Russia-Ukraine war: Fuel scarcity may continue, oil vessels face delay on sea.

The ongoing war between Russia and Ukraine may further prolong the over three-week scarcity of Premium Motor Spirit, popularly called petrol, in Nigeria, as bulk of the refined products coming into the country from the warring region and its adjoining areas are likely to face some delays.

 

It was also gathered on Sunday that traders who supply Nigeria with refined petroleum products might pause a little due to the deficit in the supply of crude oil cargoes from the Nigerian National Petroleum Company Limited.

 

NNPC brings in refined petrol into Nigeria using contractors or traders through its Direct Sale Direct Purchase scheme.

 

Under the scheme, the oil company provides crude oil to its trading partners, who in turn supply the NNPC with refined products worth the volume of crude received from the national oil company.

 

But impeccable sources both at the oil firm and among traders stated on Sunday that Nigeria through the NNPC had a deficit of about 17 cargoes in its DSDP obligation due to low oil production.

 

This, they said, could further prolong the fuel scarcity situation being faced nationwide, except something drastic such as the complete deregulation of the downstream oil sector was implemented.

 

They also noted that the Russia-Ukraine war might worsen the petrol supply situation in Nigeria as products could be hindered from leaving refineries in the region on schedule.

 

Nigeria imports its refined petroleum products, as its refineries are currently dormant.

“What we face now could be described as a perfect storm, which is when many things go wrong at the same time. We have a fundamental problem, but that problem happens at a time that other things happened and so it aggravates everything,” an oil trader with the NNPC, who pleaded not to be named due to the sensitive nature of the matter, stated.

 

The source added, “Now, Russia has attacked Ukraine. What is the impact of Russia’s attack of Ukraine on Nigeria? Russia is an oil-producing country, for Ukraine, our refined products come from that part of the world, not only Western Europe.

 

“So, the price has gone up because our refined products come from that part of the world and disturbances such as the one happening there will impact supply one way or the other.”

 

On concerns around DSDP and how it would further prolong petrol scarcity, another trader stated the continued theft of crude oil had impeded NNPC’s ability to settle its crude oil supply obligations to traders on schedule.

 

The source said, “Nigeria is assigned about 1.7 million barrels of crude oil production per day by OPEC, but its production is between 1.3 and 1.4 million barrels daily. But that is a different thing. Now, from the about 1.3 million barrels that the country produces daily, people are stealing from it.

 

“They are creating holes in pipelines and the ones that they steal are used in illegal refineries in Rivers State, causing soothe and dirt in peoples’ lungs. The other ones that they steal, they put in batches and go to the high sea to sell them.

 

The source added, “Now the NNPC brings in products through Direct Sale Direct Purchase of crude. Now I’m telling you that the NNPC owes traders crude oil under the DSDP scheme and you know why? It owes crude oil because people are stealing the crude and they don’t have enough crude to pay.

 

“So the NNPC owes the traders who bring them refined products. So when they (NNPC) say give me some more, the traders will reply by saying, but you are already owing, pay us. The NNPC cannot pay because people are stealing crude.

“This tells you that the petrol scarcity problems may continue if something drastic, particularly the deregulation of the downstream sector, is not done as soon as possible.”

 

When contacted, the spokesperson of NNPC, Garba-Deen Muhammad, asked our correspondent to send him a text or WhatsApp message on the matter. This was sent to him but he had yet to reply the messages up till the time of filing this report.

 

Meanwhile, the cost of shipping crude oil on super-sized tankers from the United States Gulf Coast to the United Kingdom and Asia surged after attacks on vessels in the Black Sea unleashed a risk-based premium into global shipping markets.

 

According to Bloombergquint.com report, tanker rates for so-called Very Large Crude Carriers that can carry about two million barrels of crude from the US Gulf Coast to the Asian market jumped to about $7m on Friday from $4.4m just three days ago, according to two shipbrokers familiar with the trades.

 

They also said that rates for booking vessels that carry oil to the European market rose to more than $2.75m from about $1.6m they said.

 

The higher costs may threaten US oil exports even as Brent crude’s premium to US oil futures is the biggest it has been since the early days of the pandemic.

 

Shipowners were already avoiding offering their vessels to collect crude from Russia while at least three merchant ships have been reportedly hit since Russian forces began the attack on its neighbour this last week.

 

Insurers are either not offering to cover vessels sailing into the Black Sea or they are demanding huge premiums to do so.

 

Meanwhile, fresh indications have emerged that the development has extended to the African market including Nigeria.

A former President of the Nigerian Indigenous Ship-Owners Association, Aminu Umar, confirmed it was now difficult for ships to sail through the Russia-Ukraine region and its adjoining areas due to the escalating tensions, noting that the area had since been classified as a war zone.

 

According to him, the situation may lead to a shortage of vessels as more ships avoid the regions.

 

“Some steel imports come from the Black Sea. Due to insecurity and war in Ukraine which you know is in the Black Sea, it is going to be difficult for ships to go there. The insurance world has classified the area as a war zone. So, many ships cannot go there anymore. No ship is allowed to go there until things are cleared, unless the owner of the vessel decides to take the risk directly, going without following advice from his insurance firm.”

 

As a result of the development, the expert said the situation had led to a major increase in freight rate.

 

Also, he said insurance premiums had gone up.

 

Umar said, “There may be a shortage in the number of vessels going to the Black Sea to ferry cargoes to Nigeria. Already, freight has skyrocketed in the Black Sea and the Mediterranean Sea.  These are places we get cargoes that come to Nigeria. The development is going to affect the shipping world very significantly.

 

“Again, some vessels are already currently blocked in the Black Sea, they can’t come out. Also, some are going to face embargos and sanctions, which means they can’t trade in cargo. Any shipping company owned by a Russian or flying the Russian flag will be involved in this sanction. Consequently, a number of the vessels trading within the Black Sea and the Mediterranean will end not being able to carry cargo either to Europe, America or any of the African countries, because Nigeria is also following the United Nations sanction.”

 

Specifically, he said the freight rate on tanker vessels had gone up from $10,000 per day to $30, 000 per day, a few days into the war.

He added, “As at yesterday (Saturday) for tankers that are trading within the Mediterranean and Black seas, their freight rate has increased, they were doing like $10,000 per day, and now they are doing like $30, 000 a day. So, it is almost 300 per cent increase in freight and it is still going up. The vessel that will load cargo like steel from the Black Sea will now be facing a very high freight because only a few of the vessels can go there; I am talking about tankers, I have not got an update on the general cargos. Also, When they put you on a war risk zone, it means your insurance premium doubles immediately.

 

Also, the President, the Nigerian Association of Master Mariners, Tajudeen Alao, noted that crude oil prices had gone over $100 per barrel, adding that the Russia-Ukraine war lead to an increase in insurance and freight.

 

He listed the challenges as “war risk insurance on freight, increase in commodity prices such as wheat and energy in the European market. The multiplier effect affects export to third world. There will also be the introduction of extra charges. Fewer ship owners and crew will want to go to war zones.”

 

On his part, a shipping expert, Emmanuel Ilori, said the situation is a wake-up call for Nigeria on the need to be self sufficient, especially in the maritime sector.

 

“The only thing we can say for Nigeria shipping from this development is the need for Nigeria to be self-sufficient, the need for Nigeria to build its own national fleet and be sufficient in terms of the maritime resources. All of a sudden, sanctions have been imposed on Russia. But Russia is relatively maritime self-sufficient so they will be able to handle it.”

 

According to him, developing capacity in the maritime sector will reduce the country’s dependency on foreign countries.

 

“If Nigerian is still dependent on foreign countries for its shipping, any sudden development such as a sanction may throw the country out of balance. How are we going to survive as a nation? That is why we need to be self-sufficient in terms of shipping, technology, and all that. We need to develop our maritime sector in terms of technology and infrastructure,” he noted.

 

Ilori further advised the country to develop the capacity to train cadets, adding that the Maritime Academy of Nigeria in Oron should be upgraded to train more people.