Petroleum Distribution: Problem And Solutions

Project and Seminar Material for Business Administration and Management BAM

Petroleum Distribution: Problem And Solutions

Chapter One


1.1 Background Of The Study

It is evident that whenever more than person is involved in an activity or organization, there is bound to be friction. Since it has been established that occurrence of most rational activities involve people there is therefore need fro guidance in order to achieve the aims, goals and objectives.

Fuel shortage and their attendant distribution problems started in the later part of 1993 and were attributed to labour and political crisis of that year. Black market for petrol has come the order of the day. The market which thieves in the suburbs and the surrounding states does not require filling stations or fuel pumps. Petrol was sold in any type of container and as a free market prices. Against this background, the businessmen seeing that it is a brisk way of sharing money, no longer had to wait for the NNPC Depot to negotiate for supply of fuel and to bribe way through for supply. This is why many Nigerian experts in petroleum scarcity is the result of the crushing problem at the NNPC. The NNPC, inside sources confirm is not disposed towards refurbishing the refineries.

Another reason why local demand for petrol is easily dashed is the high incidence of smuggling of the products across the borders. Most NNPC officials agreed that Nigeria looses up to 600,000 liters of petrol through smuggling.

The curb smuggling, the pipeline and product marketing company, PPMC a subsidiary of the NNPC declare the volume of allocations to every state ahead of supply. The measure was to enable the government to monitor distribution of petrol in their states. At the end of the day, the governors administrator and the marketers will account for any diversion of petrol in their states. Indeed NNPC;s investigations has revealed that up to 30 percent of all fuel meant for local consumption is lost through smuggling. Today various state government including Enugu State have set up task forces at stem this destructive practice but even the soldier do not seem able to arrest the situation since whole tanker loads of fuel still disappear. As government seeks to correct the smuggling of petrol, the smugglers are ingenious in discovering new ways of circumventing the law. For instance, petrol is sold to these smugglers at odd times and the jerry cans of petrol are stacked in bags and covered with cloths or garri to evade task force officials. The story of problem of petroleum distribution cannot be complete mentioning the industrial action (strike) embarked by National Union of Petroleum and National Gas Workers, NUPENG and the Petroleum and Natural Gas Senior Staff Association of Nigerian, PENGASSON while led to their proscriptions. This strike action by NUPENG and PENGASSON served as a stepping stone for illegal dealer to rise to the top and scarcity of petroleum products nationwide. The network of the trade is so well coordinated and vast failed.

It was generally alleged that military helped many tankers loaded with the commodity often tries to be divested to other places other than the official destinations. The military personnel exhibit corrupt kills selling to their officers and collecting money from people. The military personnels involvement is also established, down the trade chain as most of them get their consignment in drums regularly from filling stations who sell at night father than during the day. The activities of black marketers have remotely affected the suppliers of fuel to many filling station in Enugu and across the country, long gueues are common right with motorists leaving their vehicles on queue for days an end. In view of these chronic problems and solution to that, out interest to the study in emanates.

1.2 Statement Of The Problem

  1. Diversion of petroleum product by the tankers drivers and smugglers.
  2. The illegal fuel peddlers and fuel hoarders
  3. The industrial action embarked by National union of petroleum and Natural Gas Workers peak of the business.

An army sergeant of Enugu was overheard saying that he makes an average profit of N3000 daily from illegal sales of petrol. He gets fuel from filling stations and other privileged sources of official rates an hands over to his boys to sell at exorbitant black market price.

The army sergeant wished that this crisis persists because his family has been able in recent times occasioned by this windfall to meet most of its long outstanding obligations. He thanks his God for his mercies because for over his 25 years in service, he had nothing to show for them. Now, thanks to fuel crisis, he has bought household items including coloured television, video recorder, fan, refrigerator etc in few weeks. This depicts that the trafficking of petroleum products has assumed the primary position of the most lucrative business in Nigerian where instant profits abound, many leave their means of livelihood to joint this illicit trade. Petrol has become liquid gold that yield dividend in leaps similar to drug trafficking. Most parts of Enugu have been dotted with spots (black-markets) where the business is daily transacted in broad daylight without fear of arrest by security operatives. The black markets have seized the opportunity offered by the industrial actions embarked upon then by the National Union of petroleum and Natural Gas Workers and the petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSON) which occasioned.

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Frequently Asked Questions

What are the main problems of petroleum industry?

The lack of a well functioning market determined pricing system, partly because of the lack of vibrant competition among the companies with diversified ownership, continues to constrain the performance of petroleum industry.

Why is the production of petroleum crude decreasing in India?

In India, the production of petroleum crude of existing old reserves has been shrinking due to normal technical reasons. The proved oil reserves in India constitute only 0.5 per cent of the world oil reserves (proved). At this present level of consumption, the proved reserves will be depleted within next 15 to 20 years.

Is India depending too much on foreign countries for petroleum supply?

Petroleum industry in India has been depending too much on foreign countries for the supply of petroleum crude and machineries. Total consumption of petroleum crude has increased to 146.5 million tonnes in 2006-07 as against the total production of petroleum crude of 34.0 million tonnes.

Why petroleum companies are not allowed to revise price of petrol?

Despite the surge of international prices of petroleum touching record level, the petroleum companies are not allowed to revise their market price of petrol and HSD accordingly and allowed only a limited freedom to revise the prices as per revised methodology. This has resulted a serious drain of the financial resources of the petroleum companies.

What are the major challenges faced by the petroleum industry?

The petroleum industries have always faced major issues in the disposal of oil residues generated from storage, processing, and transportation facilities.

What are the biggest risks for oil and gas companies?

Supply and demand shocks are a very real risk for oil and gas companies. As mentioned above, operations take a lot of capital and time to get going, and they are not easy to shut down when prices go south or to ramp up when they go north. The uneven nature of production is part of what makes the price of oil and gas so volatile.

What does the petroleum industry do?

The petroleum industry refines crude petroleum and processes natural gas into a multitude of products. It is also involved in the distribution and marketing of petroleum-derived products. Processes include: oil- and gas-field operations, gas plant processing operations, refining and refinery operations, and refining technologies.

How does the oil and gas industry affect the environment?

The oil and gas industry is a major consumer of water and energy resources and is therefore subject to increasingly stringent environmental standards. This constrains them to rethink extraction, production and distribution methods in order to obtain or maintain their licence to operate.

Is crude oil production down in India?

^ “Domestic crude oil production down 4.6% in January”. ^ “India’s crude oil production fell for the sixth straight year in 2017-2018 – ET EnergyWorld”. ^ “India records lowest crude oil production in at least 18 years – ET EnergyWorld”.

What happened to the price of crude oil?

The price of crude oil fell below the $100 barrel mark on Tuesday, after a two-week period which saw the cost rise to $139 per barrel, its highest level in 14 years. Brent crude gained on Wednesday to reach $102.7 per barrel, which is still up about 32 per cent from $78.11 per barrel at the beginning of the year.

What is India’s role in the global crude oil trade?

In such adverse situations, India has to proactively play a major role in global crude oil trade as swing oil producer by using its limited crude oil production base to bring down the high price of crude oil fixed by OPEC+ and the Big Oil. International crude oil prices vary steeply for a small mismatch between global supply and global demand.

Is India’s crude oil production on slippery slope?

India’s crude oil production on slippery slope”. ^ “Domestic crude oil production down 4.6% in January”. ^ “India’s crude oil production fell for the sixth straight year in 2017-2018 – ET EnergyWorld”.

Does India import petroleum or crude oil?

Now the question is does India import Petroleum or crude oil ? The answer is India only imports crude oil and the crude is refined in India into useful products such as petroleum , gasoline, diesel fuel, asphalt base, heating oil, kerosene, liquefied petroleum gas, jet fuel and fuel oils.

How does crude oil affect India’s foreign exchange?

India is heavily dependent on crude oil and LNG imports with 82.8% import dependence for crude oil and 45.3% for natural gas/LNG. The net foreign exchange outgo is 63.305 billion US$ in the financial year 2017-18 on account of crude oil imports.

How much crude oil and natural gas does India have?

As on 31 March 2018, India had estimated crude oil reserves of 594.49 million tonnes (MT) and natural gas reserves of 1339.57 billion cubic meters (BCM). [1] India imports 82% of its oil needs and aims to bring that down to 67% by 2022 by replacing it with local exploration , renewable energy and indigenous ethanol fuel . [2]

Which countries rely the most on oil as a fuel source?

Countries where fuel accounts for more than 90% of total exports include Algeria, Azerbaijan, Brunei Darussalam, Iraq, Kuwait, Libya, Sudan and Venezuela. Image: Bruegel. For an idea of which economies rely most heavily on oil, this chart using 2012 World Bank data shows oil revenue as a share of GDP.

Why do petrol prices keep hiking?

Petroleum, being a fossil fuel, is a scarce resource with high global demand. As a result, petroleum prices keep hiking as some oil wells dry out. Recent statistics indicated that we have already utilized over half of the oil reserves in the world.

When did petrol prices shift to daily revision?

It shifted to daily revision in fuel prices from June 16, 2017 to reflect market dynamics in pump rates. While global price trends of petrol and diesel an impact on retail prices at petrol pumps, it is largely dictated by crude oil trends globally.

Will India raise excise duty on petrol and diesel?

(Update: India raised excise duty on petrol and diesel by Rs 3 per litre on 14 March, but there won’t be a retail price increase as falling crude prices will absorb this duty hike). Crude oil prices are falling globally.

Will crude oil price drop affect petrol and diesel prices in India?

Crude oil prices are falling globally. And that should theoretically have a direct impact on the prices of petrol and diesel sold in India. While prices of fuel have dropped in the past few days, the lowering in price has not been proportionate to the fall in crude oil prices, despite it being “market-linked” now with a daily revision in prices.

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