With reports of lower diesel inventories reported in Europe, alongside claims that Russian oil refiners have started to cut back on refinery throughput due to sanctions, there are concerns that the price of the product may become inaccessible for many Nigerian businesses and homes.
Until last weekend when the prices of diesel eased due to a fall in oil prices, diesel was sold for almost N800 per litre, forcing an outcry from both the rich and many business concerns.
With inventory concerns and a gradual return of oil rally, the price of diesel may skyrocket again, with implications for higher inflation.
According to experts, distillate production will have to be raised above consumption for a period to rebuild stocks to a more comfortable level.
Yesterday, agency reports revealed that Europe’s diesel shortage was becoming worse as Russian oil refiners had started to cut back on refinery throughput, citing the chief executive of one of the world’s largest independent commodities trading houses, Gunvor.
“This is a global problem but for Europe, it’s very hard because Europe is so short” of diesel, Gunvor CEO, Torbjorn Tornqvist, said at the Financial Times Commodities Global Summit.
The price of diesel rose from N300 at the beginning of the year to over N700 per litre, putting the cost beyond the reach of producers.
The impact of the price hike has been worsened by the collapse of the electricity supply in the country. Within two days, the national grid collapsed three times, throwing almost the entire country into darkness.
Should this continue, experts said most goods and services in the country would either disappear from the suppliers or get out of reach for the ordinary people as the producers pass the rising costs to consumers.
Russia’s invasion of Ukraine and the subsequent boycott of Russian fuel threaten to make diesel shortages worse. Already, actual or potential fuel shortages have been reported in France, Germany, Hungary and Sweden.
In the United States, the situation remains grave. There, diesel fuel inventories are 21 per cent lower than the pre-pandemic five-year seasonal average, which translates into 30 million barrels.
In Singapore, a global energy trade hub, diesel fuel inventories are 4 million barrels below the seasonal five-year average from before the pandemic.
Trade with Russian diesel is becoming scarce because of buyers in Europe steering clear of Russian shipments, awaiting further sanctions against Russia over its invasion of Ukraine, or simply declining to purchase Russian energy to finance Putin’s war in Ukraine.
The “self-sanctioning” of the buyers has already started to force Russian refiners to reduce production, according to Gunvor’s Tornqvist.
President of Premium Bread Makers Association of Nigeria, Emmanuel Onuorah, had urged the government to reverse the price of diesel or face a shutdown.
Onuorah said all their machines such as the mixer, oven and other machines are powered by diesel.
Another economist and CEO of Centre for Promotion of Private Enterprise (CPPE), Dr Muda Yusuf had, earlier said the way out of the continuous rise in the price of refined petroleum products in Nigeria was to revisit the reforms of the oil and gas sector, stressing the need for a complete liberalisation of the petroleum downstream sector.
According to Yusuf, the NNPC cannot continue to attempt to provide the fuel needs of the entire country, as it is not sustainable.
“This approach would consume the entire revenue of the government,” he said.
The expert pointed out the high and increasing cost of diesel is compounding an already difficult situation for many investors as most firms still depend on diesel generators to power their operations in the face of epileptic electricity supply.
The Manufacturers Association of Nigeria (MAN) had equally warned that the current diesel price challenge could spell doom for many companies that have been struggling to survive under the burden of high energy cost.
MAN said feedback from its members indicated that production capacity utilisation was going down due to the unsustainable cost of running daily production on diesel.
“Unfortunately, manufacturers who largely rely on diesel to run their factories due to the unreliable nature of the grid power supply, are contending with a huge cost to sustain their production line.
“The direct implication of this trend, as many Nigerians are already feeling the heat, is the reflective high cost of goods in the market owing to the high cost of production,” Director-General of MAN, Segun Ajayi-Kadir said.
Truck owners operating in the nation’s maritime industry have equally lamented the government’s neglect and disregard for haulage operators, threatening that an increase in the cost of cargo movement is imminent.
The truck owners lamented that the maritime sector has not been extended the same treatment given the aviation sector.
They said the Federal Government is constantly in dialogue with the aviation industry over the increase in aviation fuel while truck owners, who are battling the soaring cost of diesel, have been neglected.