The Pipelines and Product Marketing Company (PPMC) has suspended fuel importation, as excessive orders in the wake of the fuel subsidy scandal last year has created a petrol glut, Reuters news agency reported Thursday.
PPMC, a subsidiary of the Nigerian National Petroleum Corporation (NNPC) responsible for the supply of petroleum products to the domestic market, according to Reuters, will not make purchases in November, as it tries to work through a 10.2 million barrel (1.2 million tonnes) surplus petrol waiting offshore.
Traders reportedly hinted it was possible that the suspension may extend until the end of the year, which will hit European refiners that supply the market.
Petrol gluts have occurred in the past in Nigeria, but the scale is far worse than usual and a suspension of import deals is very rare.
“All previously agreed laycans (deliveries) have been cancelled,” one regional trading source said, “Nigeria has about 1.2 million tonnes offshore waiting to discharge,” the report added.
Spokesman of PPMC, Nasir Imodagbe, was quoted as stating he was not aware of any cancellation of orders, but that a decision to suspend imports would be that of the regulator, the Petroleum Product Pricing Regulatory Agency (PPPRA).
“Whatever volume the PPPRA allocates to us, we ensure to deliver it. If there’s going to be any suspension, it should come from the PPPRA,” Imodagbe said.
PPPRA spokesman also denied there had been any suspension, but added: “We are a regulatory body, we don't import ourselves.”
However, the report noted that ship tracking data on Reuters showed around 45 oil product cargoes anchored off the coast of the port of Lagos, where the fuel comes in, waiting to discharge.
The import halt will likely hit oil refineries in Europe, which supply most of the fuel to Africa's most populous nation. At least 3.8 million barrels (450,000 tonnes) of gasoline (petrol) is now expected to be looking for new buyers in the coming month, the report added.
Nigeria normally imports around 7.6 million barrels (900,000 tonnes) of gasoline each month, with PPMC responsible for roughly half of the buying.
PPPRA, which allocates the other 50 per cent of gasoline imports to private traders, has not yet announced its final requirements for the fourth quarter.
Market sources said the companies allocated imports by PPPRA are not expected to book any gasoline purchases before December.
Industry sources said the glut had been created by a crude-for-gasoline swap programme that was expanded by the Nigerian government last year in the wake of the fuel subsidy fraud.
“It's a direct consequence of the crackdown on fuel subsidy fraud,” an official working for a major Nigerian fuel marketer said.
“A lot of marketers are not being paid subsidy, so the government had to order the fuel itself. To do that, they had to sub-contract to a lot of people to bring the fuel in. They ordered too much.”
Another industry source added that the oversupply had been exacerbated by low wholesale prices of petrol in Europe, which had encouraged refineries and traders to do crude-for-gasoline deals this summer.
Traders in Europe had moved to dump a surplus of gasoline into West Africa in return for barrels of crude oil.
Despite being Africa's largest oil producer, pumping 2.11 million barrels per day, Nigeria is reliant on imports of products like petrol and kerosene due to an ageing refining system.
Last year’s probes into the fuel subsidy programme exposed a web of corruption and fraud by government officials and fuel marketers that had cost the country billions of dollars, with much subsidised fuel never being ordered or being diverted to neighbouring countries.
That led to the expansion of the crude-for-gasoline swap programme, in a bid to remove cash payments from the system.
“When NNPC proposed to switch to a system of swapping crude for gasoline, everyone thought it was a brilliant idea as you deliver gasoline, get your crude and don't face payment problems,” an executive at a trading explained.
“But then somehow, allocations went to too many people, who kept delivering gasoline even before getting crude. So as a result, the issue of oversupply arose,” he added.