FGN) is the senior partner in Joint Venture (JV) oil producing companies. The NNPC manages FGN investments in the JVs.

Production Sharing Contracts (PSCs) are a different relationship from Joint Ventures. This determination is based on VB production which represents most of the Nigerian production. PSC production can be similarly treated.
Component Costs

Crude oil is first discovered (exploration), then the discovery is developed (field development) before it can be produced (production operations). It is then refined into petroleum products which are distributed and sold for utilization. The costs of exploration, Field Development Production Operations, Refining, Distribution and Marketing (Retail Sales) are identified herein. The sum of all product cost components is the actual cost of the product.

Exploration Costs
Exploration costs typically include seismic acquisition and interpretation costs. Exploratory well costs can be included in development costs since the exploratory well can be easily converted to a development well. 3D Seismic acquisition costs vary based on contractor, coverage, terrain, time, season, water depth, methods, commercial terms, special considerations, etc. Typical costs range from 20 - 70,000 USD/KM2. Interpretation costs range typically from 2 - 8,000 USD/KM2. We will use 50,000 USD/KM2 as estimated cost of 3D seismic acquisition and interpretation. For a 10 KM2 field 20 million barrels recovery; exploration costs can be estimated to be about - 0.025 USD/Bbl. This is equivalent to, 0.02 N/Litre.

Development Costs

Opportunity development costs depend on field location, size, development philosophy and concept. Development cost will include capital costs of field facilities design, procurement, transportation, installation and commissioning. Cost of wells and pipelines to existing terminals are also included. It will typically vary from 2-5 USD/Bbl.

At the NAPE (National Association of Petroleum Explorationists) annual conference in 2005, offshore development cost was indicated as 5 USD/Bbl. However, historical data for completed projects offshore are closer to 3 USD/Bbl. Onshore development costs are also significantly lower than offshore costs. To averagely represent the entire JV operational environment scenarios (offshore and onshore) this paper will capture development cost as: - 4 USD/Bbl. This is equivalent to, 3.27 N/Litre.

Operation Costs (OPEX)

Current (2005) production operation costs of major oil companies surveyed indicated a range of 1.5-4 USD/Bbl. This includes all overhead costs across relevant functions. This paper will capture OPEX as - 3.0 USD/Bbl. This is equivalent to, 2.45 N/Litre.
Therefore, actual crude oil production cost to the Nigerian JV can then be estimated as:

(0.025 + 4.0 + 3.0) USD/Bbl = 7.025 USD/Bbl.
(0.02 + 3.27 + 2.45) N/Litre = 5.74 N/Litre

Previous government (NNPC) estimates (2000) yielded 5.00 N/litre. The difference in these estimates can be attributed to rising oil industry service costs due to international market dynamics, inflation and/or to estimate basis differences.

For typical refinery yield of 95%; 5.74 N/litre translates to - 6.04 N/litre.
This compensates for volume losses inherent in the crude oil refining process.

Refining Costs

Installed refining capacity in Nigeria stands at 445,000 Barrels per day (BPD).
This is made up of:

Old Port Harcourt Refinery - 60,000 BPD

1. New Port Harcourt Refinery - 150,000 BPD

2. Warri Refinery - 125,000 BPD (Upgraded from 100)

3. Kaduna Refinery - 110,000 BPD (Two trains, 60+50)

Refining cost data from these refineries could not be obtained during our survey. Even when such data is available, they are very unreliable. According to the Nigerian Vice-President during an interview with Thisday newspaper in August 2005, "We have never got correct statistics from NNPC. They will never be able to tell you the correct thing. We have that problem with NNPC".

To estimate refining costs, we can rely on international industry data from similar refineries. Contemporary refining technology is of the Fluid Catalytic Cracking (FCC) process like most Nigerian refineries. This process requires fluidizing the solid catalyst and re-circulating it continuously from the reaction section of the cracker to the catalyst regeneration section and back to the reaction section.

Data published by the American Petroleum Institute (API) estimates Gross Refining and Distribution/Marketing Costs and Profits at $1.00 per gallon in October 2005. Using a 50/50 split as established by historical U.S. cost trends, it can be clearly concluded that Refining costs and profits, account for $0.50 per gallon. This value includes the profits of the refineries.

The estimate can be used for this determination since it is from mostly FCC process based refineries just as most Nigerian refineries. Actual refining costs may be lower in Nigeria since labour costs are significantly lower in Nigeria. $0.50 per Gallon translates to $21/Bbl. We will capture refining costs as $21/Bbl. This is, 17.17 N/Litre.

Distribution Costs

Distribution costs in Nigeria are established by regulation. This is the cost margin allowed for Road Tankers that transport petrol from the depots to the fuel stations. As at October 2005, it was 2.42 N/Litre.

Marketing Costs

Marketing Costs in Nigeria are also established by regulation. This is the cost margin allowed for Oil marketing companies that operate fuel retail stations. As at October 2005, this was, 5.87 N/Litre.

Total Costs

The total cost can then be determined as the summation of all relevant costs components previously estimated viz. Exploration, Development, Production Operations, Refining, Distribution and Marketing.

Total Cost = (6.04 + 17.17 + 2.42 + 5.87) N/Ltre
= 31.50 N/Litre.

Therefore, we can conclude that the average cost of domestic petrol dispensed at retail fuel stations in Nigeria is, 31.50 N/Litre.

Current Official Retail Price

Current retail price as established by regulation has been, N65/Litre since 2005. This regulated price is split to cost components in line with the following benchmarks:

N56.71 - Depot Price
N2.42 - Transportation Margin
N1.15 - Dealer's Margin
N4.72 - Marketing Company Margin
= N65.00 - (Official Retail Price)

Subsidy can be determined as Actual Cost - Sales Price
Consequently, Subsidy = 31.50 - 65) N/Litre
= -33.50 N/Litre (This is a negative subsidy which confirms a profit).

We can confidently conclude that government makes a profit of 33.50 N/Litre on domestic PMP (Petrol) at the current price of 65 N/Litre. This translates to a very high 106% profit.

In addition, the government benefits from royalties, taxes and fees which were not factored in this simplified analysis. When factored, the actual crude cost per barrel to government is significantly less and its profit correspondingly higher.
The claim of subsidies on petroleum products is clearly incorrect
Post Script

This analysis has been deliberately simplified to ensure wider appeal and easy comprehension. A much more detailed and rigorous analysis will be inappropriate for the objective indicated. It will also come to the same conclusion and have only an added academic value.

For imported petrol, this estimate will not apply. Imported petrol has unnecessary additional costs like;

1. International Crude Oil Sale Price and Profit Margins
2. Transportation Costs of Products from source country to Nigeria
3.Port Charges, Taxes and Export duties at source country
4. Insurance costs for transportation
5. Brokerage costs for agents
6. Overhead Costs
To improve domestic supply and reduce cost, the following can be considered:
-Maximise existing local refining capacity utilization.
-Increase existing local refining capacity by building additional refineries.

-Improve JV crude oil development and production efficiency to reduce costs.
There is a large market for petroleum products in West Africa. Nigeria can develop its refining capacity to supply this large market and increase its national revenue and GDP.


Wednesday, January 6, 2010

AIDS....Clinical Briefs about contraception for treatment of dysmenorrhea and menorrhagia.

My brothers and sisters

Sex out of wedlock used to be considered a taboo by many, but that is increasingly changing. It is almost fashionable to have a sex partner who is not necessarily recognized by one's family. Parents, friends, colleagues and spouses now encourage others to have sex a source of livelihood. Therefore, we must take the bull by the horn and call evil what it is and fight accordingly. Abstinence is still the best way but where that fails, what is the alternative? 

Medical science is also making it possible for people to not only live longer lives, but it is preventing unnecessary loss of lives of our loved ones. If your female relative is bleeding to death and the only solution is contraception what will you do or recommend?

If people are having sex constantly and indiscriminately, as in case of our country where men demand sex for employment and academic promotions, where marketers are soliciting more than the next source of paychecks, where young male and female students are acquiring sugar mothers and daddies as if they are going out of style and also to be used to pay their tuition and support their younger girlfriends and boyfriends, but you observe that they are seemingly not worried about HIV or STDs, what will you suggest?
While in Nigeria recently, I noticed that the use of condoms was advertised about every five minutes on radio and on television. In fairness to the proponents of better education on the use and benefits of condoms, it seemed as if sexual promiscuity was being promoted and STDs were minute problems as long as condoms were being used. On the contrary, the use of condoms has actually reduced the rate of sexually transmitted diseases. It is not a cure but it makes a small dent on the magnitude of the problem. I am sure that if proper survey is done, we will find that it has also reduced teenage pregnancy in Nigeria.

From a woman's viewpoint, the advertisements are actually doing Nigerians a world of good in a country were sex and witchcraft dominate every conversation.  Nigeria is a country where most men are willing to have sex with anything that moves in a skirt or wrapper. Most of those women have sex now legally from their homes or apartments.  There is no-longer a need to stand on the street corner breathing in fumes from cars, industrial waste, urine, human or animal defecation, smoke from random fires, malfunctioning emission systems and exhaust pipes, gutters ridden with algae, fungi, rotten food, feces, dead rodents and trash.  Many of the women have decided that if they cannot pay anyone to buy employment, they will simply offer sex for the positions if the man does not offer it first. Sadly, that does not always guarantee employment so they resort to witchcraft, soothsayers, fake pastors, their ancestors, or get upset enough to curse the men outside with their nakedness. The level of anger usually determine the method of revenge.

Having sex in exchange for a favor, for example, is typical of the marketers for banks who are marketing more than new bank accounts.  Many of the our men in Nigeria or Overseas parade themselves as good husbands to their wives but keep filthy mistresses outside their homes as girlfriends, concubines, lovers or what have you, and pay handsomely to keep them. When the girls find a rich one, they call them jackpots. These men are not faithful to the ladies in or outside the house. They even cheat on the new girlfriends too. Sometimes, they have others who are less demanding elsewhere, in the villages, ready to have 10 children for them if they are not slowed down. The village wives do not always require a church wedding but immediately assign the title of wife to themselves whether the man likes it or not. They rarely abort children and do not ask for condoms. The problem with those is that when their Lagos, Abuja, European or USA husbands visit, they too bring something back to share. Some bring back HIV and dollars; infect them, and have them infect the local Jons.  The process becomes a vicious cycle.

The male tramps however, think that condoms are safe, quickly include themselves in the 70%-80% successful users  who are excluded from transmission or acquisition of the deadly diseases. They think it can only happen to others and not them because they are after-all, well fed (fat), strong, muscular, and rich. It just can't happen...they have too much to live for. They have wives, businesses, children, aging parents, and their reputation. So they blank it out of their memory and every now and then, they use a condom that are made from recycled materials or the ones we know here as "irregulars" . Manufacturers know that only the poor westerners and people in third world countries consume the irregulars or the intentionally cheaply made condoms. So they ship them to NAIJA where they rip from the holes, and are so thin that they do not stand a chance with prolonged penetration.   

The holes defeat the purpose of their intended use. STDs get transmitted, and pregnancies, abortions and death (PAD) occur. When we step away from from condoms for a moment, we have no other way to prevent PAD than with pills. the added benefit is that they prevent excessive bleeding and anemia which can lead to death. Two very otherwise pleasant women suffer with serious pains and are bed ridden during their monthly periods. I think that if they had recommendations from their Doctors to use pills to curd their discomfort and shrink fibroids (as in the case of two of them), they will jump on the idea instead losing time from their jobs and school. 

Therefore, I will suggest that no one should completely destroy the idea of the need for condoms or medication until one has had adequate knowledge of their use. One may not need it but preventing their existence, use or application may pose more detrimental blows on our brothers and sisters who may make less prudent choices in face of temptation or illness respectively.

Please see the attachment to this mail.  I will also attempt to paste it below.

Philo Nwarueze

Chief Martin <martin@supanigeria. org>
To: NENWEONLINE@ yahoogroups. com
Sent: Sun, January 3, 2010 9:23:22 AM
Subject: Re: [NENWEONLINE] A ... AIDS

"Generally, when used correctly and consistently, condoms are about 70% effective in protecting against HIV and other Sexually Transmitted Infections." - Dr. Leo.

Dear Dr. Leo,
Happy New year!

Please read the extract from your FMC Keffi AIDS Message again. It INDISCRIMINATELY ranks condoms along with Abstinence and Faithfulness.
That will definitely spread AIDS by " giving people a false sense of security and protection" ( false 100% instead of your 70%).
Now, all the references I cited are secular and 'scientific' including the US Naval Research Lab. Washington DC and the British Journal of Medicine.
I did not cite the Catechism of the Catholic Church!
  1. So why did you accuse me of dogmatism? 
  2. Why did you misrepresent Jerry's published position?
  3. Are you not being unfair, oppressive and tyranical?
  4. Should you not apologise to Jerry for such unethical misrepresentation?
  5. Why is falsehood glorified technically while truth is called dogmatic even when it is 'Scientific' ?
Now to science:
If condoms are about 70% effective, it means they are about 30% ineffective.
30% ineffectiveness means statistically that: averagely it will be ineffective once in 3 - 4 equivalent exposures!
That once in 3 - 4 equivalent exposures averagely, the user has contacted the incurable HIV.
Now, I am sure you can see more clearly how condoms are spreading HIV & AIDS.
It is our duty of love to tell the truth to others. I am very happy & proud to be Roman Catholic.
That does not erase the fact that I hold a world class Master of Science degree in Engineering with extensive international experience across America, Europe and Africa.
I understand Science and its basics.
However, I am truly dogmatic in religious issues as true religion must be dogmatic since, God cannot be wrong. QED.
Whatever God says is true and the Church is the Oracle of God from the following refs. 
  • "Go and teach all nations" - Mt. 28:19-20.
  • "Whoever listens to you listens to me" - Lk. 10:16.
  • "Simon son of John ... Feed my sheep" - Jn. 21:15-17.
  • "I will give you the keys of Heaven. Whatever you bind on earth is bound in Heaven" - Mt. 16:19.
  • "You are Peter, on this rock I will build my Church. The gates of hell shall not overcome it ..." - Mt. 16:17-20.
It is only sinful pride that can make me think that I know better than God and His Church.
Thanks for your understanding.
God bless all.

Chief Martin.

On Mon 12/28/09 7:56 AM , leo Chukwuali doclichukwuali@ yahoo.com sent:

"Abstinence from unprotected sexual intercourse, being faithful to a single, uninfected sexual partner, correct and consistent use of condoms, avoidance of transfusion with unscreened blood, avoidance of sharing of sharp objects and prevention of mother-to-child transmission (PMTCT) remain the major means of prevention of HIV transmission. " -Dr Leo

I suspect that messages like this from FMC Keffi, are spreading HIV/AIDS by giving people a false sense of security and protection.- -Chief Martin

            Accept my best regards. There is nothing in my message suggesting that condoms are 100% effective in protecting against HIV/AIDS. Generally, when used correctly and consistently, condoms are about 70% effective in protecting against HIV and other Sexually Transmitted Infections. This is captured in the following extracts from your references:

1. "If used properly, latex condoms will help reduce the risk of transmission of HIV infection (AIDS) and many other STDs"...

 2. 3 out of 10 women whose husbands are HIV positive and were always using a fresh condom for each intercourse, contracted AIDS. ( 7 out of 10 did not)

3.  1993 Studies by S. C. Weller concluded that Condoms are 69% effective.

4. Study showed a failure rate of 26%.

5. Contraceptive Technology USA Study indicates 87% effectiveness for typical use.

            Given the above extracts, which clearly state that condoms are 69% to 87% effective in preventing HIV, I wonder how you arrived at the conclusion that my message is spreading rather than helping to prevent HIV/AIDS. I respect your intelligence and your constructive approach to issues but that is mainly when your views are not beclouded by religious sentiments. However, dogmatism belongs more to Religion than to Science.
      Apart from ABSTINENCE and MUTUAL FIDELITY BETWEEN UNINFECTED PARTNERS, no other method of prevention of HIV is 100% effective but this can hardly be captured in a short message as the one under discussion. Even at that, observing those other methods can only prevent (albeit not 100%) rather than spread HIV.
      Even Prevention of Mother-To-Child Transmission (PMTCT) interventions are not 100% effective in preventing HIV infection in the newborn. Without PMTCT, about 37% of newborn babies of HIV positive mothers will be HIV positive. But when PMTCT is properly implemented, only 2% to 5% of such babies will be born with HIV. In a recent study of PMTCT in FMC, Keffi over a 5-year period, only 3.5% of over 500 babies of HIV positive mothers were born with HIV infection. This is better than most reports from other centres in Africa . Our report was presented at the Paediatric Association of Nigeria Conference (PANCONF) in Lagos in January 2009.

      Having said all those, Chief Martin, I fully understand the premises on which you made your comments. By His Grace, I am also a practicing Catholic. There is nothing in my message that promotes condoms for contraception even though in the practice of my profession, I have nothing against contraception and indeed offer the full range of contraceptive services to married people. Unplanned and unwanted pregnancies in married women as well as pregnancies too many and too late contribute over 60% of the high maternal mortality ratio in our practice. Maternal death is a catastrophe because it not only means the death of a family but also spells doom to child survival. If contraception to married women can help to prevent these needless deaths, I am professionally compelled to offer contraceptive services. In fact, women are referred to my Clinic for the insertion of desogestrel contraceptive implants. May be I should be more Catholic than that.
            The other commentators on the topic did not seem to understand the premises from which the discussion flowed. That was why one of them was far less than constructive in his comments. Statements like:  'all the doctors in Nigeria are just struggling to survive' are simply thoughtless. I reserve my comments except if forced otherwise. He that lives in a glass house should not throw stones except if he is also unwise.
     Happy New Year.

Dr L.I.Chukwuali (JP)

--- On Tue, 12/1/09, Chief Martin org> wrote:

On Tue 12/ 1/09 10:22 AM , leo Chukwuali doclichukwuali@ yahoo.com sent: