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Petrol price and sustainable transportation-Part 1


The Nigerian economy has borne the huge burden of subsidy payments on petroleum products. Massive importation of light petroleum products (petrol, diesel, and kerosene) continues unabated because the national refineries are working sub-optimally and new ones are yet to be constructed. Recently, government announced its plan to privatize the old and mismanaged refineries, which was greeted with relief except for oil industry unions who believe that they will bear the brunt of the exercise unless proper negotiations are made to protect their interest.

Pragmatic reasoning still suggests that the refineries should be privatized, and there are various models that could be adopted for this. However, I do not think that the preferred model is outright sale of the refineries, because the exercise is very likely to translate from public sector (government) monopoly of refineries to private sector monopoly. A private sector monopoly of refineries without an alternative fuel for our vehicles is absolutely dangerous because 170 million Nigerians are locked into the petrol / diesel ‘captive’ market and will be at the mercy of the Directors of the three refineries. You cannot pack in the garage a jeep you bought with millions of Naira just because the price of petrol has risen to, for instance, N300 per liter. There are also far more dangerous political and national security implications.

public-transportationNow, where does this lead us in our search for solutions towards achieving self-sufficiency in availability of petroleum products? Addressing this critical challenge would require increasing capacity for production of petroleum products (supply-side solution) and/or reducing the demand for petroleum products, particularly petrol and diesel (demand- side solution). The supply-side factors, in the case of our indigenous downstream petroleum sector tend to be more critical. The critical supply factors to be considered in the course of deregulation are improvements in the efficiency of domestic supplies; liberalization of product supplies; Brownfield refinery expansion (i.e. expansion of existing refineries); and Greenfield refinery development (i.e. new refineries construction). Loosening up all supply-side constraints can only be achieved when existing refineries are repaired, privatized and expanded; and new refineries constructed (both private and PPP-based refineries); and perhaps with the pipelines privatized also.

Conversely, demand-side factors such as products substitution with bio-fuels, compressed natural gas (CNG), liquefied natural gas (LNG) etc; improvements in the power sector; and the use of more fuel-efficient vehicles are also important but progress in these directions may not keep pace with the urgency required to attain self-sufficiency in supplies. So most industry analysts think!

Now that government has increased the price of petrol from N86.50 to N145.00, and there is nothing in the horizon to suggest that new mega-refineries are being built or small and medium scale-private refineries are being commissioned, it would seem that introduction of alternative fuels for vehicles (natural gas vehicles, NGVs) is inevitable. The objective should be to integrate fuel substitution with projected refinery supply volumes after the turn-around maintenance of existing refineries have been completed.
According to an industry expert and practitioner, Dr Emeka Ene of Energia Oil Company, the introduction of compressed natural gas (CNG) fuels for public transportation and government/company vehicle fleets is a “low hanging fruit” and represents a “quick-win”. It is clear that Dr Ene was right, but first what is this alternative fuel about, how will it impact Nigerians positively, what are the constraints, which countries have developed the use of NGVs, and how should government and private investors go about its introduction?

Alternative fuels have a role to play in the demand mix for petroleum products, especially in public transportation. According to an IEA-OECD study carried out by Michael Nijboer on “The Global Use of Natural Gas- Driven Vehicles (NGVs)”, natural gas has been more competitive when compared to gasoline in regard to transmission and distribution grids, and public transportation. According to the report, there is an opportunity for simultaneous gas market development and boosting of a country’s NGV market share.

CNG is produced by compressing natural gas with gas compressors to less than 1% of its volume, and then stored / distributed in hard steel containers (with cylindrical or spherical shapes) at a pressure of 200-248 bar. The cylinders are then fitted into traditional petrol or diesel-run vehicles that have either been modified or manufactured for CNG use. CNG can also be used in conjunction with another fuel, e.g. diesel or petrol (bi-fuel vehicles). NGVs are becoming popular around the world, in response to high fuel prices and environmental concerns.

The use of CNG as a ‘greener fuel’ has numerous benefits. It is more environmentally efficient for motorists and the general public. CNG emits significantly fewer air pollutants (i.e. carbon dioxide, carbon monoxide, nitrogen oxides, sulfur oxides, etc) than petrol/diesel. CNG is lead-free, thereby eliminating fouling of spark plugs. It mixes evenly and easily in air, being a gaseous fuel. CNG is less likely to ignite on hot surfaces because it has a narrow range of flammability (5-15%) and a high auto-ignition temperature (540 degrees centigrade). This is contrary to the safety issues that come to mind when motorists are persuaded to convert to the use of CNG gas cylinders. CNG fuel systems are specially sealed, thus preventing fuel losses from evaporation and spills. CNG vehicles have lower maintenance costs than petrol/diesel-powered vehicles. The pricing of natural gas driven vehicles is significantly lower than comparable petrol/diesel driven vehicles.
• To be continued
• Prof Nwaozuzu, a Petroleum Policy Expert & Deputy-Director, Emerald Energy Institute, University of Port Harcourt.

1 Comment
  • emmanuel kalu

    great write up, however this is the kind of change that would only work if done by private sector investor. A country with abundant gas, still have a massive problem supply enough gas to it power sector. we rank very low in the use of cooking gas. All avenue the government can focus on increasing gas usage. deregulation of downstream sector of oil and gas, would ensure that private investor would be a huge part of it. The government doesn’t need to sell the refineries. They just need to make it publicly traded companies, with the government, community and workers own a minority stake, and investors owing a majority share. NLNG is a perfect example of how this should work.