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Forex crisis threatens modular refineries N25bn daily crude input

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Modular refineries in Nigeria are currently facing the threat of shutting down operations following their inability to access foreign exchange for the purchase of crude oil, a commodity priced in United States dollars.

Nigeria has 25 licenced modular refineries with a combined capacity of producing 200,000 barrels of crude oil daily.

Although not all of the plants are currently operational, it was gathered that the functional ones were increasingly finding it difficult to purchase crude due to the worsening foreign exchange crisis in the country.

Brent, the global benchmark for crude, traded at about $80/barrel on Sunday and had remained within that range for months.

With an estimated capacity of 200,000bpd, the modular refineries, if fully operational, would refine about $16m (or N25.14bn if Thursday’s official closing rate of N1,571/dollar is used.”

Annually, it means the modular refineries has capacity for about 73 million barrels annually, representing about $5.84bn worth of crude oil.

But the facilities, which produce Automotive Gas Oil, popularly called diesel, Dual Purpose Kerosene or kerosene, naphtha and black oil, are now finding it hard to make the refined products available to oil marketers for distribution to consumers.

They explained that the scarcity of dollars had made it almost impossible for operators to purchase crude oil, as the modular refinery players and oil marketers demanded for the sale of crude oil in naira from the Federal Government.

The modular refinery operators, who spoke under the aegis of Crude Oil Refinery Owners Association of Nigeria, also lamented that the Federal Government had not been able to keep its part of the bargain with respect to the provision of feedstock to local crude oil refiners.

Speaking with our correspondent on the matter, the Publicity Secretary, Crude Oil Refinery Owners Association of Nigeria, Eche Idoko, stated that modular refineries may close shop if nothing is done to ameliorate the situation.

CORAN is a registered association of modular and conventional refinery companies in Nigeria, while modular refineries are simplified refineries that require significantly less capital investment than traditional full-scale refineries.

Idoko said, “The purchase of crude oil in dollars is currently the major challenge to modular refineries. We buy crude in dollars and sell our refined products in naira, and this is a major challenge. And apart from that, where do you get the dollars to pay for the crude?

“You heard the Manufacturers Association of Nigeria crying out recently about the dollar saga. We have requested that crude oil be sold to us in naira. And when you do this, you ease the pressure on the naira and this will make our diesel cheaper.

“It will encourage more investors to build and patronise the local refineries. If you take petroleum products off the foreign exchange market, you would have helped the naira by 60 per cent.”

Asked whether the inability of modular refineries to source dollars for crude oil purchase was slowing down production at the plants, Idoko replied, “Yes. We’ve not been able to get enough crude and from the little that we see, we’ve not been able to get forex to buy them.”

On whether this posed a threat to the survival of the plants, the spokesperson of the group said, “Exactly, it is a threat to our existence and it also opens the country to the volatility in the international market.”

Although the association could not state the estimated volume of crude refined by modular refineries in Nigeria, it stated that operators in the sector could refine about 200,000 barrels daily if all of them were operating.

Idoko said, “Right now, I don’t have the actual volume of crude that modular refineries refine annually. However, it is important to state that what each refinery produces in a month is dependent on the amount of crude they are able to get.

“The government has not been able to fulfill its own side of the obligation by providing 60 per cent of the crude required by modular refineries, as captured in the Petroleum Industry Act. So a lot of modular refineries are performing below capacity.

“For instance, OPAC has a 10,000 barrels per day installed capacity, but the most they have been able to refine is like 3,000 to 4,000bpd. The Edo refinery has 1,000bpd, but sometimes they do just 500bpd. Aradel and Waltersmith are the ones that refine as much as 70 and 80 per cent of their capacities because they have their own marginal fields.

“Waltersmith has a capacity of 5,000bpd, while Aradel has 10,000bpd refining capacity. However, if all the modular refineries come onstream, all those that have been licensed so far, our crude demand would be about 150,000bpd and 200,000bpd.”

Nigeria currently has 25 licensed modular refineries. Five of them are operating and producing diesel, kerosene, black oil and naphtha. About 10 are under various stages of completion, while the others have received licences to establish.

Officials of the Federal Ministry of Petroleum could not be reached to tell whether the government would consider selling crude to the modular refineries in naira, as they had yet to respond to enquiries up till when this report was filed.

However, the Minister of State for Petroleum Resources, (Oil), Heineken Lokpobiri, recently confirmed the lack of crude to domestic refiners, noting that Nigeria’s inability to meet its crude oil production quota approved by the Organisation of Petroleum Exporting Countries was the major limiting factor.

Lokpobiri, however, stated that the government was working hard to meet the production quota in order to supply crude oil to local refiners as stipulated in the Petroleum Industry Act.

Meanwhile, Idoko noted that “the current NNPC boss, petroleum minister and NUPRC have all talked about the possibility of having some arrangements with us in naira. But that hasn’t been implemented. Our people still source crude from domestic producers in dollars.

“We buy crude in dollars and sell our refined products in naira. So it is not that we earn dollar proceeds. Our earnings from the sale of diesel, kerosene and black oil is in naira.

“The only dollar component is the sale of naphtha, but most of our refineries won’t sell naphtha, they put it back into the system and reproduce kerosene or diesel. So we still have to visit the Central Bank of Nigeria or domestic dollar market to source our dollars.”

Marketers react

Commenting on the development, oil marketers stated that the continued fall of the naira against the dollar was limiting the release of refined petroleum products from the modular refineries.

Marketers under the aegis of the Natural Oil and Gas Suppliers Association of Nigeria stated that operators of these refineries had stated that the country’s foreign exchange crisis had made it difficult to put a price on refined petroleum products.

They called on the Federal Government and NNPCL to start supplying crude oil to local refineries in naira, considering the persistent fluctuations of the dollar.

The President, NOGASA, Benneth Korie, who conveyed the resolutions of members of the association after their meeting in Abuja, stated that the government should peg the foreign exchange rate at N750/$ in order to enable refineries to start pumping out refined products.

“If for example crude is $80/barrel, we will have to convert it to naira and sell to Nigerians at the naira rate. Let me start by telling you the implications. The problem holding most of these refineries and modular refineries from coming up is the exchange rate crisis.

“So the answer to this is for the government to come out and tell Nigerians that this is how much the dollar is, not this forex rate we hear on TV. Let the government come out and tell us the rate, not the black market rate.

“I know our budget this year was benchmarked at about N750/$. So if the government can maintain the exchange rate at N750/$, heaven will not fall, whether there is inflow or no inflow. It is not the first time we are seeing the dollar at N400 and they (black marketers) are selling for N800.

“So let’s go back and try it, because if we allow this crisis to continue, the dollar may get to what we cannot handle; it may get to the point that all our food items could be sold at dollar rates if care is not taken.

“Therefore, let us go back to N750/$ as it was stated in the budget and work with that, so that the crude oil that will be sold to the refineries will be sold at the exchange rate of N750/$, and it should be converted and we pay in naira.”

Explaining further, he said, “If you are buying crude oil from the government, you pay in dollars, but how do you blend? How much are you going to sell your refined products when you don’t know how much the dollar is going to be tomorrow?

“So it will affect you as a businessman. But if we have one price from the government, then when you are buying the crude from the government or NNPC, you will calculate it based on the government’s rate, convert it to naira and then sell it to Nigerians in naira.

“But when you go to get dollars today and they say it is N1,500, how do you calculate? It creates confusion. So it is causing a problem. Let’s have one rate from the government and things will change positively.”

The NOGASA president went ahead to speak on refineries under the management of NNPCL, as he stated that the forex crisis was also affecting these plants.

“For the Port Harcourt refinery, they said it will come up, and they are also into the business of buying and selling, so if the dollar is not stable, be rest assured it is their problem too,” Korie stated.

When probed further on whether the forex crisis was a major factor limiting the release of products from the refineries, he replied, “For most of them, yes!. This is because you don’t know how much you are going to buy the dollar and so you cannot tell how much you are going to sell (your products). It (dollar) is not stable.”

Speaking further on modular refineries, Korie said operators in this space were finding it tough to source dollars to make crude oil purchase, stressing that the instability of forex had remained a challenge.

On modular refineries, the problem they have is that they do not know how much they will buy and you are selling to them at the dollar rate. If you go to any modular refinery to buy products, the products’ price will be the same at almost the same price as the one you import,” the NOGASA boss stated.

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Econony

SEE States With Highest And Lowest Food Price Inflation Rates In Nigeria For March 2024

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The lastest data released by the National Bureau of Statistics (NBS), has unveiled states in Nigeria with the highest and lowest food inflation rates.

The data released on Monday by the NBS, are for the month of March 2024.

According to the NBS, the states with the highest food inflation rates are:

Abia (5.17%)

Cross River (5.14%)

Bayelsa (4.75%)

Those with the lowest food inflation rates are:

Borno (1.59%)

Yobe (2.08%)

Adamawa (2.12%)

Meanwhile, Nigeria’s inflation rate has increased to 33.2% for the month of March 2024 according to the latest data released on Monday by the National Bureau of Statistics (NBS).

The new figure represents a 1.5% increase from the 32.7% recorded in February 2024.

The NBS data shows that on a year-on-year basis, the headline inflation rate was 11.16% points higher compared to the rate recorded in March 2023, which was 22.04%. This shows that the headline inflation rate (year-on-year basis) increased in the month of March 2024 when compared to the same month in the preceding year (i.e., March 2023).

Furthermore, on a month-on-month basis, the headline inflation rate in March 2024 was 3.02%, which was 0.10% lower than the rate recorded in February 2024 (3.12%). This means that in the month of March 2024, the rate of increase in the average price level is less than the rate of increase in the average price level in February 2024.

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Econony

JUST IN: Inflation Rises to 33.20% in March

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The National Bureau of Statistics (NBS) Monday, April 15, has said that inflation rate increased from 31.70% in February 2024 to 33.20% in March 2024.

According to the Bureau in its Consumer Price Index (CPI) and Inflation Report March 2024, inflation rose by 1.50% point compared to the previous month.

NBS said: “In March 2024, the headline inflation rate increased to 33.20% relative to the February 2024 headline inflation rate which was 31.70%.

“Looking at the movement, the March 2024 headline inflation rate showed an increase of 1.50% points when compared to the February 2024 headline inflation rate.”

The document said on a year-on-year basis, the headline inflation rate was 11.16% points higher compared to the rate recorded in March 2023, which was 22.04%. This shows that the headline inflation rate (year-on-year basis) increased in March 2024 when compared to the same month in the preceding year (i.e., March 2023).

NBS further noted that on a month-on-month basis, the headline inflation rate in March 2024 was 3.02%, which was 0.10% lower than the rate recorded in February 2024 (3.12%).

The Bureau explained this means that in March 2024, the rate of increase in the average price level is less than the rate of increase in the average price level in February 2024.

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Econony

SEE Black Market Dollar To Naira Exchange Rate Today – April 15, 2024

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The exchange rate for the dollar to the Naira in the black market, also known as the parallel market, stands at N1135 for buying and N1140 for selling as of Sunday, April 14, 2024. These rates were reported by sources at Bureau De Change (BDC) in Lagos.

It’s important to note that the Central Bank of Nigeria (CBN) does not recognize the parallel market and advises individuals to conduct foreign exchange transactions through authorized banks.

Buying Rate: N1135
Selling Rate: N1140
Meanwhile, the CBN’s official rates for the dollar to the Naira today are:

Buying Rate: N1237
Selling Rate: N1238
Please be aware that actual rates may vary depending on where you conduct your forex transactions, as prices are subject to change.

Optimistic Forecast for Naira: In a recent forecast by Goldman Sachs Group Inc., it is anticipated that the Nigerian currency, the Naira, could significantly strengthen, potentially trading below ₦1,000 to the dollar in the near future. This outlook follows an earlier projection by Goldman Sachs on March 10, which predicted the Naira reaching ₦1,200 per dollar within the next twelve months.

Andrew Matheny, an economist at Goldman Sachs, expressed optimism during an interview with Bloomberg, suggesting that the Naira might surpass earlier expectations by trading even lower than the projected ₦1,200 against the dollar. He indicated the possibility of the Naira trading below ₦1,000 in the foreseeable future.

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