The Book, ‘The Costs of Fuel Scarcity’ written by Engr Johnson O. Awoyomi, an accomplished Engineer and a three-time member of the National Fuel War room, is an in-depth analysis of Nigeria’s Oil and Gas Industry. In the book, the author superbly captured the challenges in the industry and proffered solutions on the way forward.
Given the significance of the book, the Editorial Board of VALUECHAIN Oil and Gas Magazine has decided to serialize its content for the benefit of stakeholders in the industry and our teeming readers. Keep a date with us.
Chapters I & 2
CHAPTER 1:
INTRODUCTION
Oil and Gas Value Chain
The oil and gas value chain begins with the exploration and extraction of petroleum products and ends with the sale and distribution of these products to consumers. It can be broken down into three sectors namely; the upstream, midstream, and downstream, as identified in Figure 11. The upstream sector involves the search for oil and gas fields, drilling, and operating wells that bring the crude oil and gas to the surface. The midstream sector, which is often included in the downstream sector involves the storage and transportation of crude oil to be refined. The downstream sector relates to the refining, selling, and distribution of refined products to consumers. In addition, part of the downstream operations include importation of petroleum products and its distribution to augment the shortfall of the locally refined products. The distribution and transportation of both crude oil or gas and refined products are often
characterized by some constraints called bottlenecks, hindering the free flow of refined products to consumers. One major and unpleasant effect of these bottlenecks is called ‘Fuel scarcity’.
What is fuel scarcity?
Fuel scarcity occurs when the daily Premium Motor Spirit (PMS) national demand is over than the quantity supplied by the oil marketers and the Nigerian National Petroleum Corporation (NNPC). It is a situation characterized by long queues at filling stations all over the federation, often resulting to price racketeering, much above the regulated price. The occurrence of fuel scarcity and long queues at filling stations is no longer strange to Nigerians. During these periods some depot owners and station owners often engage in the act of profiteering, which is illegal. The pictures shown in Figure 12 depicts how stressful and hectic fuel scarcity can be to the citizenry.
What are the causes of fuel scarcity in Nigeria?
There are uncountable constraints identified earlier as bottlenecks that cause fuel scarcity in Nigeria. They can be internally or externally induced depending on the situations that arise. The internal factors are those within the control of the NNPC while the external ones are outside the control of NNPC.
Internally driven factors
(1) Refineries sub-optimal performance
There are four refineries in the country; – Port Harcourt (old and new), Warri, and Kaduna with a total PMS production installed capacity of 22 million liters per day. The overall capacity utilization of all four refineries for the years 2017 and 2016 is less than 30%, which was way under the average daily consumption of PMS in Nigeria (30 million liters). Due to the sub-optimal operation of these refineries, local production of PMS cannot meet the national demand. It is important to note that even after the completion of the refineries’ rehabilitation and with the refineries producing at full capacity (which is 445,000 barrels per day,) there will still be a gap as the national demand exceeds the existing installed capacity.
(2) Outstanding debts owed marketers
Over the years, the typical split of PMS importation between the marketers and the NNPC is in the neighborhood of 35% – 65%. Most often, inadequate liquidity on the marketers’ side is caused by a backlog of payments of marketers’ subsidy claim by the government. This resulted in the reduction in supply of imported petroleum products by the marketers, forcing NNPC as the supplier of the last resort to bridge the supply gap to 100%. This is a herculean task for the NNPC to achieve.
(3) Port inefficiencies and high charges
Inefficiencies abound in our marine ports delivery system – draft limitations, reducing the access of large vessels through the Bonny and Apapa Jetties, etc. Vessel clearance delay coupled with high port charges results in these inefficiencies. The high port charges are not commensurate with the quality of the service provided. Due to these inefficiencies, a 30 kt vessel will have to be broken down via ship-to-ship (STS) mechanisms in several parcels using smaller vessels – taking a long time to deliver the products to jetties with serious attendant costs through ship-to-ship cost and demurrages.
(4) Logistics and vessel clearance issues
The demand by both government security and regulatory agents for vessel inspection before berthing introduces delays as there is no proper coordination by the stakeholders to ensure seamless inspection of PMS vessels. This eventually leads to demurrage which contributes to the high landing cost of petroleum products.
(5) Pipeline vandalism
The pipelines transporting refined products from coastal depots to inland depots are continuously being vandalized by hoodlums and criminals, stealing petroleum products in cans or containers and disrupting the regular supply of products. This eventually leads to fire outbreaks, destroying lives and properties.
(6) Government agencies clearance
Government agencies like the Navy and Department of Petroleum Resources (DPR) are required to provide clearance for the products being imported and the vessels being berthed. The timely provision of these approvals can make or mar the timelydistribution of the refined products.
(7) Marketers liquidity constraints
Financial issues are a problem to marketers especially with the liquidity constraints introduced by the Central Bank of Nigeria and also the high-interest rates attached to acquiring loans.
(8) Forex Exchange Issues
Assessing the forex exchange officially (enough quantity) for the importation of the products has been a herculean task, as most of the time, marketers have to resort to the ‘black market’ i.e. sourcing through other bureau de change options.
Externally driven factors
(1) The petroleum product importers
There are some instances where marketers are part of the fuel scarcity by allowing in-efficiencies in the system knowing that their margin is guaranteed. There are allegations of some marketers not delivering or recirculating products and demanding subsidy claims and also bringing in empty barges. They claim subsidy for products supposedly imported for use in Nigeria but shipped to neighboring countries where products are sold at higher prices. They also create artificial scarcity in order to sell at higher prices through the black market and they collect products from the NNPC at a regulated price.
Pipeline vandalization leads to crude oil and products sabotage. This makes it difficult for the refineries to function optimally due to the lack of feed stocks and the non-effective evacuation and distribution of products to various part of the country; which results in heavy reliance on trucks for products distribution nationwide. The best means of moving products from the depots/jetties in the Southern Nigeria to the inland depots is mainly by pipelines. Transportation by trucks waste time and cost more since the products transported are in smaller quantities.
(2) Unionism- tanker drivers and other unions
Union groups such as NARTO and PTD go on strike at the slightest chance. This adds to the challenges of fuel scarcity.
(3) Black market operators and their patronage
Black market operators have made it a business and are willing to disrupt the effectiveness of the supply system in order to make profit. The Nigerian public patronizes the black marketers at the slightest chance during fuel scarcity, therebyproviding incentive for the black market to thrive. At the slightest signal of fuel scarcity, black market operators would sell petroleum products in jerry cans and ‘golf cars’- these are the kind of cars that have been worked on to install additional fuel tanks to carry more than five times the normal fuel tank capacity.
(4) Foreign exchange dynamics
It was noticed that the decrease in the supply of PMS was partly due to an increase in the price of crude oil. When the price of crude oil increases, the price of the refined imported petroleum products would increase and the amount required to import these products increase. Considering a fixed exchange rate with the market forces not allowed to drive it, creates an imbalance and when not addressed, marketers would refuse to import at a loss.
(5) Smuggling and diversion activities
The smuggling and diversion of products can also be identified as a major factor responsible for fuel scarcity. This is majorly due to the large arbitrage existing between the neighboring countries and Nigeria as shown in Figure 13. The large differencebetween the price of PMS in Nigeria and neighboring countries is enough incentive to sell to neighboring countries, making extra illegal money. This act of diverting PMS meant for consumption in Nigeria is called smuggling.
(6) Lack of tracking solutions
The lack of deployment of e-tracking solutions for PMS movement from loading depots to the dispensing pumps at retailing stations is part of the challenge. There is no adequate information on petroleum products in the country. Each time there is fuel scarcity, what is the government’s first response? The answer forms the focus of the next chapter.
CHAPTER 2:
FUEL WAR ROOM
Concept, organization, and related activities of the War Room
The concept of War Room
War Room is a military term that refers to a place equipped with maps and computers for maintenance, planning, and identifying the current status of troops in a battle. In business, it refers to a room located at the headquarters used for critical strategic planning. It is a centralized and purpose-built project meeting space that provides a dedicated location for project teams and stakeholders to co-locate and visually communicate the activities associated with the execution of critical projects. It is sometimes called situation room, command center, or mission control room.
What is Fuel War Room?
‘War Room’ is an action-oriented special task force created by the management of the NNPC to tackle fuel scarcity issues. Under this arrangement, the War Room working in concert with the Major Oil Marketers Association of Nigeria (MOMAN), Independent Petroleum Marketers Association of Nigeria (IPMAN) and depot owners (DAPMAN) and other Government Agencies (PPPRA, DPR, PEF, Security Agencies, etc) coordinates the loading of unprecedented volumes of PMS to filling stations throughout the country. The strategy is to provide an extra volume of products so that the fuel queue is ‘killed’ quickly, and the balance could be channeled towards building the national strategic stock which had been depleted at the height of the challenge. The fact and real-time based NNPC War Room has an express mandate to end the intractable fuel supply and distribution challenges within a very stretching deadline of five days. The adoption of the use of the War Room concept in the quest to fight fuel scarcity in Nigeria has made significant progress in alleviating fuel crisis across the supply chain, focusing on building stock to ensure supply stability.
War Room organization chart and hierarchy
Typically, the War Room is led by two group executive directors which are refereed to as the War Room Commanders. The War Room commanders are serve as executive committee sponsors. The War Room team is drawn from the staff within and outside the fuel supply chain (marine to retail).
A typical organization chart of the War Room (Figure 21) has executive sponsors and other team members from all the divisions that have one thing or the other with the fuel supply and management. It also includes other government agencies and regulators. The War Room’s field observers and dedicated data gathering team ensure that there is an effective “port-to-pump” supply chain management strategy. The War Room has clear distinctive roles for each position (Figure 22) and it is an operationally-focused structure that includes all parts of the PMS supply chain.
Characteristics of War Room operations
The major characteristics of War Room operations are:
a) Fact and real-time based: Data gathered by field observers are real and fact-based from ongoing procedures in the supply chain management operations used to make prompt decisions.
b) Integrated supply-chain: Team members from across the supply chain work together with all stakeholders (Independent Petroleum Marketers Association of Nigeria (IPMAN), Major Oil Marketers Association of Nigeria (MOMAN), and Depot and Petroleum Products Marketers Association (DAPPMA) and other government agencies to deliver an optimum solution. They provide the current and detailed information required to identify and solve key bottlenecks.
c) Action-oriented: War Room operations are action-based; visits are paid regularly to different bottleneck locations allowing current and viable solutions to be implemented rapidly.
d) Strong leadership: Top management participation and leadership is critical for the success of the War Room and require a full 7-day commitment.
Integrated War Room operations with supply chain and field operations
War Room activities integrate an end-to-end perspective of the supply chain with field operations (Figure 23) to address identified bottlenecks for efficient productivity.
These end-to-end activities include the participation of the operational, monitoring, andGemba team.
• The operational team: ensures daily interaction with all the members of the supply chain and identifying key interventions required.
• The monitoring team: monitors the entire filling stations and depots (loading/receiving) operations, provides intelligence of dry stations (that is filling stations that have run short of fuel for sale to the public) or dry depots (that is depots that have no product to load-out) as well as trucks being diverted.
• The Gemba (Japanese word for actual place) team: ensures frequent visits to fields to identify root causes, develop and implement actionable solutions.
Daily War Room activities and timelines
A typical daily War Room flowchart of activities is shown in Figure 24. The daily activities are focused on fact-driven real-time interventions and it covers both morning and afternoon sessions with the decision-makers. They are itemized in six different steps namely; regular target updates, data gathering, data analysis, operational interventions, actual War Room meeting and issue the PM (afternoon) reports.
Daily War Room schedule
The War Room daily activities are timely scheduled to provide a continuous interface with ongoing operations on the fields. These activities are further elaborated on in Figure 25.
War Room levels of responsibility
In the War Room, the levels of responsibility for decision-makers are clearly defined inthree hierarchies. These hierarchies are used for identifying bottlenecks and problem-solving (Figure 26), they are classified depending on the level of their impact.
a) Level 1: Resolves basic deviations that have no significant impact on other areas and compliance with agreed procedures. The analyst is responsible for the decision-making.
b) Level 2: Resolves issues that have an impact on other areas of operations (for instance, the re-allocation of stock meant for one location to another).
c) Level 3: Resolves major issues requiring senior intervention. The War RoomManager is responsible for the decision.
Now that the operations and governance of the Fuel War Room are understood, the next chapter will focus on specific standardized operating guidelines.