Tuesday, January 3, 2012

The Pirates of West Africa: Liquid Gold

It is almost impossible to refrain from commenting on the current chaos going on in Nigeria, though I have observed that most people are clueless about the facts. The beautiful thing about being Nigerian is that everyone is an expert on all matters ranging from national security to economic issues, so in the midst of all the arguments, no one really listens to any one, the end result is chaos. Let me paint a little picture about the science of oil, this is for the non-engineers and non-scientific people out there who have no clue what the facts are, but believe deep down in their hearts that something is wrong...You are right, something is wrong and it has been wrong for years. I have to admit that I'm neither a Petroleum Engineer nor an expert on oil related issues, I'm simply an average minded person, a common man.

Crude oil is liquid gold, pure and simple. I bet you didnt visualize that as a starting line. I'll try to keep the science as simple as possible. Crude Oil is extracted from the ground (just like gold, duh!)and then refined and seperated. The key end products are Petrol(gas/gasoline as my Yankee people would call it), diesel kerosene, jet fuel and a few other components (let us stick to the energy sources). Just as Gold comes in carats, Crude Oil also comes in different grades (levelz dey!). The 'lighter' and 'sweeter' the oil is, the better. The logic is simple, Light Crude Oil has low density (higher petrol yield), while Sweet Crude Oil has very little sulphur (cleaner, and less harmful impact on the environment during processing, requires less refining). On the other end of the spectrum, you have heavy oil, and sour oil (opposite to light and sweet), you get the logic right? Itz like comparing Packet Fufu Powder sold at Makola (Iyan Ado) to raw cassava sticks harvested from my village. Both end up as pounded yam on my plate, but the raw cassava sticks require serious gyming before it can be transformed to food.

The top 3 oil producing countries are the Saudis, the Russians and the Americans (surprised right?), China is no 5. Oil producing used in the context of the quantity of crude oil that is extracted from their reserves. Naija is ranked about 12th or 15th, not so sure, but our position fluctuates depending on whether MEND is on vacation or not. In terms of Exporting Crude Oil, the top 3 are the Saudis, Russia, Iran...Naija is between 6th and 8th (fluctuates as usual), USA aint on the list (they barely export nada baby!, u'll soon see why). In terms of Import, the top consumers are...you guessed it, USA, followed by China and Japan. USA consumes roughly 20% of the world's oil. Here's what you don't know, Naija's oil is mostly 'light and sweet' and we are the LARGEST producers of 'sweet' oil in OPEC, and remember that Saudi Arabi is a member of OPEC. We are sweeter than the Saudis! yummy! The USA is the largest importer of Naija crude oil,#fact.

Now I didnt study economics in school, but my dad is an accountant and I am Igbo (lol), even though people say I am too generous (maybe I'm just a radical). The price of 'gas' (forgive me, but saying petrol is tiring, lol) is dependent on a few factors, the key ones being the price of crude oil, the cost of refining, distribution and transportation costs and taxes. The geographical location of the oil reserves are key, if you have to import your crude oil from far then it costs more to transport, crude oil prices fluctuate with every Boko Haram attack or middle-east tension, the cost of refining rises with the grade of oil imported. The US of A utilizes about 75% of the refined crude for fuel (transportation), about 2% for electricity production (shocked right?) and the rest for industrial purposes (pharmeceuticals, plastics et al). Outside the US of A, especially in the oil producing countries (Naija), it is almost a 50-50 split between using the refined crude for transportation and burning the crude for electricity. Why? Because for some odd reason, we don't explore any other alternative means for electricity generation. Hydro (ah, rainy season has ended, water don finish for dam), Nuclear (ah, we can't even handle bombs), Solar (haba, let's not even go there), biomass, biofuels (duh, what is that?)

Currently the most abused word of 2012. You don't need to google it to understand it, from a business perspective, it simply means any form of 'assistance' provided to a biz, normally by the Govt, to prevent its decline either as a result of low profit or to prevent a spike in the price of its products. You see, Naija produces crude oil, then exports it, (making alot of money) then we import it back (because we don't have functional refineries, don't ask me why). So when crude oil prices go up because of Mutallab, we make more money, then the rising cost of crude oil increases the price of refining and importing the refined crude, so we spend more. Since oil is our birthright (as some of my folks in the South normally say, lol), we the masses shouldnt pay much for it. How can a farmer go to a supermarket to buy fufu powder? Taboo! So our weak Government, seeing that the only thing the commonm man can benefit from our stupendous wealth is cheap gas, do all that they can to ensure that the gas prices remain fixed despite all the fluctuation in crude prices. So they 'subsidize' it by paying the marketers and importers, thus transferring our wealth to the marketers and importers. Heard that it cost $8 billion last year, the government bears the cost of it all. Now the subsidy keeps the people content, but it incurs large economic costs. You see, I don't recall where it states in our yearly budget that we set aside $8 billion for subsidy last year. The other funny thing is that the marketers are also people in government. Then also millions of barrels of oil are being smuggled out of the country daily, by who...maybe Pirates of the Carribean, Jack Sparrow where are you?!

Why do we import fuel? Because we don't have refineries. Why don't we have functional refineries. Why ? I really don't know the answer to that. Okay, so if we can burn crude oil to generate electricity, why don't we have light? (power). I don't know, maybe we didnt burn the crude oil in the first place to generate the electricity. So what happened to the crude oil then ? Maybe it was smuggled illegally. By who? Ask Johnny Depp!

My 2 cents
Now that you have a clearer picture (I hope, lol), join the fray! What is the way forward, what should we do? You can't sit down and say it aint your business, when M.I., Ice Prince and all the other Nigerian musicians quit singing club hits and start farming in order to make a living, you wouldnt have any beats to groove to, lol #justkidding! Our MCs have M.Scs(Naeto C) and PhDs (Levelz) nowadays!

The subsidy ought to be removed, it should have been removed years ago. But then our refineries should have been working to full capacity since the 90s. Numerous contracts have been awarded to fix the refineries, yet no results. So if the refineries don't work, then the subsidy should stay in place...till the refineries work, then we would not have to import anymore. Our Government just transferred the burden of years of gross mismanagement and sheer incompetency to the masses to bear. I hear China wants to build refineries in Nigeria, I wonder what the Americans have to say about that...#justsaying


  1. The issue of subsidy is like being btw a rock and a hard place. Imagine d billions those fuel importers and marketers make frm subsidy payments. Despite d fact that they connive with port officials and report less than d amount imported. Those guys won't want no refineries to be functional, so they'll bribe anybody frm here to benin republic to ensure any contract awarded to repair refineries is scuttled.
    Then again, govt realises dt route won't work, and decides to remove subsidy anyway, thereby forcing competition namely, fixing d refineries, producing locally and market forces bringing d price of gas down.
    The poor man screams, NO, why shud he bear d brunt for d inadequacies in govt. Street protests and d next thing, subsidy is restored. Hw do we go abt solving dis malaise. I'm pro subsidy removal. Cos money is huge motivation, u only hv to be a janitor in NNPC to hv a taste of d wealth, let alone an Oga. God help us