Saturday, October 29, 2011

Oil & Gas (3) - The Downstream Dilemma - By Nasir el Rufai
28 October 2011

Written by Nasir Ahmad El-Rufai    

The downstream parts of the oil and gas sector include all activities following the delivery of crude oil to processing plants for refining, conversion and value addition into gasoline, diesel, kerosene and petrochemicals, including transportation, storage, marketing of the finished products and associated services. The value chain entails the supply of crude oil to the refineries, primary distribution from refineries to terminals, secondary distribution to depots and distribution to retail outlets for marketing.  In a country where nearly 80 per cent of urban family incomes go towards food, rent and transportation costs, the prices of cooking gas, kerosene and gasoline constitute a lion share of the cost of living.

Unlike the upstream parts which are considered successful and relatively efficient, dominated by IOCs and private sector operations and mind-set, the downstream sub-sector of the Nigerian oil industry is unanimously perceived to be unsuccessful, inefficient, and corrupt. Downstream operations also in sharp contrast with the upstream sub-sector are dominated by state-owned enterprises, government regulation and price control. On the whole, Nigeria has been the worse for it. It has not always been this way.

How did we get to where we are?  Why are we not refining two million bpd of our production and creating refining 25,000 jobs? Should the world's 14th largest producer of crude oil be one of its largest importers of refined products? Is there a subsidy in the pricing of gasoline? Let us take a trip down memory lane and suggest some answers now and going forward.

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