Robert Dickerman is the Chief Executive Officer of Pinnacle Oil & Gas Limited. In this interview with Waliat Musa, he speaks on a wide range of issues in the downstream segment of the Nigerian oil and gas industry. Excerpts
What is your take on pricing, investment and infrastructure in the downstream petroleum industry in Nigeria?
The issues are very simple and complex at the same time. They are simple in a way that if we can get to where the developed countries are, where they have a true market environment for petroleum products with market pricing, multiple sellers and buyers, there won’t be problem with supply and the market will sort itself out.
But we must address the economic pain because it is a difficult political decision.
The short-term decisions being made often conflict with the long-term objectives and they are very simple. It’s not about our industry but the country and its economy. This is about creating jobs, getting foreign direct investment and providing the environment that will give investors confidence to invest in Nigeria. This will boost confidence in the Naira.
The structure that we have started with, a hybrid foreign exchange structure where some entities are able to buy dollars cheaper than others, since all products are imported as there are no operating refineries and all oil products are priced in dollars, it takes FX to buy petroleum products. The difference between the official and the unofficial rate for example today is N250 per dollar. This is massive! That is what creates this continued monopoly by NNPC Limited, which is neither healthy for the market nor Nigeria as a whole. It’s not healthy for investment and it isn’t creating a marketplace.
There will be no real effective marketplace at wholesale or retail until we have a deregulated market with prices at all classes of trade. I’m talking about both trading in cargoes, wholesale trading in truckloads, retail trading at the pump. They all flow from market pricing. They will all come in line. The government doesn’t need to put a hand on it, touch it or get involved in any way. But getting there requires us having a free-floating Naira as well. I know the economy is in tough shape with the recent increase in petroleum prices, especially PMS prices because AGO cost went up before and it was a result of the reduction of subsidy and that has political implications.
We have to consider the long-term implications of what we are doing right now which is if we revert to subsidy, subsidise the Naira for certain individuals, we’ll create aberrations in the market place and I’m afraid, we’ll never be able to get that kind of confidence that will create the investment in this economy to create the jobs and stability that we really need.
Do you support the claims that the Forex crisis is responsible for the spike in the rising cost of LPG?
There’s nothing else! You’ve answered your own question. 40 per cent of the propane and butane makes LPG. Propane is a three-carbon chain product and Butane is a four-carbon chain product. They’re light ends, and they’re in gases because in atmospheric temperatures and pressures, they’re gases. 60 per cent of it is imported. Guess where it comes from? Oil and Gas wells. Just like crude oil, natural gas is, and its price follows a global market price. And when crude oil prices go up, which have, it’s close to $100 a barrel. Last time I checked, it was about $95 a barrel. So, the price of imported LPG will go up correspondingly.
NLNG produces 40 per cent and the rest is imported. So, that’s the reason. There’s nothing sinister going on. There’s nobody planning it, they’ll go up and down, that’s the beautiful thing about global market prices. They don’t just go up, when there are efficiencies, high prices will create additional supply, which will then reduce prices. It’s a self-balancing system.
How has the operation been since the launch of Pinnacle modern mooring terminal a year ago?
It’s been working beautifully well. You know, we actually think of our business a little bit differently than some other people in our industry. Some people think that they’re in the business of processing or wholesale marketing or retail marketing. We’re actually in the business of efficiency in the Nigerian oil and gas downstream industry
The whole vision is not just that terminal, but our entire corporate strategy is about creating efficiencies. Where we see inefficiency, that’s where we want to make investment. Reducing inefficiency is actually our business model. And that’s what we do. It doesn’t really matter whether Pinnacle utilises those efficiencies or other companies do or the government does. Everyone is welcome to it. It is an open system.
So, we actually have more third-party companies that are coming in to utilise our terminal than we use ourselves. At some point, when the Dangote refinery, which is one kilometer from our facility, starts operating, the demand is going to explode in the Ibeju-Lekki axis, the Lekki Free Trade Zone. There will be a lot more terminals in that area, and it will displace a lot of the distribution activity that’s currently going on in Apapa, Satellite and other areas around Lagos that are currently very congested because of those efficiencies that will come along. We just happened to be the first one to take advantage of it because we have the deep water moorings, others can take advantage of it as well. Our business is actually doing very well, but it’s really because that’s the business that we’re in, really.
Are you also looking at expanding your investments by opening more filling stations?
We are cautiously and selectively expanding our retail network. Our retail network is not huge by Nigerian standards. The Nigerian retail market needs to develop. Again, with this market deregulation, when we see the correct price signals, when there are market prices that drive retail, when no one has a competitive advantage, no one has a supply advantage, you’re going to see market prices drop. I’ve worked in 25 countries and I’ve seen this many times, including my own country in 1981 where I worked for a major oil company when Ronald Reagan deregulated oil prices, the margin that comes from fuel will go almost to zero.
The value of a retail station will be simply to bring customers into that station, and then make money off them from other ancillary services that are needed, and it will be very localised. So, one area will have a convenience store, another one will have a mechanic’s service, somebody else will have a hotel, somebody else will have a car wash, and that’s where all the value is in retail.
Our primary focus right now is not big retail, it is more on leveraging and replicating what we’ve already done at wholesale, looking for horizontal and vertical expansion opportunities. We are getting into LPG, we are going to put in a lubes plant, get into jet fuel, we are looking at other locations to build terminals, we’re going to continue to expand, because we know that the efficiency model is successful.
