Nigeria is on the verge of another round of gasoline shortages as the precipitous decline in oil prices leaves one of Africa’s largest crude producers with fewer options for importing fuel.
Traders and local sources have warned that new gasoline bookings have shrunk as importers cannot get the dollars needed to buy and state oil firm NNPC has not been able to sign agreements quickly enough to exchange crude oil for gasoline.
“It has ground to a halt,” one trader said of new gasoline fixtures. “Nothing is finalized … so there is literally zero discussion going on.”
Gasoline shortages have occurred regularly as the country struggled to make prompt payments to importers. Cash-strapped state oil firm NNPC reported a $1.3 billion loss in 2015, forcing it to increase its direct gasoline imports to more than 70 percent of the country’s needs versus about half previously.
NNPC this week issued a statement urging citizens not to panic, or hoard gasoline, seeking to reassure consumers that it has enough in stock.
But the looming supply problems highlight the struggle of President Muhammadu Buhari to remove corruption and introduce efficient, transparent contracts between his nation and the world’s oil refiners and traders. They also threaten to dent President Buhari’s popularity among citizens who view affordable fuel as essential, and have rioted in response to past price increases.
While Nigeria produces more than 2 million barrels per day (bpd) of crude, it refines little of it, leaving it reliant on gasoline imports that are price-controlled by the government. Late last year, it effectively scrapped a costly subsidy scheme that paid importers the difference between international prices and capped local prices.
The country also faces a severe dollar shortage as oil revenues account for almost all its foreign reserves. The central bank has imposed hefty restrictions on dollar access – leaving physical oil cargoes as its most reliable currency.
NNPC turned to its own neglected refineries, aiming to produce 30 percent of its own gasoline this year. But none of the four complexes have run consistently, making Nigeria as reliant as ever on imports.
NNPC signed deals last year with refiners Total, Varo Energy, Cepsa and ENI to exchange oil directly for gasoline and other products beginning in February.
Companies including Litasco, Noble and Total had secured “spot” swap contracts with NNPC via local joint ventures in February and March. Sahara, an old hand in the swap deals, also won spot swap deals in March.
Sources told Reuters that NNPC is trying to sign additional long-term contracts to cover well beyond the 210,000 bpd of oil that was exchanged in the past.
Trading houses and refineries are eager for these; a string of them travelled to Abuja over the past month to make their case, and several also met with NNPC in London.
The companies say they could quickly move vessels with gasoline to Nigeria. But negotiations are taking longer than expected, leaving a gap in imports.
“NNPC has managed to fulfill around 2.25 million tonnes,” one trader said, noting that left them around three quarters of a million tonnes short.
There is some 200,000 tonnes of gasoline parked offshore, but this covers just over a week of consumption in Africa’s most populous nation. New March bookings have slowed to just over 100,000 tonnes – nowhere near what is required.
With the naira falling on parallel market by almost 50 percent, traders are loath to make a move unless they have swap contracts in hand.
“We are all waiting,” another trader said.